Recent events have shown that regulations are having an increasingly negative impact on cryptocurrency. More regulation means more restrictions, which is definitely not what most people want for their investments.
Just this past week, South Korea announced that they would be implementing strict regulations on cryptocurrencies. This includes limiting access to them, making it difficult to exchange crypto for fiat currency, and even creating special taxes on profits made with them.
This comes after China banned all forms of cryptocurrency earlier in the year. While some may consider these steps as helpful in preventing fraud or stealing, many believe that they are simply putting up barriers to invest in cryptocurrency.
The problem with this is that there are already too many regulatory hurdles when investing in cryptocurrencies. There’s just no need to make things worse! By regulating cryptofinance products, we risk slowing down innovation and investment in the field.
Fortunately, there are ways that you can remain neutral while still protecting yourself from potential risks. In this article, we will discuss some easy ways to do so.
The Securities Act of 1933
Before we talk about how regulations impact cryptocurrencies, let us take a look at what regulation actually is. Regulation is not something that happens suddenly; it’s a process. It takes time to go through all the steps towards legislation, and even then, different countries will handle those steps in their own way.
Regulations are rules or laws that govern individual behaviors within an organization (in this case, that would be you as an individual) and/or the organizations themselves (for example, bylaws for a company). These rules and laws can be explicit — like “you may not steal from the company” — or implicit – “everyone in the company works together”.
Typically, people refer to regulatory frameworks when they mention taxes or other legal requirements. For instance, securities registration requires proof of identity, residence and employment in addition to proof of income. Because cryptocurrency is often seen as currency, it too must fulfill these criteria and more before being considered such.
That doesn’t mean it can’t be traded though! What it means is that you must register with your local authorities, figure out who offers which services, and make sure you’re only trading from legitimate sources.
The Securities Exchange Act of 1934
In 1965, the United States Congress passed the Securities Exchange Act of 1934 (SEA), which is one of the most important pieces of legislation for the modern stock market.
The SEA requires broker-dealers to be registered with the SEC. It also requires brokers to act as fiduciaries — or trustworthy individuals who put your best interest ahead of their own.
This way, the securities laws in America are twofold: They protect investors by requiring transparency from companies, and they guarantee that all invested money is looked after with utmost care.
By having these safeguards, the SEA has created an environment where people can invest profitably in stocks. And while some argue that this regulation makes investing more expensive for average consumers, it really does work to help keep investor interests first.
With every new technology comes skepticism about its true benefits and potential pitfalls. But we have no reason to doubt the effectiveness of our current financial system when looking at cryptocurrencies like Bitcoin in particular.
Crypto skeptics often cite regulatory uncertainty surrounding crypto as a major risk factor. While there may indeed be ongoing debates over whether certain ICOs and digital currencies should be regulated, what few realize is just how much regulation already exists!
It’s time we acknowledge that many types of cryptocurrency actually ARE securities under the law. By defining them as such, we take away some of the stigma around the space and show that investing in cryptocurrencies is not totally unrestrained.
The Bank Secrecy Act
Before cryptocurrencies, people had to use banks for money transactions. Because cryptocurrency is not issued or regulated by a government agency, it cannot be used as official currency like bills and coins that are backed up by gold or silver.
Bitcoin was therefore considered “not legal tender” which means you can’t use it to pay taxes or run small businesses.
This isn’t very practical since most people now own some sort of crypto!
In response, governments have passed their own regulations about what types of activities using Bitcoin and other cryptos are allowed. These rules vary slightly from country to country but all require basic information about your identity and business purposes for owning crypto.
These regulations also limit how much cash you can keep in crypto and how easy it is to transfer crypto between individuals. This helps prevent people from keeping their holdings secret and escaping taxation.
The Consumer Protection Act
In May 2018, the South African Parliament passed the much-publicized “Consumer Protection from Unfair Trading Practices (Act No 66)”. This legislation gave effect to an earlier proposal made in July 2017 by then minister for trade and commerce Robeda Gcoba to regulate cryptocurrencies as securities or financial instruments.
The regulation came into force this August 1st and is now binding nationwide. It stipulates that every cryptocurrency being traded within the country must be registered with the Financial Services Board (FSB). Any entity offering its services as payment systems, crypto exchanges, or ICOs (initial coin offerings) are required to be licensed by the FSB.
