What (exactly) is a cryptocurrency? The feds want to know
From Tama Churchouse, Editor, Crypto Capital:
At some point in every cop drama movie you’ve ever seen, there’s the inevitable scene where competing law enforcement agencies clash over “jurisdiction”… especially when it’s a particularly juicy crime.
I’m talking about that scene when the feds muscle in, pushing out the local police… and it typically comes with a bit of cursing, a little back-and-forth between everyone at the scene of the crime, and eventually a weary police chief telling his guys that “sorry fellas, it’s out of my hands, the feds have got this one”.
The spurned local beat cop hero then ignores the chief, and goes to work on the case anyway… before he’s dragged back into the Chief’s office at some point and told “I said leave it alone goddammit!”
Like I said, it’s part and parcel of every cop drama.
Crimes in cryptoland
If you take a trip over to cryptoland these days, there’s nothing but drama – and you’ll see a familiar (albeit cliched) narrative playing out.
Make no mistake, there have been plenty of crypto crimes committed amongst the thousands of initial coin offerings (ICOs) that have taken place over the past 12 months, some of the, singularly salacious. As a result, there’s a spate of jurisdictional jostling going on amongst various government agencies over who gets to lead the regulatory charge.
First off, in the U.S. we’ve got the Securities and Exchange Commission (SEC), headed by chairman Jay “every ICO I’ve seen is a security” Clayton (aka Eliot Ness, if we’re going to keep with the movie metaphor).
Clayton is in no doubt that cryptoland crimes fall under his purview. And with news filtering out recently that dozens of subpoenas have been issued over the past few months to blockchain companies conducting ICOs, it’s clear that Clayton is looking to stake his claim.
But don’t expect other agencies to stand back. They want their fair share of the action.
Earlier this week the Financial Crimes Enforcement Network (FinCEN), a department of the U.S. Treasury tasked with analyzing financial transactions to combat money laundering, terrorist financing, and financial crimes, released a letter sent to a U.S. senator last month that outlined that it viewed those involved in selling ICO tokens (both developers and crypto exchanges) as subject to FinCEN regulation, stating:
In other words, if you conduct an ICO then you’re a “money transmitter”. I can only speculate, but my guess is there are more than a few ICOs that haven’t registered with FinCEN as a “money transmitter”. Likewise plenty haven’t done KYC (know-your-customer) checks on their token sales either, so with this FinCEN interpretation they could technically be charged with a felony.
At the risk of this crypto crime drama turning into a comedy caper, a U.S. district judge just ruled that virtual currencies are “goods exchanged in a market for a uniform quality and value” and hence “can be regulated by the CFTC [Commodities and Futures Trading Commission] as a commodity”.
And then on top of that, we have the Internal Revenue Service (IRS), the U.S. tax service, that treats virtual currency as “property” for U.S. federal tax purposes.
So depending on which agency you look at, when it comes to crypto you’re either dealing with a security, a commodity, money, or property.
There’s a huge amount of regulatory overhang left to play out. I’ve got no doubt that the SEC in particular will end up taking some prominent scalps, not only those of enterprises that have issued crypto, but of the lawyers and advisors who’ve ushered them towards to darker end of the grey spectrum that exists in crypto law (it’s not all black and white… plenty of cryptos operate in the grey areas).
As a result, we should expect plenty of volatility and be braced for a few more knocks to the market as the industry works through this period. Ultimately, regulatory clarity will pave the way for institutionalization of the space, and with that will come a lot more institutional money.
In the meantime, choppy seas ahead.
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