While the story has grabbed the headlines, it is nowhere near the largest crypto fraud. Perhaps the reason why the Squid Game scam grabbed the headlines was not because of the dollar amount involved, but the fact that main street investors are now getting caught by crypto investment fraud. Much like the cons that penny-stock promoters are famous for, the rise of crypto investment fraud has made the area a prime target for regulation.
This article reflects the legal and strategic issues that may decide the race to regulate crypto and explains the prediction that the SEC will come out on top. These laws give the CFTC power to regulate the trading of commodities. Importantly when it comes to cryptocurrency, the CFTC considers Bitcoin and many other cryptocurrencies to be a commodity , giving the CFTC a seemingly good start in the race to regulate crypto.
However, the CFTC does not have the power to regulate every aspect of trading in commodities. When it comes to the futures market, the CFTC has broad powers under the CEA to regulate, including setting rules for participants, the exchanges and the intermediaries in the market. However, the authority of the CFTC to regulate the spot market is less clear.
The CFTC has stated that its authority to regulate the spot market only extends to preventing fraud or manipulation in the market, but it cannot set broad rules for the spot market participants like it can in the futures market. For main street investors, it is more likely that they will be purchasing cryptocurrency using an app than trading futures on the Chicago Mercantile Exchange.
As a result, the actions of main street investors are less likely to be regulated by the CFTC, but they can still rely on the CFTC to police fraud and manipulation in the spot market where they buy and sell their crypto. When it comes to enforcement, the CFTC has also demonstrated that it will prosecute crypto violations.
As the CFTC has a solid legal basis for regulating and an attractive value proposition for main street investors, the CFTC looks to be off to a good start in the race to regulate crypto. This is important as Bitcoin and Ethereum are the two largest cryptocurrencies by market cap , and they act as a model for hundreds of other cryptocurrencies.
Not a great start for the SEC. Despite the legal case not looking so solid for the SEC, what the SEC lacks in legal authority it makes up for in regulatory appetite. Regulating a few key areas of the crypto ecosystem could be a good strategy, as it could allow the SEC to exercise influence over the markets without directly policing them.
To use an analogy, the SEC might not be able to act as the crypto-sheriff, but if it controls all the gun stores in the town, it can still wield a lot of influence in policing crime. Often these ICOs are used to raise the capital needed to develop the cryptocurrency or the infrastructure it needs to operate. Sound like an IPO? Mtokens paid fixed interest and the DMG tokens purportedly gave holders certain voting and profit-sharing rights.
DMG tokens were meant for resale in a secondary market. The SEC found that the tokens were investment contracts under the Howey test, and therefore the offerings should have been registered under the Securities. The SEC again determined that the digital assets were investment contracts.
Poloniex did not offer any fiat currency functionality or trading, but it did charge trading fees from each transaction and aggregated the fees in a Poloniex-owned address of the digital asset underlying the trade. More recently, the SEC brought a civil lawsuit against Ryan Ginster for engaging in two unregistered and fraudulent securities offerings. In SEC vs. Ryan Ginster , the staff alleged that Mr. This leaves markets open to manipulation. A bit of legal gymnastics is needed to vault and land on the conclusion that crypto is a security.
One group that would welcome crypto clarity are registered investment advisers whose clients are increasingly interest in crypto as part of their investment portfolio. As a securities lawyer and entrepreneur, Bo frequently writes and speaks about fintech, legal and regulatory matter related to investment adviser and investment companies, SEC compliance, artificial intelligence and machine learning, and software development.
Strauss Troy is recognized by U. Strauss Troy has earned 16 metropolitan rankings and was nationally ranked in Project Finance Law. Skip to content News Knowledge. Cincinnati, OH By Bo Howell In an earlier blog post, I wrote how the US has seen crypto-related assets evolve from direct purchase only to private funds for accredited investors to mutual funds and ETFs for retail investors.
The SEC flexes its regulatory muscle Within days of announcing a need to protect investors, the SEC brought numerous enforcement actions against players in the crypto and DeFi space. Jessica L.
COIN , for further regulatory clarity on a new program called Lend. A few days later, Coinbase ended the program. Regulators have generally taken a proactive stance toward crypto in Canada. It became the first country to approve a Bitcoin exchange-traded fund ETF , the first launched on Feb. From a taxation standpoint, Canada treats cryptocurrency similar to other commodities.
The United Kingdom considers cryptocurrency as property but not legal tender. Additionally, cryptocurrency exchanges must register with the U. Although investors still pay capital gains tax on crypto trading profits, more broadly, taxability depends on the crypto activities undertaken and who engages in the transaction. The land of the rising sun takes a progressive approach to crypto regulations, recognizing cryptocurrencies as legal property under the Payment Services Act PSA.
The land down under takes a relatively proactive stance toward crypto regulation. Australia classifies cryptocurrencies as legal property, which subsequently makes them subject to capital gains tax. Similarly to the United Kingdom, the island state classifies cryptocurrency as property but not legal tender. Singapore, in part, gets its reputation as a cryptocurrency safe haven because long-term capital gains are not taxed. However, the country taxes companies that regularly transact in cryptocurrency, treating gains as income.
The country didn't use to consider cryptocurrencies as legal tender or financial assets. A few months later, parliament approved a new tax on digital assets to take effect in Now any cryptocurrency income earned above 2.
But anything valued under the threshold will remain tax-free. The exact location of the company's headquarters is unknown, though there are rumors the company is in Malta or the Cayman Islands. Furthermore, China placed a ban on bitcoin mining in May , forcing many engaging in the activity to close operations entirely or relocate to jurisdictions with a more favorable regulatory environment.
Like most countries, the subcontinent outlines that cryptocurrencies are not legal tender. In , the Reserve Bank of India RBI banned financial institutions from transacting in virtual currencies; however, the Supreme Court reversed this decision in March Still, regulations remain uncertain in the country. For instance, India proposed a law in early that would make it illegal to issue, hold, mine, and trade cryptocurrencies other than state-backed digital assets.
Cryptocurrency is legal throughout most of the European Union EU , although exchange governance depends on individual member states. In September , the European Commission proposed the Markets in Crypto-Assets Regulation MiCA —a framework that increases consumer protections , establishes clear crypto industry conduct, and introduces new licensing requirements.
Commodity Futures Trading Commission. S Securities and Exchange Commission. Internal Revenue Service. Securities and Exchange Commission. The Coinbase Blog. Evolve ETFs. Global NewsWire. Canadian Securities Administrators. Government of Canada. Financial Conduct Authority. National Tax Agency Japan. Australian Taxation Office. Australian Transaction Reports and Analysis Centre. Behnam went on to note that while the CFTC's core responsibilities are around regulating the commodity derivatives market, several elements of the cryptocurrency industry suggest it would benefit from CFTC oversight.
Gensler said that ultimately, crypto exchanges needed to be regulated as stringently as traditional exchanges. Thus, investors should be protected in the same way," he said, before adding that exchanges "have millions and sometimes tens of millions of retail customers directly buying and selling on the platform without going through a broker. Read more: BlackRock warns a global energy crisis and runaway inflation risks will force the Fed to 'slam the brakes' on the US economy — and the firm reveals which stocks can thrive amid the turmoil.
Check out: Personal Finance Insider's picks for best cryptocurrency exchanges. Keep reading. Search markets. News The word News. My Watchlist My Watchlist. Adam Morgan McCarthy. SEC Chair Gary Gensler said while most cryptocurrencies are securities, some are more like "digital gold". The CFTC already regulates the derivatives markets and oversees regulation of bitcoin and ether futures.
This downloadable brochure provides basic information about what bitcoin is, what the CFTC's jurisdiction covers, and how virtual currencies can be a target for. Yes, virtual currencies, such as Bitcoin, have been determined to be commodities under the Commodity. Exchange Act (CEA). Does the CFTC oversee Bitcoin? Funds regulated under the Investment Company Act of and its rules (“funds”) are required to provide important investor protections. · Those protections.