- The United States has one of the most complex, non-existent crypto regulations with no common ground. The CFTC describes Bitcoin as a commodity, while in contrast, the IRS sees it as a property.
- Despite the vague regulatory framework, the U.S. regulations and authorities have been notorious for clamping down on cryptocurrency exchanges.
- Following these uncertainties and numerous lawsuits, Ripple has hinted at moving its headquarters overseas.
If you run a cryptocurrency firm, you will be much concerned about aligning your company with existing jurisdictional laws or better still attempt to move to a more favorable jurisdiction if your business is currently being threatened by your immediate environment. Despite the technological prowess the United States commands, the region doesn’t yet rank as the top destination for blockchain and cryptocurrency.
When it comes to the crypto industry, regulations are an important aspect of the industry and play a key role in how blockchain products strive in a given region, especially for an emerging industry of this nature. As at this time, it’s still very difficult to find a consistent legal approach to cryptocurrencies in the United States.
Regulations governing cryptocurrency products, firms, and exchanges vary by state, and federal authorities actually differ in their definition of the term ‘cryptocurrency’. The Commodities Futures Trading Commission (CFTC) described Bitcoin as a commodity, while in contrast, the IRS proscribed Bitcoin as property, and as such Bitcoin is taxable.
One would argue that this diversity in the U.S regulation on cryptocurrency has only contributed to making the whole system more complex. So far, the direction of United States regulatory bodies towards blockchain and crypto remains vague.
The Financial Crimes Enforcement Network (FinCEN) doesn’t regard cryptocurrencies as legal tender. However, in 2013, crypto exchanges were regarded as money transmitters, although subject to various jurisdictions, on the grounds that tokens are “other value that substitutes for currency”.
U.S. Regulations And The Crypto Industry
Crypto regulations around the world are supposedly founded based on US regulations, providing a framework on which other nations should possibly build on top. With unclear regulatory directions, the US fell short of these expectations. Cryptocurrencies are not prohibited in the U.S., but they are still not integrated into the country’s financial structure.
Recently, US regulators have been notorious for clamping down on cryptocurrency exchanges, BitMEX, and Okex for example. On October 1st, The Commodity Futures Trading Commission (CFTC) filed a civil enforcement action in the U.S. District Court, levying a charge against BitMEX and the three individuals who run the trading platform.
The suit anchored on the operation of an unregistered trading platform and violating multiple CFTC regulations, including failing to implement required AML procedures. Although BitMEX had argued that they don’t operate under the US jurisdiction, they were still caught in the web of US authorities.
Similarly, Malta-based cryptocurrency exchange, OKEx announced on October 15 that it had suspended withdrawal of cryptocurrencies on its platform. This development was as a result of the exchange being out of touch with “one of its private key holders.”
The concerned private keyholder is reportedly cooperating with a public security bureau to aid further investigations. This once again points to the stringent regulations being witnessed in the States.
Without much emphasis, the U.S. regulation has been very nervous about encouraging any cryptocurrencies that could threaten the dollar’s dominant position in global finance. This is beginning to have a telling effect on how US regulations are positioned with respect to cryptocurrencies and Bitcoin.
Unfavorable U.S. Regulations Could Lead To Mass Exodus Of Crypto Firms
It’s difficult to exist within a territory with no clear definitive laws, as it will be hard to say with certainty what manner of conduct might amount to grave penalties. Following this scenario, Chris Larsen, co-founder and executive chairman of Ripple Labs has revealed that the company is likely to move its headquarters overseas due to the unclear US regulations.
Speaking at the LA Blockchain Summit on October 6, argued that almost every country besides the U.S. has a favorable system to regulate crypto, adding that U.K, Switzerland, and Singapore were top destinations and the most preferred location if it becomes apparent for the San Francisco-based company to leave the U.S.
“The message is blockchain and digital currencies are not welcome in the U.S.,” Larsen said. “You want to be in this business, you probably should be going somewhere else. To be honest with you, we’re even looking at relocating our headquarters to a much more friendly jurisdiction.”
Ripple CEO Brad Garlinghouse explained further in a Tweet. “Responsible players like Ripple aren’t looking to avoid rules, we just want to operate in a jurisdiction where the rules are clear,”
Lack Of Proper U.S. Regulations Has Amounted To More Woes For Ripple
Recall that Ripple has been involved in an ongoing lawsuit alleging that the company sold its XRP token in an unregistered securities offering, thereby violating state and federal securities laws. Following this claim, Ripple has argued that although they hold a large portion of the XRP, however, the digital asset is decentralized.
Thus far, the SEC has not released any official statement on the matter following its 2019 publication on a regulatory framework for digital assets. As a result, Ripple continues to be summoned to Court partly because of a lack of regulatory clarity from the authorities.
The vague regulatory framework in the United States accounts for most reasons why some top crypto exchanges exclude the US jurisdiction from their suite of services. With the speed at which China, France, and other nations are developing a Central Bank Digital Currency (CBDC), it is most likely that the United States will be far from leading the future of blockchain and cryptocurrency adoption.
Although the argument that the quickest runner doesn’t always win the race remains valid, however, if regulatory uncertainties continue to cloud the US jurisdiction, we could see a mass exodus of crypto firms to other favorable regulatory climes.