Regulating cryptocurrencies: a war for future power

There is no doubt that Zuckerberg changed cryptocurrencies.

Facebook deliberately chose a calm period to launch its crypto token. 18 days before the release of Libra, the Financial Stability Board (FSB) just made a judgment that cryptocurrencies “do not pose a significant risk to the existing financial system.”

Unexpectedly, as soon as Zuckerberg appeared, the regulators changed their previous indifference and attacked cryptocurrencies. After three years of negotiation, Xiao Zha could only watch Libra cover the coffin board.

After this battle, regulators, deeply out of control, vowed to give other cryptocurrencies a taste of the hammer of capitalism. However, in the actual supervision process, all parties actually have their own abacus.

Regulating cryptocurrencies: a war for future power

Xiao Zha at the Libra hearing

On March 8, the Biden administration issued the first executive order on digital assets in U.S. history, calling for stronger regulation. Unexpectedly, opponents of regulation were equally rejoicing, because the executive order was vaguely worded and did not identify the main regulatory agency. Therefore, the supporters and opponents of supervision are given space to criticize each other.

Cryptocurrency is not only about finance, but also an important clue to digital hegemony and Web 3.0, and the political scuffle between regulators, liberals and other stakeholders is intensifying in the United States.

Regulation: Seizing the Power of the Future

A peculiarity of cryptocurrency is that it has no clear regulatory positioning. They are all regulators, and different institutions have their own thoughts and want to incorporate it into their own regulatory system.

The highest profile of regulatory topics is the SEC (US Securities and Exchange Commission). The SEC is directly under the federal government of the United States and is the highest authority in the securities industry. The scope of regulation is securities, and it is difficult to directly regulate cryptocurrencies. Under the inherently unfavorable conditions, the SEC cleverly turned to the upstream of the industry chain: it determined that the first-party public offering of tokens is a public offering, so the nature of encrypted tokens in this scenario becomes digital securities.

In the summer of 2021, the Republican SEC chairman left office to sue Ripple Labs, a technology company that made money from issuing coins, for “profiting from unregistered digital securities.”

The crypto community has scolded this, counting on incoming Democratic chairman Gary Geisler to pull back from the brink. He has been engaged in digital asset-related research at MIT for a long time, and is regarded as a friendly party by the outside world. Unexpectedly, the new officer not only said in his public speech that the level of chaos in cryptocurrencies is comparable to the “Wild West [5]”, but also called brothers with the former chairman, and implicitly expressed that he would continue to sue Ripple Labs.

Regulating cryptocurrencies: a war for future power

Gary Geisler

Behind the touching camaraderie across parties, there are actually more important interests – power in the future. In 2021, the total market value of cryptocurrencies in the world will exceed $3 trillion, which is the same order of magnitude as Apple’s market value.

The lawsuit has not yet landed, and the SEC has scared the cryptocurrency industry into a cold sweat: In September 2021, Coinbase, the world’s largest cryptocurrency exchange, originally planned to launch a new cryptocurrency lending product, but was warned by the SEC’s lawsuit and quickly dismissed it idea.

The SEC’s number one rival is the CFTC (Commodity Futures Trading Commission), which is also a direct regulatory agency of the federal government. Its jurisdiction is commodity trading, so it has always claimed that the essence of cryptocurrencies is commodities: this statement can not only cover Bitcoin and Ethereum, but also more favored by the crypto community than the SEC’s “digital securities theory”.

However, the CFTC’s regulatory authority is concentrated in the field of commodity futures and derivatives trading, and it does not have the power to define the rules of spot trading, which makes its actual “territory” far less than the SEC. In August last year, the CFTC also issued a $100 million fine to BitMEX, an encrypted token derivatives trading platform, but had little social influence.

Once the SEC’s case is won, Geisler’s claims are backed by the Supreme Court. Seeing that the opponent is getting closer and closer to victory, the CFTC decided to counterattack – you go to the court, then I ask the Congress.

On February 9, CFTC Chairman Rosten Bernan appeared in the U.S. Congress, requesting that legislation be given to the CFTC to supervise spot transactions of digital assets. Now, two senators are busy drafting the relevant bill: this has become the hope of the CFTC to reverse the situation.

Bernan, who has been tossing and turning among various parliamentarians, also unexpectedly received lobbying support from cryptocurrency stakeholders. After all, the enemy of the enemy is a friend. Compared with the always stern Geisler, Bernan still seems a lot more cordial. The founder of FTX, the world’s fourth largest cryptocurrency exchange, spoke publicly at the hearing, hoping that the CFTC would take over the regulation of cryptocurrencies.

