Cryptocurrency laws in United States and other countries

Summary

• Currently, the Federal government uses its agencies to monitor crypto activities in the country, basing on existing laws
• State governments in US have the capacity to create and enforce their own regulations on cryptocurrencies
• Although the European Union may promulgate specific legislation governing digital assets, currently cryptocurrencies are legal in the block
• In Australia cryptocurrencies are classified as financial products, hence the government uses existing laws to govern their activities.

Cryptocurrencies, by design, are decentralized and should have no control from central authorities. However, recent developments show increasing pressure to create laws which affect cryptocurrencies and other digital assets. The United States, the European Union and other countries are working on possible legislation to govern cryptocurrencies and the related activities.

Cryptocurrency legislation in the United States

In the United States both the Federal government and individual states have the right to make laws that regulate crypto related activities and assets. As a matter of fact, the Federal government uses its various agencies such as Securities and Exchange Commission (SEC), Federal Trade Commission, Commodities Futures Trading Commission (CFTU) and others to regulate cryptocurrencies.
On the other hand, state governments also propose and pass laws related to cryptocurrencies and the blockchain technology. However, the use of laws does not mean the state governments oppose the adoption of cryptocurrencies. In fact, there are two positions pertaining to crypto activities in the country.
First, some states have proposed laws which promote the adoption of cryptocurrencies and the blockchain system, since they have the potential to enhance development in their states. Wyoming, for instance, passed legislation which calls for the establishment of crypto-focused banks which will deal with cryptocurrencies.


Interestingly, Colorado passed a bill which exempts cryptocurrencies from state legislations. In another development Ohio accepts the payment of taxes in cryptocurrencies. As we can see, there is support for the greater adoption of cryptocurrencies by some individual states in the United States.
In contrast, there are some state governments which propose restrictive legislation on cryptocurrencies. As a result, authorities in states such as Hawaii and Maryland have issued warnings on investing in digital assets, especially as cryptocurrencies.

Existing legislation affecting cryptocurrencies in USA

The current Federal laws that regulate cryptocurrency activities fall in several sections which include security laws, money transmission laws, taxation and sales regulations, among others. We shall briefly discuss some of these key regulations.

Sales regulations

Under this section, the regulation affects the sale of cryptocurrencies as they are considered to be securities. As such, any securities which derive their values from cryptocurrencies such as options, swaps, futures and derivative contracts are regulated by CFTU due to the Commodity exchange Act, as they fall under the commodity category. In this case, the CFTU gets involved in order to prevent market manipulation.

Securities laws

Since cryptocurrencies like other digital assets fall under securities, the SEC has authority over their issuance and sale. Likewise, under the Federal laws, the various investment contracts fall under securities, as people invest in them in expectation of profit. Broadly speaking, the US security laws regulate the various forms of investments, irrespective of their names and categories.

Money transmission and anti-money laundering legislations

According to FinCen, any individual or institution which accepts and transfers virtual currencies, in any means, including buying and selling them is a money transmitter under the FinCEN’s regulations, unless he/she is exempted. Accordingly, a money transmitter should carry out a risk assessment and must implement an anti-money laundering program.
As such, United States citizens should avoid doing business with foreigners who are on the Specially Designated Nationals and blocked Entities list. This includes stop having crypto-related business dealings with people from countries which are under US economic sanctions. However, we are still waiting for further clarifications on how the US will deal with decentralized finance (DeFi).

Taxation

According to the USA IRS notice 2014-21, digital currencies such as cryptocurrencies are liable for taxation, under the “property” category. Therefore, individuals that carry out transactions using cryptocurrencies, such as bitcoin, should keep a proper record and remit the right amount of funds. This includes paying tax on gains upon selling the cryptocurrencies.


Ownership and licensing

The Federal law requires Fund managers who invest in crypto-related futures contracts and crypto hedge managers who use leverage to register with the National Futures Association (NFA) and CFTU. Hence, these individuals will be liable to the fraud provisions of CFTU and SEC.
Another interesting development is that in July 2020, the OCC pointed out that banks and savings associations can offer custody services to digital currencies including cryptocurrencies. With this provision, it means that banks can provide the following services: crypto-fiat exchanges, tax services and trade executions, among others.
The above broader regulations of the US show that there is an existing legal framework to handle crypto issues and businesses. However, people anticipate the promulgation of more specific and sector-based laws.

Cryptocurrency regulations in European Union and other countries

The truth is that many countries have been busy over the years to come up with the best set of laws to regulate cryptocurrencies and other digital currencies in their areas of jurisdiction. In general, the European Union anticipates having EU-wide legislation on cryptocurrencies and blockchain technology in order to avoid regulatory fragmentation.


Up to the point of writing this article, there are no EU wide adopted regulations dealing with digital assets such as cryptocurrencies. However, cryptocurrencies are legal throughout the European Union, with variations in some aspects such as their taxation, which depends on the existing national laws of member states.
Nonetheless, the EU’s Fifth and Sixth Anti-Money Laundering Directives contain new requirements related to blockchain based activities. For example, these pieces of legislation have compelling requirements for KYC/CFT.

Cryptocurrency regulations in Australia

The legislative framework on digital currencies in Australia shows some similarities with that of the US in that Australia uses the existing legal framework to handle crypto-related issues and business deals. The law covers various aspects such as issuance of tokens, mining, transaction intermediaries and trading.
For example, in Australia, cryptocurrencies fall under the category of financial products. Thus, the mining of cryptocurrencies like bitcoin is considered to be similar to the processing of any other financial products in the country.
Also, an organization that needs to operate a cryptocurrency exchange should have an Australian market licence and comply with other requirements. Like in the case of the United States, Australia has regulations which prohibit deceptive and misleading business conduct. This applies, for instance, when companies use initial coin offerings (ICOs) to raise funds.
As we note, Australian laws apply widely in the crypto-sector. However, the current law applies to cryptocurrencies because they are classified as financial products.

How the broad existing laws help the crypto sector

A discussion of the legislations that apply in different countries helps companies operating in the industry to implement some suggested measures, such as KYC. For example, Gate.io requires KYC for the users, as a security measure and a means to abide by international standards and guidelines.
When Gate.io users complete their KYCs, they are able to access the broad range of products which the company offers such as spot trading, margin trading, crypto loans, liquidity mining, crypto lending, copy trading and NTFs markets in an unlimited way.

By Mashell. C, Gate.io Researcher
This article represents only the views of the researcher and does not constitute any investment suggestions.
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