In the end, the ultimate fate of cryptos – where they trade, how they’re used, maybe even who can use them – may be left up to a hodgepodge of acronyms, a jumble of letters, an alphabet soup.
You know those acronyms, no doubt: OCC, CFPB, SEC…
We’re in a landscape where the regulatory scrutiny around cryptos is tightening, where the Biden administration has, per a recent report from the U.S. Treasury, crypto payments above $10,000 would have to be reported to the IRS.
The Treasury, as PYMNTS reported, wrote that “cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly, including tax evasion.” Elsewhere in “The American Families Plan Tax Compliance Agenda,” the Treasury said that its updated policy position on cryptos “involves shining light on opaque income streams, including proprietorship and partnership business income … The reporting regime would also cover foreign financial institutions and crypto-asset exchanges and custodians.”
The Federal Reserve is gearing up to release a discussion paper focused on digital payments, with a commentary period to follow. “The Federal Reserve is studying these developments and exploring ways that it might refine its role as a core payment services provider and as the issuing authority for U.S. currency,” according to a release. Federal Reserve Chair Jerome Powell said in a recent video message that cryptos may have “potential risks to … users and to the broader financial system.”
In what might be seen as a regulatory shot across cryptos’ bow, Michael Hsu, acting comptroller of the Office of the Comptroller of the Currency (OCC), has reportedly said he would like to see U.S. regulatory agencies establish a “regulatory perimeter” around cryptocurrencies.
“It really comes down to coordinating across the agencies,” said Hsu, the top regulator of domestic banks in the Treasury Department. “Just in talking to some of my peers, there is interest in coordinating a lot more of these things.”
It may be that the SEC ultimately decides how cryptos operate and how they are used. The debate continues to swirl over whether bitcoin and other offerings are currencies, assets or utilities. The definition may hinge on an ongoing suit against Ripple Labs, where the litigation alleges that Ripple misled investors by selling more than $1 billion without registering with the SEC.
As reported, Ripple maintains that XRP is used as a medium of exchange in transactions, moving between jurisdictions, and thus is not defined as a security (and cannot be treated as such by the SEC).
SEC Chairman Gary Gensler has said crypto exchanges need more regulation. “Right now, these exchanges do not have a regulatory framework at the SEC or at our sister agency, the Commodity Futures Trading Commission [(CTFC)],” he said during a Congressional hearing. “Right now, there’s not a market regulator around these crypto exchanges, and thus, there’s really no protection around fraud or manipulation.”
The definition of a crypto, in general, would impact how it is taxed, which in turn leads back to the Treasury department and the IRS. Thus, when it comes to regulation, the efforts to rein in crypto will be marked by joint/lockstep efforts among agencies – with turbulence ahead for the cryptos themselves.