Regulating cryptocurrencies: a war for future power

Rossten Bernan in Congress

While the two major regulators are racing against time, the U.S. Treasury Department has also come out to brush its presence. It looks at it from a monetary perspective and collects taxes through the Internal Revenue Service, which it oversees. In other words, it also has an interest in it. The Treasury Department proposed that cryptocurrency transfers over $10,000 be reported to the IRS, which would more than double the number of IRS employees within 10 years [18].

The regulator battle may look chaotic, but the message is clear: the gates are about to drop. Proponents of cryptocurrencies are naturally not going to sit still.

Fighting Back: In the Name of Stifling Innovation

In Geisler’s vision, cryptocurrency exchanges should be registered with the SEC. What frustrates him is that platforms would rather ask forgiveness after the fact than ask permission beforehand [19].

In fact, those liberals who support cryptocurrencies simply don’t want to pass the SEC.

On March 16, Republican congressman Tom Emer sent a stern letter to Geisler asking for an explanation for the frequent requests for information from private cryptocurrency companies, noting that the SEC has no authority to regulate. Emer also actively tweeted: “My office has received numerous complaints that SEC Chairman Geisler’s ‘pleading’ to the crypto community is too heavy and seems to be stifling innovation.”

In the U.S. Congress, Emer belongs to a rising power, the Cryptocurrency Caucus. Like the SEC, the organization’s composition spans both parties. The liberals represented by them are trying to stand up to the regulators. They see cryptocurrencies as a technological means, and the existence of regulation hinders innovation.

Regulating cryptocurrencies: a war for future power

Tom Emer

Compared to regulators caught in a civil war, the demands of opponents are much clearer—legislation.

In the first half of 2021 alone, stakeholders spent about $2.3 million on lobbying organizations, more than double what they spent on lobbying the previous year. By the end of the year, that expense had risen to $7.2 million.

In the summer of 2021, the “Crypto Alliance” was mainly trying to target a new provision to expand the taxation of cryptocurrencies, which is expected to collect $28 billion over the next ten years [21]. Although celebrities such as Elon Musk have also publicly expressed their opposition to the new rules, they ultimately failed to prevent the passage of the terms.

After this campaign, the “Encryption Alliance” reversed its strategy and adopted a two-line battle.

Bright Line continues to fight in Congress with the Cryptocurrency Caucus as the main force , and the internal division of labor is clear:

Emmer continued to be hard on Geisler. To this end, he wooed a Democratic congressman and tried to draft a bill to ensure that the SEC has no power to meddle in cryptocurrencies. “My mission is to keep cryptocurrencies out of Geisler’s clutches,” he said publicly. “His mission should be to protect American investors, not to be the king of finance[9].”

Some of the remaining lawmakers are tasked with drafting provisions to protect innovation, while others are seeking to push back against expanding tax provisions.

The dark line is “rural encirclement of cities”: first affect the laws of each state, and then force Congress to legislate.

Different from the federal government level, many state-level politicians realize that cryptocurrencies are increasingly linked to votes, and simply stretch out their arms to embrace cryptocurrencies and maintain close ties with relevant private companies.

The spark was first ignited in Florida: In March 2022, after less than 4 minutes of debate, the state House of Representatives unanimously passed a bill to ease the regulation of cryptocurrency transactions. Subsequent House deliberations set another record: it took only 75 seconds for the bill to be placed on the governor’s desk for his signature.

Regulating cryptocurrencies: a war for future power

Florida passes bill to ease regulation of cryptocurrency exchanges

According to official U.S. statistics, at least 40 states will be involved in 2022 and submit 153 cryptocurrency-related bills [11].

Today, the game between cryptocurrency supporters and regulators is heating up: in April, at least 5 different regulators in the United States and the United Kingdom made speeches on cryptocurrency regulation[13]; on the other hand, the opposition is also stepping up its efforts legislative process.

The final outcome of this war will not only determine who will belong to the future power, but also whether the United States can continue to maintain digital hegemony in the era of Web 3.0.

Explore: the next epoch-making framework

In 2019, Jeff Kossev, a professor of cybersecurity law from the U.S. Naval Academy, wrote a book that influenced the entire industry—“The 26 Words That Created the Internet”, combining the remarkable achievements of the United States in the Web 2.0 era with a rule by The 26-word legal texts are linked together.

This provision is Section 230 of the Communications Decency Act: “No provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider).”

In other words, even if users publish too many extreme remarks on the Internet platform, the platform is not responsible. This means that the platform can save all content review costs, and even actively use extreme, illegal content to generate revenue.

The birth of Article 230 is actually related to “The Wolf of Wall Street”: in 1995, an anonymous user posted that the company where “Little Lizi” worked was involved in securities fraud, and the other party was so angry that he directly took the forum to court. At that time, the positioning of the Internet in American law was very vague. In order to solve this problem, Congress introduced Article 230 in the second year to help the defendant forum clear its responsibility.

