Cryptocurrency legislation in the United States still has a long way to go.
In fact, no major federal laws have been created to regulate the cryptocurrency industry. Some states have been working on their own legislation, but federal law enforcement bodies have had to take their pick of which existing laws to apply – sometimes to confusing ends.
The lack of decisive action certainly doesn’t mean that legislators aren’t working towards creating some kind of legal framework for the cryptocurrency industry. Congress originally held a hearing with Jay Clayton and Christopher Giancarlo, chairmen of the SEC and CFTC respectively, in March. Two more hearings took place in late July.
While increased regulation may seem like a bad thing for the industry on the surface, investors and executives alike widely believe that increased regulation in the cryptocurrency industry is a positive thing. After all, the Wild West days of the sphere left many investors burned, and gave the crypto market a bad reputation.
Self-Regulatory Bodies Take the Lead
In fact, some of the crypto industry’s largest participants are actually the loudest voices calling for cryptocurrency regulation. In the absence of legal structures, crypto companies around the world have taken to forming self-regulatory bodies. eToro, Coinbase UK, and several other major UK-based firms formed CryptoUK earlier this year, while Bitcoin billionaires Cameron and Tyler Winklevoss launched the Virtual Commodity Organisation in the US in August.
Some companies have taken their quest for legislation a step further–in July, Coinbase created a political action committee (PAC) to lobby Washington lawmakers into creating laws that will support the crypto industry. PACs are organizations that raise and spend money on behalf of a political campaign. The exact intentions of the new Coinbase PAC are not yet known.
While Coinbase’ PAC may be the mostly widely talked about pro-crypto PAC to ever hit Washington, it’s certainly not the only one. In fact, public reports show that pro-crypto PACs and lobbyists have been present on Capitol Hill since at least 2014: CNN reported that Coinbase gave $3000 to a pro-crypto PAC known as ‘BIT PAC’ that year.
Education Before Legislation
Also in 2014, the Bitcoin Foundation hired Thorsen French Advocacy, a DC-based public policy firm. At the time, the foundation’s global policy counsel Jim Harper said in a statement that “the lawmakers and regulators who have studied Bitcoin take the sensible position that government should seek its benefits and mitigate its risks.”
“We’re carrying this message to Capitol Hill so the Bitcoin community can focus on building tools and services that enrich and improve people’s lives around the world,” he added. “The goal is to clear the decks, clear the way, so that the bitcoin community, businesses and people can build the services, expand out to more and more people the world over, and really deliver on the benefits that bitcoin promises.”
Falcon Global Capital co-founder Brett Stapper was also reported to have filed paperwork to lobby for cryptocurrencies in 2014. His goals were similar to the Bitcoin Foundation’s: “To educate these elected officials and to offer them guidance on how to accept Bitcoin contributions. If we can be successful with these efforts, we feel the Bitcoin ecosystem could be greatly impacted,” he told Business Insider. Stapper also expressed concern that without proper education, the crypto industry could be stifled by the wrong kind of regulations.
The Chamber of Digital Commerce, a non-profit with the self-described goal of “[developing] an environment that fosters innovation, jobs and investment” through “education, advocacy and working closely with policymakers, regulatory agencies and industry,” was also formed in 2014.
We’re excited to announce the @DigitalChamber has expanded its policy team to continue driving its #blockchain initiatives. Welcome @AmyDavineKim & @paulbrigner to their new positions! https://t.co/z9cfdBKEAA pic.twitter.com/GdBGqWMWWi
— Chamber of Digital Commerce (@DigitalChamber) August 28, 2018
Several other organizations have been formed since 2014, including the Congressional Blockchain Caucus. Founded in 2017 by David Schweikert (R-Arizona) and Jared Polis (D-Colorado), the bipartisan lobbying group works to engage with and educate lawmakers, with the aim of creating a supportive regulatory approach for the blockchain industry.
But how effective are these advocacy groups?
Federal Regulation May Not Happen Anytime Soon
So far, the answer to that question is ambiguous–after all, no major political action has been taken against cryptocurrencies. However, nothing has really been done for them, either; at least, not on a federal level.
This may be because of the education-before-action approach that many of these organizations are taking.
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Indeed, in an exclusive email to Finance Magnates, Arnold Spencer pointed to legislators’ apparent lack of sufficient technical knowledge as one of the major contributing factors to the lack of legislative action. “One pertinent takeaway from the Facebook investigation was how much Congress still has to learn about technology in general before they can start to thoughtfully consider any sort of regulations on cryptocurrencies,” he said. Spencer is the General Counsel for Coinsource and the former Assistant United States Attorney in the Eastern District of Texas.
Spencer added that his “general impression is that the U.S. will not adopt any sort of comprehensive regulation for cryptocurrencies any time in the near future.”
Indeed, educating lawmakers about cryptocurrency and blockchain technology is one of the fundamental goals of any industry organization that has interactions with them.
The Self Regulatory Organization Approach Has ‘Worked to Protect and Police Other Markets’
For example, “the SRO (self-regulatory organization) approach has historically worked to protect and police various markets,” wrote Cameron Winklevoss in a Medium post. “The National Futures Association is an SRO for the U.S. derivatives industry and is a model for how the VCA can work together with the CFTC to provide additional oversight to virtual commodity cash markets.”
“Relatedly, our federal government is generally concerned about inadvertent consequences from regulating emerging technologies,” he continued. Spencer argued that therefore, it’s more likely that incremental actions will be taken by individual regulating bodies one at a time, noting that “the IRS, SEC, and CFTC have already started this process.”
Indeed, these smaller regulatory bodies seem to have taken the lead in cryptocurrency regulation. Brave New Coin reported that the tone of the congressional hearing with Clayton and Giancarlo seemed to imply that “policymakers are happy to wait and see how the cryptocurrency ecosystem evolves and leave the regulation up to financial regulatory bodies.”
However, allowing these bodies to operate somewhat independently of one another has created regulatory confusion in the past.
In March, the SEC made statements implying that all ICO tokens were securities; at the same time, FinCEN published an open letter implying that cryptocurrencies were required to abide by general money transmission laws. Shortly after that, a federal judge in New York ruled that ICO tokens can be legally classified as commodities.
What a nightmare this is. SEC says “all ICOs” its seen are sales of securities, but FinCEN says they are “generally” money transmission.
But by law, they can’t be both.
— Marco Santori (@msantoriESQ) March 6, 2018
While the Federal Government Lags Behind, States Move Forward
On the other hand, a growing number of states are taking action on regulating cryptocurrencies–either positioning themselves as possible industry hubs or attempting to keep their citizens safe from the associated risks.
For example, Nevada has banned blockchain taxes, and Arizona and Tennessee have declared that they recognize smart contracts as legal documents. On the other end of the spectrum, businesses in Hawaii are not allowed to transact with Bitcoins, and West Virginia has placed strict restrictions on the use of virtual currencies within its borders.
New York state is perhaps the most advanced in its cryptocurrency industry regulation. The state introduced its BitLicense program in 2014, although the program has since been widely criticized for locking smaller startups out of the industry.
Changes in Tech Could Make Slow Regulations a Positive Thing
Despite the progress of these states and the efforts of the advocacy groups, it still seems as though the industry won’t see comprehensive regulation from the United States federal government for years.
While this may create confusion in the short term, some experts argue that it could actually be a positive thing in the long term. Kathryn Haun, professor at the Stanford Graduate School of Business and board member at Coinbase and HackerOne, pointed out at a conference in May that if regulation had come out in 2016, the rise of ICOs would have made it already outdated.
“It’s important to wait and see how the technology develops,” she said.