Finance

Regulatory Clarity Will Ensure American Crypto Leadership

The recent fight over a crypto regulation provision in the bipartisan infrastructure bill proves that digital currencies, like many emerging technologies, are misunderstood and often vilified based on false assumptions. Policymakers seem convinced that cryptocurrency is an unregulated “wild west” — when in reality, the crypto economy operates under a comprehensive regulatory framework.  

However, much of that framework is outdated and not tailored to the new realities of global digital asset networks. Rather than slapping together overly broad new rules, policymakers should work with the crypto industry to create nimble and responsive regulations that catalyze American digital currency leadership.

Cryptocurrencies have been regulated since their advent over a decade ago. All cryptocurrency exchanges are required to get a license from the Financial Crimes Enforcement Network and are obligated by law to monitor and report any suspicious activities that may occur. These organizations are also subject to state money transmission regulation. The Commodity Futures Trading Commission has jurisdiction over fraud and manipulation in crypto spot markets. Additionally, several federal agencies have issued guidance on how crypto should operate: FinCEN in 2013 and 2019, the Internal Revenue Service in 2014 and the Securities and Exchange Commission in 2019 

It is patently false to suggest that crypto is not subject to regulatory accountability. What is lacking, however, is a sense of direction and clarity from the government that would make it efficient for crypto to comply with these regulations. 

Guidance from federal agencies is perfectly fine, but guidance doesn’t have the force of law, and it tends to create more questions than answers. For instance, recent SEC guidance is primarily focused on how the agency will punish crypto entities for violations, but it provides few tangible rules of the road for crypto players to follow moving forward. This has a chilling effect on industry growth, as innovators may be hesitant to operate in the United States for fear of unwittingly falling into the SEC’s crosshairs.  

Also, agency guidance isn’t an open process. Crypto is a fast-growing and economically significant industry, so it is important that all stakeholders have an opportunity to comment and engage with regulators to ensure the best policies for all involved. The best way to do that is through congressional action. 

Unfortunately, Congress has so far taken an impractical approach to crypto regulation, as it demonstrated with the bipartisan infrastructure bill. Rather than take the time and engage with crypto experts, Congress tucked an onerous IRS reporting provision into the bill at the 11th hour. Rather than clarify anything, this slapdash provision will only create more uncertainty and hinder American innovation in this growing industry.

That members of Congress would surreptitiously impose strict new rules on crypto highlights an unfortunate truth: They may think the industry will resist any efforts at new regulations. This fear is misplaced. The industry stands ready and willing to engage Congress on a variety of new regulations that ensure fairness and legal compliance, while fostering robust growth and job creation in the crypto space. 

If Congress works with the industry to craft legislation that lays out clear regulations and processes, while taking away red tape and uncertainty, the crypto industry will be empowered to grow and thrive. We can work together to reduce the tax reporting burden on customers who use crypto, ensure that crypto entities aren’t burdened with impossible rules and give crypto entities equal access to important financial services. 

History shows that novel technologies – from the automobile to the internet – are often met with confusion and mistrust when they come out, and cryptocurrency is getting the same treatment. However, the industry stands ready to work with Congress to clear up misconceptions and pass clear, commonsense regulations that will allow the crypto industry to innovate and drive American crypto leadership for years to come. 

 

Kristin Smith is the executive director of the Blockchain Association, the Washington, D.C.-based trade association representing the most prominent and reputable organizations in the crypto industry. 

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