Following last year’s collapse of cryptocurrency exchange FTX, which had an indelible contagion effect, and more recently, the demises of multiple banks with crypto exposure, regulators around the world are increasing scrutiny of the inner workings of the digital currency market.
In the U.S., some market observers argue the Securities and Exchange Commission (SEC) is missing the mark by refusing to approve a spot bitcoin exchange traded fund. Others assert the commission may be too broad in its efforts to regulate crypto, while others believe more guidelines could actually benefit the market by reducing its “wild west” feeling
“But the U.S. regulators are making their view very clear. The SEC is saying every crypto apart from Bitcoin is a security,” noted Sheena Shah, head of crypto research at Morgan Stanley. “The definition will determine what products can be offered, which companies can offer them, which regulator will be in charge and maybe even how transactions are taxed. There is agreement that Bitcoin should be classified as a commodity, partly due to its decentralized nature, and no regulator is classifying Bitcoin as a currency as this would admit that it’s a direct competitor with the U.S. dollar.”
Ariana Salvatore, of the bank’s domestic public policy team, highlights two possible avenues for crypto regulation in the U.S. The first would be the direct involvement of Congress regulating the space, which would amount to restriction and a “crypto crackdown” of sorts. The other would be Congress delegating authority over the crypto investing universe to another agency.
“Remember, the Republican Party controls the House of Representatives, so there are some structural constraints here that might make any regulatory efforts a little bit lighter touch than what you could expect in a unified government scenario or single party control,” Salvatore noted.
Outside of the U.S., some crypto regulatory frameworks are emerging, including in Europe. The European Union (EU) Parliament approved rules to trace crypto transfers in an effort to halt money laundering activities.
“The law would also cover transactions above €1000 from so-called self-hosted wallets (a crypto-asset wallet address of a private user) when they interact with hosted wallets managed by crypto-assets service providers. The rules do not apply to person-to-person transfers conducted without a provider or among providers acting on their own behalf,” according to the Parliament.
The guidelines will also affect cryptocurrencies not currently covered by established financial services legislation, indicating more regulation, at least the regional level, could await the digital currency space.
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