Evolution of crypto regulation in USA

As already commented in our blog, news related to regulation in USA will highly impact the whole crypto ecosystem given it is a global and interconnected market and considering the implications of such a huge economy. Whether aligned with such measures or opposed to them, the position of the United States will act as a guideline for regulators throughout the world. A “lobby battle” is being currently developed in many front lines: at the U.S. Congress, before the SEC and among leaders in technology, markets and investment funds, among others.

As covered in previous posts, rules applicable in USA have evolved, starting with the self-regulation stage, then some bills, followed and ending with the differences with China and the issue of
launching their own digital currency.A new stage has now began: a comprehensive framework designed by The Executive together with some government agencies like the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC) and the Office for Foreign Assets Control (OFAC) aiming to pursue several projects. This new position taken by governmental authorities is mainly connected to Terra Collapse and to the Executive Order issued by the Biden administration regarding this matter. We recommend CNBC’s report on this topic.

Securities and Exchange Commission (SEC, independent agency)

The SEC’s involvement started with its Proposal for Safe Tokens last year in coordination with the new policy outlined by The Executive, assuming that many crypto assets are considered “securities”,
thus falling under their control (surprisingly ignoring their own standards). As from its creation in 1933, the SEC applies the so-called Howey Test to determine is an asset can be called a “security”.
Basically, assets have to meet the four requirements of the Howey Test to enable the SEC to have control over them: 1) investment of money, 2) in a common enterprise, 3) with the expectation of profit and 4) derived from the efforts of others. Most cryptoassets monitored by the SEC today fail
to meet one or two elements of the Howey Test.
Let us remind that the SEC is a government agency with similar powers to the CNV (National Securities Commission) in Argentina and its main duty is to report irregularities in the stock market.
Many crypto projects fell under the SEC’s oversight due to some similarities between the mechanism of their initial coin offerings (ICOs) with the processes involved when companies go to the stock market. It is essential to determine if “securities” encompass this type of coins or tokens aiming to conclude if these facts have to be punished or not, considering that the SEC has control only over “securities”. We recommend this article posted by a colleague regarding the SEC’s expansive position.

Commodity Futures Trading Commission (CFTC in charge of regulating the commodities market in Chicago)

In the meantime, we found some Bills without technical accuracy. A proposal was made by the leaders of the two parties in charge of the Agricultural Committee intending cryptoassets (mainly BTC and ETH) to be controlled by this traditional body. Even though the CFTC is engaged with
futures, the economic and legal nature of cryptoassets is completely different from the type of futures involved with their activity.
A final decision by legislators is expected although, in our opinion, cryptoassets (market and futures) should be controlled by one agency only with close cooperation with others.

Federal Bureau of Investigation (FBI, federal security service))

As part of the coordination between agencies, the FBI submitted a press release warning on the risks of certain decentralized finance projects. According to Red Users, the FBI report estimates a theft for
over USD 1,300 million in crypto in the first quarter of 2022, 97% of which was caused by failures in decentralized platforms.
Even though many platforms have been safely designed, others have technical vulnerabilities making them attractive for cybercrime. We keep on recommending a thorough research on safety standards before investing in any project. For further information we recommend to read our article on Crypto Fraud.