Beyond the Hype: A Practical Approach to CryptoReg

Abstract

Most regulatory action related to cryptocurrencies is primarily aimed at preventing scams, illicit uses, and market manipulation. Although the technology that underlies cryptocurrencies is groundbreaking, these regulatory concerns are not. Nonetheless, regulators have struggled to fit cryptocurrencies into their preexisting legal frameworks. For a time, it seemed that cryptocurrencies would be classified by the Commodity Futures Trading Commission (CFTC) as a commodity, by the Financial Crimes Enforcement Network (FinCEN) as a form of money, and by the Internal Revenue Services (IRS) as property. Meanwhile, the Securities and Exchange Commission (SEC) had determined that the two most well-known cryptocurrencies, Bitcoin and Ether, were not securities. In December of 2020, however, the SEC filed an enforcement action against Ripple Labs for issuing XRP, a cryptocurrency that the SEC deemed a security. Although the future of the Ripple lawsuit is uncertain, the SEC’s unexpected action reveals the need for regulatory clarity for cryptocurrency markets. The time has come to develop a regulatory plan for cryptocurrencies that will not only provide clarity and address legitimate concerns but also allow for the continued development of cryptocurrencies. This Article proposes to minimize the SEC’s oversight of cryptocurrencies and suggests statutory amendments that would 1) strengthen the authority of the CFTC and FinCEN to effectively oversee cryptocurrency markets and 2) modernize tax policy to enable the development of cryptocurrencies as a viable payment method.

Keywords: Cryptocurrency, security, commodity, regulation, money