Is Virtual Currency regulated? Is the question on everyone’s lips. The answer is a resounding yes. In fact, the Federal Reserve System is preparing to regulate VC. A new law introduced in Congress, S.B. 1601 (2019 Leg., Reg. Sess.), will clarify what virtual currency is and require money transmitters to hold a specified amount of the digital currency.
The South African Reserve Bank recently released a consultation paper on the regulation of virtual currency. The Reserve Bank acknowledges that virtual currencies are an emerging technology and recognizes the need for regulation, but cautions that such a move would endanger consumers and hinder the growth of the industry. In the meantime, they plan to establish a registration scheme for providers of virtual currency services, including exchanges and wallet providers. They also recommend that VCs retain their status as non-legal tender.
The United States Federal Trade Commission recently published model legislation to regulate VC businesses. Although the act does not fully implement its provisions, it includes important requirements for preventing misuse of the digital asset. The proposed regulations for VCs include financial and AML/CFT standards for exchanges and storage services. The United States Attorney’s Office recently filed a forfeiture complaint in Manhattan federal court in conjunction with Ulbricht’s arrest on the Silk Road 2.0 drug marketplace.
The FATF recently published a report recognizing the potential risks of using virtual currency, including AML and terrorist financing. While the report cites several examples of key laws regulating VCs, the CFPB’s consumer advisory on VCs was released on August 11, 2014 and a number of states have also issued consumer advisories. In the meantime, there are no formal regulatory guidelines for virtual currencies.
The VC industry is not regulated by any government. However, many jurisdictions are attempting to regulate the use of virtual currencies, and some have made it legal. In the United States, bitcoin is legal tender in El Salvador. Despite the lack of regulation, the Federal Election Commission endorsed this Advisory Opinion in May 2014. Those who support the cryptocurrency industry in the United States should consider these laws. The regulations should be able to protect the public’s interests.
While VCs are not regulated per se, there are laws that apply to ICOs. In the United States, the Securities and Exchange Commission is the state’s regulator. While most ICOs are not regulated, the US securities regulators have said that some tokens can be regarded as securities. Thus, the CFTC has no authority to regulate VCs. It is up to the state legislature to decide whether it is appropriate to regulate the cryptocurrency.
While the U.S. Senate has not yet implemented a full Regulation of Virtual Currency Businesses Act, it has endorsed the model regulation. Hawaii has adopted the UC’s version of this legislation. The American Bar Association has also endorsed the bill. A comprehensive regulatory framework is required for VCs to prevent fraudulent activity. The SEC wants to make sure that every state respects the law. So, is it regulated?
In the U.S., a resolution in the House of Representatives calls for the United States to study the regulation of VCs. The resolution will include a definition of virtual currency that is broader than current state laws. Unlike traditional currencies, it’s not regulated by any central authority. Further, the U.S. is not the only country to adopt a full regulation of VCs. It’s important to consider the legality of a particular jurisdiction when investing in virtual currencies.
While there is no federal law, some states have issued opinion letters and guidance. The Massachusetts Department of Banking, for example, has a resolution requesting that the Department of Financial Institutions study the regulation of virtual currencies. Its pending resolution aims to define “virtual currency” broadly and to ensure that licenses are issued to those operating these services. Further, a CFTC resolution may be the most appropriate place to see the CFTC’s position on VCs.
The Russian government is pursuing its own legislation on VCs. As of 2018, 31 states are working on regulating these cryptocurrencies, including: The IRS has determined that virtual currencies are property. Therefore, users of VCs must track their gains and losses. The Tax Foundation, however, claims that the IRS got it wrong by categorically classifying VCs as property and has ignored their use. Because of the pseudonymity of VC accounts, a user can hide funds from authorities and evade taxes.