As the United States and other globalized economies begin to warm to the idea of cryptos, the approaches of various government agencies tasked with regulating these new types of assets have been inconsistent. Stuart Alderoty discussed this issue in his CNN Business article The Current State of Crypto Regulation is Hurting US Companies. Alderoty writes:
“The Internal Revenue Service taxes them as property. The Commodities Future Trading Commission oversees virtual currencies as commodities. The Securities and Exchange Commission believes that, in some cases, they may be securities as they use a nearly 75-year-old Supreme Court case to determine whether certain digital tokens are securities. And cryptocurrencies must also contend with state regulatory regimes.”
Recent hearings on cryptos:
Although the U.S. government has been slow to respond to this incoherence, recent steps have been taken to understand these new markets and how best they can be regulated. The United States Senate Committee on Banking, Housing and Urban Affairs conducted a hearing on July 30, 2019, titled “Examining Regulatory Frameworks for Digital Currencies and Blockchain,” which featured prominent experts on blockchain, international trade, banking and law. Although it seemed the committee was interested in learning about cryptos writ large, Facebook’s announced implementation of its own currency, Libra, was the focal point of the hearing.
Senator Sherrod Brown kicked off the proceeding by stating:
“At this committee’s hearing earlier this month, many of us of both parties voiced serious concerns about Facebook’s plan to run its own currency out of a Swiss bank account. And by and large, we mostly heard deflections and dodging. It’s exactly what we mean when we say Facebook doesn’t understand accountability. Facebook has proven over and over, through scandal after scandal, that it can’t be trusted. But they don’t care. They move fast and break things – things like our political discourse, journalism, relationships, privacy. Now they want to break our currency and payment systems, hiding behind the phrase ‘innovation.’”
Brown finished his opening statement by remarking,
“It’s a reminder that some infrastructure works better as a public good, and we shouldn’t let Big Banks or Big Tech get their hands on it. The Federal Reserve and other watchdogs need to continue to be leaders in banking innovation. And if we don’t move quickly to improve important infrastructure—not just roads and bridges, but our payments system—we’ll end up with big corporations that have broken our trust over and overdoing it—and frankly I don’t think that makes any sense.”
Evolution of issues surrounding cryptos:
While Senator Brown’s trepidation surrounding these new types of assets is hardly uncommon, the industry continues to grow and evolve. As a counterpoint to the United States’ glacial pace on this issue, New Zealand will legally allow companies to pay salaries in cryptos beginning on September 1, according to a Financial Times report from August 12, 2019.
In conclusion, I believe the U.S. needs to figure out the following issues surrounding cryptos as soon as possible:
- Whether or not to allow Facebook to introduce Libra on its existing platform
- How to declare virtual assets in terms of federal taxes and trading commissions
- Whether or not to allow salaries and other official payments to be made in Bitcoin or other cryptos
- Whether or not to establish a federally regulated crypto trading platform
- How to root out potential criminality (especially money laundering) via crypto
Potential fallout from inaction:
In my view, if the U.S. government does not take aggressive steps to lead on these issues, the void will be filled by other governments or more likely, outside players that would only operate from a position of self-interest instead of a focus on global financial stability and transparency. As the world’s largest economy, we cannot allow that to happen.
Written by Taylor Maier
Associate Manager Regulatory & Analytics Solutions