Remember the good old days
in cryptocurrency-land? Scores of passionate, earnest entrepreneurs with
nothing more than an idea and a whitepaper could raise tens of millions of
dollars on a promise. Today, not so much. