Who regulates cryptocurrency?

Cryptocurrency regulation is currently a hot-button topic without an easy answer. 

Advocates claim that increased regulations could help protect investors and bring stability to a notoriously unstable asset. 

By contrast, enthusiasts often oppose regulations, claiming that regulating cryptocurrency violates the decentralized ideal behind the blockchain. 

But that doesn’t mean that the government hasn’t tried and sometimes succeeded to pass policies around crypto, which begs the question of exactly who regulates cryptocurrency? 

Institutions that have authority over cryptocurrency

Currently, no one enforcement agency regulates cryptocurrency in the United States. Instead, the burden is split among three main institutions: the SEC, CTFC, and IRS.  

Securities and Exchange Commission (SEC)

The SEC generally considers digital tokens to be investments, and as such, claims jurisdiction over cryptocurrencies for investment purposes. Their efforts primarily include protecting investors from fraudulent offerings and approving or denying applications for crypto-based investments (such as ETFs). The SEC has also filed complaints against companies like Kik and Telegram for failing to register digital tokens as investments.  

Commodity Futures Trading Commission (CFTC)

The Commodity Futures Trading Commission considers bitcoin and other cryptos to be commodities for its purposes. As such, it’s responsible for regulating interstate crypto commerce and commodity derivatives markets. 

Generally, the CFTC focuses on strengthening investor protections and monitoring crypto futures. Futures are derivative contracts that derive their value from the underlying commodity or investment. The agency also prosecutes cases involving interstate crypto fraud and manipulation. 

Internal Revenue Service (IRS)

The IRS considers cryptocurrency as property for taxation purposes, allowing the agency to tax your currency like any other assets.

Because they’re classified as property, virtual currency transactions are generally taxed as capital gains or losses. However, if you receive cryptocurrency as income, such as by mining new coins or as payment for services, you may pay income taxes instead.  

Can the government control cryptocurrency?

Because cryptocurrencies are decentralized and used for multiple purposes, it’s difficult to classify them as purely an investment, commodity, or currency. As such, several U.S. agencies regulate cryptocurrency based on how the owner uses the tokens. 

Unfortunately, this decentralization of regulatory authority makes passing and implementing overarching guidelines difficult.   

Future government cryptocurrency regulations in the US

Currently, many U.S. states, agencies, and lawmakers are pushing for greater regulation on cryptocurrencies. For instance, in November 2021, President Joe Biden signed an infrastructure bill that included new regulations for reporting crypto transactions to the IRS. 

And in March 2022, President Biden signed a new executive order designed to coordinate federal efforts in drafting new regulations to protect investors. However, it will likely take some time for any real change to occur.  

Entities that impact cryptocurrency

U.S. agencies aren’t the only ones that affect cryptocurrency. We’ll explore a few other players here.  

Small fish

In the world of crypto, small fish are individuals who don’t hold a lot of influence in the market. For instance, a college student who invests $500 would be a small fish. But because crypto also boasts some exceptionally wealthy investors, even millionaires who invest thousands of dollars may count as small fish.  

Whales

Crypto whales are people or groups whose investments have the ability to shake up the entire market. Generally, whales pump hundreds of millions of dollars into the market. Due to their sheer size, their actions can have outsize impacts on the crypto market by decreasing liquidity, increasing volatility, or both.  

Institutions

Institutions can refer to creators, banks, investment brokerages, and even individual companies. Each of these can affect the crypto market in different ways:

• Crypto creators put new coins into the market, which has the potential to shake up the status quo in favor of new investments.
• Banks and investment institutions can buy crypto for their own portfolios or help their investors get started in the market.
• Companies like Tesla, MicroStrategy, and Microsoft have snapped up crypto for their own portfolios or agreed to accept some cryptos as payment for goods or services. 

Government cryptocurrency regulations

Many governments and regulators are still struggling to decide how to regulate cryptocurrency. In the United States, that burden primarily falls on the SEC, CFTC, and IRS, among other agencies. However, due to crypto still being in its infancy, as well as its many uses and iterations, few regulations currently exist. 

Elsewhere, other governments have taken different tacks to regulate crypto. For instance, El Salvador was the first country in the world to make Bitcoin legal tender. By contrast, China banned all crypto trading and mining in 2021.  

Who regulates cryptocurrency? Everyone and no one!

The answer to the question of who is actually responsible for cryptocurrency and bitcoin regulation currently remains up in the air. While several U.S. agencies have claimed and prosecuted cryptocurrency under their jurisdiction, the future of crypto regulation remains unseen.

FAQ