Cryptocurrencies present unique regulatory challenges

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High levels of regulatory uncertainty can cripple the growth of new companies in emerging industries. The world of cryptocurrency is an emerging industry and asset class that faces a regulatory landscape that is in a state of flux. Before diving into this area, it is important that traders and companies looking to offer services to traders have a broad understanding of the regulatory schemes at work. This post is meant to provide a slice of the regulations facing the crypto industry.

Numerous federal laws potentially impact cryptocurrencies. The Securities and Exchange Commission has the power to regulate a cryptocurrency when the currency is considered a “security”. The SEC Chairman has said “Cryptocurrencies…[that] are replacements for sovereign currencies, replace the dollar, the euro, the yen with bitcoin…that type of currency is not a security.” But “[a] token, a digital asset, where I give you my money and you go off and make a venture [and I get a return]…we regulate the offering of that security as trading a security.” The SEC has brought enforcement actions against numerous companies who launched currencies the SEC deemed to be a security. SEC regulation of cryptocurrency will likely change as the industry grows – the SEC Chairman recently indicated the more regulation would be forthcoming to provide “guidance and clarity”.

The SEC is not the only regulator eyeing the crypto space. Cryptocurrencies are also potentially regulated by the Commodity Futures Trading Commission to the extent a cryptocurrency is traded as a futures contract. Cryptocurrency exchanges are regulated under the Bank Secrecy Act and the Financial Crimes Enforcement Network – the federal government has been actively prosecuting individuals for running unlicensed virtual currency exchange businesses.

The State of Louisiana recently jumped into the cryptocurrency regulation game. Louisiana enacted the Virtual Currency Business Act – the second state to adopt the act at the time (behind New York). The act requires licensure for anyone “exchanging, transferring, or storing virtual currency” except anyone who does not receive compensation for providing virtual currency products or services to individuals – this implies that a person who does receive compensation for such services is covered by the act and must get licensed. Once licensed, there are other regulations that must be followed including oversight by the Office of Financial Institutions.

The world of cryptocurrency is fraught with regulatory uncertainty. The above is meant to offer a glimpse of the various regulations and government agencies that potentially oversee cryptocurrencies and related businesses. Before providing crypto-related services for compensation, consult an attorney about what needs to be done to mitigate regulatory risk.