Cryptocurrency is becoming an increasingly important tool in global economics. Traders are jumping on the crypto bandwagon in an attempt to capitalize on its famous volatility, enterprising entrepreneurs are using digital contracts to underpin new businesses and new ICOs are appearing on the scene literally every week.
Across the globe, governments and regulators are debating how they should react to this new global phenomenon. Some are diving in at the deep end, looking to set up their own digital currencies, a move broadly supported by the IMF, while others are taking a King Canute approach and attempting to halt the incoming tide.
Private investors, meanwhile are seeking to make hay while the sun shines. The anonymity of cryptocurrency and the vagaries from a regulatory standpoint have prompted early adopters to open a broker account and make a quick killing while they can. So where do the major regulators currently stand on crypto?
The IRS considers bitcoin and other cryptocurrencies to be property and says they must be treated accordingly. In other words, any capital gain (or loss) must be recorded like a property exchange. Bitcoin held in a digital wallet for resale should be considered as inventory, and those using it for payment should treat it as currency, but converted into USD at a fair market value taken from a recognized exchange.
The Securities and Exchange Commission has taken a number of steps over the past year, all of which would seem to be efforts to thwart the trading of cryptocurrency investment products. The official line from the SEC is that it will not approve cryptocurrency ETFs or other cryptocurrency assets for trading or listing. It is worth noting that there are constant efforts to introduce new digital currency related ETFs into the US market, and the SEC’s consistent moves to block them suggest a desire to retain as much control as possible.
The Commodity Futures Trading Commission categorizes cryptocurrency as a commodity, and therefore says that any fraudulent action or manipulation falls under its purview. This is power that it is not afraid to wield, a fact brought into sharp focus by the recent Joseph Kim scandal. The CFTC’s role in crypto regulation will become even more important when the long awaited Bakkt platform finally launches in January 2019.
The Treasury Secretary Steven Mnuchin has been vocal in his opinion about cryptocurrency. And it is fair to say that his view is not a positive one. Mnuchin is concerned that crypto’s anonymity brings the potential for fraud, tax evasion and even organized crime or terrorism. Beyond the hyperbole, though the Department of Treasury is doing little beyond keeping a watching brief.
So much for federal regulation. At the state level, Arizona, Delaware and Vermont have taken steps to approve and promote the use of cryptocurrency. Arizona has approved the use of smart contracts, Delaware has passed laws allowing company shares to be registered in blockchain form and Vermont recognizes blockchain as a type of admissible evidence.