Ironically, securities fraud was confirmed years later. At the cost of the downfall of Wall Street’s elite, Silicon Valley was completely freed from its shackles.

Section 230 of the Communications Decency Act is a reflection of a longstanding American regulatory philosophy: innovation and problem-solving are best left to the marketplace. This principle has contributed to the prosperity of the innovation economy in the United States in the past.

Regulating cryptocurrencies: a war for future power

Trump has spoken out against 230

Acts and provisions will continue to be updated, but the topic of cryptocurrency is more thorny than ever: the regulatory winds in the United States are not continuous and are highly influenced by domestic and foreign environments.

Due to the changing social environment, the “New Luddism” began to take root at all levels of the United States: they began to oppose all innovations and demanded the government to adopt a high-handed posture, whether it was GMOs, artificial intelligence or cryptocurrencies. Even experts working on the future at MIT are calling for the federal government to tax robots to slow the spread of automation.

But cryptocurrencies are still showing an upward trend.

The regulation of cryptocurrencies can be seen as a game between finance and technology. The regulation surrounding Libra is largely concerned that it challenges and disrupts the traditional banking and financial system. But the right to speak is flowing from Wall Street to Silicon Valley, as evidenced by the gradual formation of Bitcoin’s regulatory framework over more than 10 years: the framework is the management and guarantees its circulation.

For liberals like Emer, the best possible outcome of this regulatory battle is the “cryptocurrency version of Article 230.” Judging from the status quo, the Long March has just begun.

end

Historical experience shows that there is always a lag in regulation.

The creation of the SEC occurred after the Great Depression. After so many years of shouting around the regulation of the Internet, the situation of monopoly and abuse still exists. An extreme case occurred in Wisconsin: some gun e-commerce websites publicly sold guns to people whose laws clearly stipulated that guns are not allowed, but the state court ruled that the platform was not responsible for Article 230 [15].

It is unrealistic to expect perfect legislation or regulation before the industry is fully developed. The lag in supervision, in a sense, also gives practitioners time to explore (temporarily) unregulated solutions [20].

However, in the field of cryptocurrencies, benefiting from the characteristics of decentralization, cryptocurrencies have not been popularized in a few countries as in the past, but have blossomed all over the world.

At the end of 2019, the digital renminbi produced by the People’s Bank of China relying on blockchain technology has already started pilot tests in some cities. Unlike other countries’ private currency issuance, China’s “national team” is trying to lead the way. Biden clearly does not want to lose to the mysterious force from the East. In March, Biden had directed federal agencies to assess the conditions needed for the U.S. to issue a central bank digital currency.

The era of great reshuffle is approaching, and there is not much time left for the United States to regulate the “civil war”.

[1] Zuckerberg’s three-year dream of issuing coins was shattered: a high-profile beginning, a tragic ending, and the middle is full of bitter tears, Silicon Stars

[2] FACT SHEET: President Biden to Sign Executive Order on Ensuring Responsible Development of Digital Assets

[3] ROBERT CRUZ OF SMARSH TALKS ABOUT BIDEN’S INCOMING CRYPTO REGULATIONS,Analytics Insight

[4] U.S. cryptocurrency regulatory path appears long and complex,INSIGHT

[5] Remarks Before the Aspen Security Forum

[6] The Race to Regulate Crypto: CFTC vs. SEC,Jurist

[7] Ripple Effects of Recent Discovery Decision in SEC v. Ripple Labs, Inc.Holland Knight

[8] CFTC Chair Asks Congress for Authority to Regulate Some Cryptocurrencies,The Wall Street Journal

[9] Meet the ‘crypto caucus’: the US lawmakers defending digital coins,Financial Times

[10] Bitcoin Fans Are Suddenly a Political Force,The Wall Street Journal

[11] Crypto Industry Helps Write, and Pass, Its Own Agenda in State Capitols,The Wall Street Journal

[12] Politicians are waking up to the fact there are votes in crypto,Financial Times

[13] April Is Crypto Regulation Month,Observer

[14] Twenty-Six Words Created the Internet. What Will It Take to Save It,Propublica

[15] The Case for Rethinking Section 230 While Dismantling Tech Monopolies,The Reboot

[16] Understanding the U.S. National Innovation System, 2020,ITIF

[17] The future of regulation,Deloitte

[18] The U.S. Treasury Department proposes that cryptocurrency transfers over $10,000 must be reported to the Internal Revenue Service, Reuters

[19] Crypto platforms need regulation to survive, says SEC boss,Financial Times

[20] Financial Times Interpretation: Why has the cryptocurrency field been unregulated for a long time?

[21] The United States proposes to tax cryptocurrencies to support infrastructure, Sina Technology

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/regulating-cryptocurrencies-a-war-for-future-power/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2022-04-29 21:48
Next 2022-04-29 21:53

Related articles