A brief analysis of the current situation and prospects of the U.S. regulatory policy on virtual currencies

This article is derived from a speech given by Lawyer Sun Ming Yu Zhibao at the annual meeting, with the theme of “Status and Prospects of the Regulatory Policies of Virtual Currency in Various Countries”. This article mainly organizes the part about the United States in the speech.

The existing regulatory system in the United States and the functions of various departments

Generally speaking, as far as the US regulatory framework is concerned, the lack of a unified and one-stop legislative and regulatory agency has led to high regulatory and compliance costs. Practitioners find that they need to report to multiple departments or apply for licenses when doing business; if they cannot meet all of them, they may be punished.

Treasury & IRS (Ministry of Finance and Internal Revenue Service) will formulate and implement regulations related to crypto taxation.

The SEC (Securities and Exchange Commission) has relatively loose supervision of governance tokens and usually does not treat it as a security. Regardless of whether it is a domestic project or a foreign project, as long as an American buys the token of the project, the SEC has jurisdiction over it. Therefore, American projects basically design their own tokens as governance tokens, which is currently the only loophole that can be exploited.

The CFTC (United States Commodity Futures Commission) is a relatively friendly regulatory agency for the crypto industry, but the scope of supervision is limited to the field of derivatives (mainly crypto (commodity contracts). Compared with the CFTC, the SEC has a broader jurisdiction and greater powers. .

The OCC (Office of the General Inspection Office of the United States Currency) is similar to the China Banking Regulatory Commission, and its jurisdiction involves many aspects of stablecoins. Both USDT and USDC have bank deposits as reserve assets for stablecoins, and are inextricably linked with banks. Relevant laws and regulations are still blank. In the future, OCC may issue detailed rules on how banks serve stablecoin issuers. If the relevant policies are relatively open, Bank of America may provide reserve asset custody services for overseas stable currency issuers. While ensuring the issuance of stablecoins, this will also maintain the prosperity of the crypto industry.

The CFPC (Consumer Financial Protection Bureau) will supervise the project parties that provide financial services to consumers (mainly stablecoins and Defi) to protect consumer rights.

FinCEN (Financial Crime Enforcement Bureau) is a regulatory agency focusing on the payment field, mainly in charge of anti-money laundering and anti-terrorist financing. American exchanges and brokers all need to register for MSB licenses to facilitate FindCEN to establish a formal information channel. Both exchanges and brokers need to collect customer identification information, verify customer transactions, and prevent customers from engaging in money laundering and terrorist financing. In the future, FinCEN will supervise the Defi field. Because the person responsible for the Defi industry is not clear, FinCEN will be more troublesome to supervise and may be held accountable for specific cases.

Prospects for the development of U.S. regulatory policies in the future

Stable currency : Stable currency has a great impact on the entire encryption industry, and it is also a matter that government agencies attach great importance to. There is a loophole in the regulation of stablecoins in the United States, which may be deliberately done by the government. In the traditional financial field, users must complete KYC before obtaining financial services; however, stablecoins have broken through the iron law of the U.S. financial industry and use non-existent KYC in the process of stablecoin circulation (unless the issuer applies for redemption). No matter who you are, you can obtain stablecoin financial services without any barriers, and of course criminals can also. The United States’ caution may be to expand the dollar’s ​​credit to the world through stablecoins.

Because the US government realizes that stablecoins will involve money laundering and terrorist financing. On the one hand, KYC will be strengthened in the future, including that users holding stablecoins are not so anonymous. On the other hand, how does the bank intervene in the business of a stable currency issuer similar to Circle? The issuer of stablecoins similar to Circle will be forced to hold a certain percentage of highly liquid reserve assets, such as treasury bonds or bank deposits. Of course, at present, the impact of stablecoins on the US dollar is not so huge.

Taxation : At present, the US government’s taxation measures for virtual currency transactions involving Defi are not clear enough. In the future, regulatory agencies will focus on introducing specific implementation policies in terms of tax collection. Another point is the unrealized profits tax that Yellen mentioned. The application of this tax to stock listings and encryption is the same. Once the policy is introduced, this will be a major negative for the capital market.

Securities issuance: Whether the issuance of cryptocurrency projects counts as a kind of securities issuance is a common question. In fact, many securities department officials in the United States have realized that if the old securities law framework is used to supervise the issuance of virtual currencies, there are problems. It will cause some originally decentralized projects to fail to issue currency; if the securities registration is applied for in accordance with the original securities law, it will affect the progress of the project.

Hester Peirce, a member of the SEC, once proposed a draft of the safe haven regulations. Its main purpose is to give certain encryption projects a transition period (for example, three years). If this project achieves a sufficient degree of decentralization, the issuance of coins will no longer need to meet the requirements of securities issuance. This is actually a very big breakthrough. It means the creation of a new asset issuance category outside the securities law system. Although this is just the idea of ​​the SEC committee, it is actually very meaningful and very consistent with industry conditions. As for whether this draft can be used as a written legislation, it may take a long time to land in the future. Secondly, this involves members of Congress who can fully realize the decentralization characteristics of this industry in order to promote the implementation of the bill. From the current point of view, after the release of the draft of the safe harbor regulations, there has been no substantial advancement at the government level. Gary, the newly appointed chairman of the China Securities Regulatory Commission, is not particularly interested in this draft. Instead, the new official takes office and is constantly investigating various currency issuance projects.

Infrastructure Act : The Infrastructure Act is a more important bill led by Biden. Among them, the definition of a broker is more related to the encryption industry. It may broadly include pow miners or defi project parties like Ethereum or Bitcoin. This means that they will bear a lot of heavy reporting obligations, especially in terms of user taxation. If a defi project party is identified as a broker, it needs to report the user’s transaction information to the government. But this bill is not realistic in practice, because the Ethereum mining work as a verification node cannot know who the specific parties are, and there is no way to report it. In view of the relatively rough definition of brokers, specific explanations from the administrative department are also needed.

DAO : DAO itself, as a new form of organization, is no longer within the scope of the supervisory authority, but within the scope of the legislative authority. The general legislative process requires members to pass a bill to submit a bill, and then the Congress approves it. Since the DAO is outside the existing organizational system (such as a limited partnership), there is no clear regulation on tax declaration and tax obligations. It is expected that we will not see legislation in this area in the next three years, because the scope of legislation is too wide. In addition, current members of Congress have no corresponding knowledge of the DAO, and it will take time to introduce corresponding legislation.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/a-brief-analysis-of-the-current-situation-and-prospects-of-the-u-s-regulatory-policy-on-virtual-currencies/
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