These new regulations pose several challenges for both consumers and businesses involved in the cryptocurrency market. Not only do they require you to invest responsibly, but also to know your legal rights when it comes to digital currencies. Here we will discuss some of these regulatory issues and what you can do if things go south.
The Foreign Exchange Act
In early 2018, Congress passed the Federal Regulation of Bitcoin and other cryptocurrencies as well as related activities (the “Regulation”).1 This regulation requires any business that exchanges bitcoin for fiat currency or vice versa to be licensed by the SEC as an exchange broker-dealer.
The term ‘broker’ is defined in the Securities Act as someone who offers securities for sale through their own efforts and receives compensation for doing so.2 A person must also register with the SEC as either an issuer offering its shares for sale or as a dealer in securities being offered for sale.3
A security can be defined as something that has economic value that people want to buy and hold.4 These things typically have words like stock, bond, or cryptocurrency attached to them.5
Interchange fees are what most commonly get discussed when it comes to regulatory requirements for crypto businesses.6 Fees are the costs paid by users transferring money between different digital currencies or from/to fiat.7
But there is another significant cost imposed by this legislation that few talk about — legal compliance.8 Compliance means making sure your company is not violating any laws pertaining to how bitcoins and cryptocurrencies are used.9
These include tax regulations, anti-money laundering rules, and restrictions on use and promotion.10 Companies may be required to report certain transactions or even terminate operations if they aren’t able to meet these obligations.
The Trading with the Enemy Act
In March 2016, the United States government passed an unprecedented piece of legislation for any kind of business – they made it illegal to trade money that is “currencoded” or uses cryptography as its medium of exchange.
This law goes by the name The Trading With the Enemy Act (or TWEA) and was originally enacted during World War II when many countries considered Japan to be an enemy state. Since then, this has only applied to nations at war with America.
However, this law does not just apply to currencies like the Japanese Yen or the American Dollar, but anything that can be used to conduct transactions and that uses cryptography to do so is now outlawed as well.
Tangible goods such as food and clothing are not protected under this act, however.
The Money Laundering Control Act
In July 2018, Congress passed the Money Laundering Control Act (“MLCA”). This legislation amended the Bank Secrecy Act by adding new Chapter 13 to cover “Virtual Currencies.”
The MLSA requires that all businesses that transact or offer to transact in virtual currencies like Bitcoin report their identities, business functions, and contact information to the government. These reports must be filed within 30 days for each entity; however, it is expected that most will submit them annually.
Businesses are also required to file suspicious activity reports with FinCEN if they have any knowledge of money laundering or terrorist financing related to virtual currency. Reports can include activities such as transactions over $10,000, exchanges of more than $1,000, and wallet transfers of more than $5,000.
These requirements go into effect at the end of one year, so many companies are currently complying with the law. It is recommended that individuals do the same because every individual who uses cryptocurrency may fall under the jurisdiction of these regulations.
The Fair Credit Reporting Act
In 1978, just as cryptocurrency was hitting its stride, Congress passed the FCRA with significant regulation attached. This law requires any company that wants to do business with an accredited financial institution to get permission from either the credit reporting agency or the bank.
This includes things like opening an account at the bank, registering for online banking services, using debit cards, and even doing everyday transactions like buying groceries or going out to eat!
Accredited institutions are given a higher degree of trust due to their hard-earned reputation, so they’re more likely to give you a loan or accept your money for a transaction.
By requiring companies to have permission before contacting a credit reporting agency, this law helps protect people who use cryptocurrencies against fraud by ensuring there is no unauthorized activity in their reports.
It also protects individuals who want to make sure every part of their personal finance information is private and not exposed to anyone else. Since most major banks require access to a credit report to open an account, these laws help keep crypto savings safe.
Crypto traders can be a target for scammers, so protecting individual privacy and limiting exposure makes sense. At the same time, it keeps them from exposing potentially sensitive info about themselves and their finances to potential thieves.
The Federal Trade Commission (FTC) originally proposed adding rules related to “bulk collection of consumer data,” but those were mostly rolled back.
