Cryptocurrencies have become an integral part of many American lives. This is the reason the country is one of the most favored countries for crypto traders, investors, users, developers, and enthusiasts. The crypto regulations are now in the limelight because both the federal and state governments are engaging with agencies to control the crypto sector. A proper regulatory framework by removes legal ambiguities can benefit cryptocurrency companies launching ICOs. Therefore, for every new company dealing with blockchain, cryptocurrencies, and other decentralized finance (DeFi) related products, it is necessary to be aware of the regulations.
Common Aims of Crypto Regulations
There are diverse opinions on whether framing crypto regulations is the appropriate method to supervise crypto activities or not. However, there are common aims of crypto regulations in the US that match with some other countries. These include:
- Protect investors against scams, market manipulations, and illicit trading activities.
- Improve and facilitate interoperability among different blockchains
- Have clear cryptocurrency tax rules to avoid confusion
- Boost investor confidence by encouraging more market participation
- Reduce systemic risks with better monitoring
- Encourage innovation
- Prevent illicit activities such as terror financing and money laundering
- Make cryptocurrencies more accessible to people and encourage financial inclusion
Crypto Landscape in the US
The crypto landscape in the US is not yet defined. Therefore, the landscape is constantly evolving. Several federal agencies treat digital assets differently based on their institutional assessments. Unlike other countries, the lawmakers play a more active role in framing regulations and each state has specific prohibitions and permissions.
3 institutions determine the legality of cryptocurrencies and interpret it accordingly. These are the Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS), and the Commodity Futures Trading Commission (CFTC).
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Opinion of SEC on Cryptocurrencies
The SEC classifies cryptocurrencies as “securities”. The agency supports clarity on investor protection and wants all donations to qualify as investment contracts. The SEC’s biggest positive contribution to cryptocurrencies is that in January 2024, it approved 11 spot Bitcoin exchange-traded funds (ETFs).
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Opinion on CFTC
The CFTC, unlike the SEC, regards cryptocurrencies as “commodities”. They support the idea that cryptocurrencies are commodities just like gold, silver, and oil. Furthermore, they are also keen to support future contracts and regulate the active markets.
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Opinion of IRS
The IRS classifies cryptocurrencies as property just like other digital assets. This essentially implies that every purchase, trade, and sale of cryptocurrencies is potentially taxable and there is provision of capital gains tax. The stance of the IRS has remained unchanged since 2014.
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Bottom Line
The debate surrounding the regulation of cryptocurrencies in the United States is still ongoing, but once enacted, the impact of regulations can have far-reaching implications. If crypto regulations are rational, then they can boost the growth of the cryptocurrency sector and fulfill the aspirations of many investors. Conversely, if the crypto regulations are highly restrictive, then they can stifle financial freedom and adversely affect the industry’s growth prospects. However, the common aims of cryptocurrency regulations are undoubtedly going to be helpful and boost the investment prospects of newer crypto companies.