Regulating cryptocurrency exchanges

Spread the love

Cryptocurrency exchanges are websites for buying and selling cryptocurrencies. They have risen rapidly in the last decade. There is no general consensus on any one authority regulating cryptocurrency exchanges. So, how one can regulate cryptocurrency and the exchanges that oversee trades?
There’s a difference in the interpretation of cryptocurrencies. Stock exchanges are heavily regulated. The SEC regulates the US securities exchanges. The regulations protect investors from scams and frauds.
Unlike cryptocurrencies, cryptocurrency exchanges don’t have any central regulatory authority. In the US, the regulation for cryptocurrencies is different in each state. Overall, the regulation of cryptocurrency exchanges is not certain in the US. There are no formal rules governing the exchanges. Several federal regulators claim jurisdiction over them due to the lack of a consensus around cryptocurrencies’ nature.
For example,the SEC considers cryptocurrencies that meet the definition of ‘securities’ to be under its scope. Cryptocurrency exchanges where tokens are designated as securities should ideally be registered with the SEC or be exempt from registration. They would be included in an alternate trading system. However, there hasn’t  been much progress.
Reuters reported, the SEC is concerned that investors assume that the SEC regulate cryptocurrency exchanges. Since the SEC is not regulating the cryptocurrency exchanges, the assumption could give investors a false sense of security.
The Commodity Futures Trading Commission (CFTC) defines Bitcoin as a commodity under the Commodity Exchange Act. While the CFTC has limited jurisdiction over spot markets, it broadly regulates the derivatives markets, including futures in virtual currencies. The Chicago Board Options Exchange and the Chicago Mercantile Exchange offer futures linked to the price of Bitcoin. As a result, the CFTC has much tighter authority in the derivates markets of cryptocurrencies that are considered to be commodities.
The Financial Crimes Enforcement Network (FinCEN) does not accept cryptocurrency as a legal tender. However, FinCEN considers exchanges as money transmitters due to its jurisdiction. Usually, any firm that helps transfer funds from one entity to another requires a money transmitter license. They have to register with FinCEN as a money service business.
The IRS considers cryptocurrencies as property. The gains from investments in these virtual currencies, including Bitcoin, are taxed as capital gains tax. Therefore, businesses transacting in virtual currencies need to keep elaborate records of cryptocurrency purchases and sales. They also have to pay taxes on any profits made from the sale of cryptocurrencies for cash or cryptocurrency. The taxes are also levied on the fair market value of any mined cryptocurrency, as of the date of receipt, according to IRS.
Since there isn’t any federal law on cryptocurrency,no one can regulate cryptocurrency and exchanges as it is different in each state.
The U.S. Treasury repeatedly pointed the need to regulate cryptocurrency markets to arrest criminal activities. Since the regulation of cryptocurrencies and cryptocurrency exchanges vary a lot, investors should be careful about these platforms.

Leave a Reply

Your email address will not be published.