A law professor in the United States has reached the unavoidable conclusion regarding the climate of cryptocurrencies in the country. The academic asserted that regulatory crackdown is crippling the digital asset sector. Professor Carol Goforth with the University Of Arkansas School Of Law asserts that:
“Overlapping regulations by a multitude of agencies in federal and state systems with different priorities and missions has resulted in a “confusing mix of the classification and requirements” for digital assets.”
To emphasize her point, Professor Goforth indicated that there are four separate federal regulatory agencies in the country tasked to regulate virtual assets to a certain level at least and form. These regulatory bodies include the Securities and Exchange Commission (SEC), the Financial Crimes Enforcement Network (FinCEN), the Commodity Futures Trading Commission (CFTC), and the Internal Revenue Service (IRS).
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Perceived Lack of Harmony
Consequently, the federal financial regulatory agencies have their own varying definition of what a crypto asset is. This shows confusion and complexity, which indicates a more serious issue, which is a lack of harmony among these institutions. For example in its regulatory role, the Securities and Exchange Commission assumes the issuance of new virtual assets makes them securities.
While the Commodity Futures Trading Commission, on the other hand, assumes all digital assets are commodities although the IRS sees cryptocurrency as property. In contrast, to the above three bodies, FinCEN refers to crypto exchanges as “money” exchangers, which effectively leads to the bottom line that the United States Department of the Treasury bureau sees digital currency as a traditional fiat currency.
Hence, the varying definitions given by each agency results in overregulation because each entity has its requirements, which has to be met. This makes trying to comply with the countless regulatory obligations an expensive and time-consuming endeavor for the players in the digital asset sector.
More Nuanced Regulatory Approach Needed
The situation even gets worse looking at the state level because every state has its own tax regimes and securities laws. Currently, only a small number of states have determined that virtual assets shouldn’t be deemed as state securities. According to Goforth, the only way forward is to implement a regulatory approach that will be more nuanced to avoid overregulation.
U.S Based Exchanges are Dropping Off the Radar
The existing regulatory system in the United States seems to have limited the number of digital coins that exchanges like Coinbase can offer their customers. In contrast, a digital currency exchange like Binance, which has its headquarters in a friendlier jurisdiction, can boast of dozens of supported tokens on its platform.
The U.S. regulatory system has also negatively impacted ICO issuance. According to CCN, earlier this year, a large number of projects boycotted the U.S. and chose to issue their ICOs in jurisdictions like Singapore, the Cayman Islands and the Virgin Islands.
CCN, a news outlet, reported earlier this year, based on a research by Satis Group Crypto that 2017 saw the U.S corner 32% of the worldwide ICO market. However, that percentage has declined drastically to 10% since Q1 this year.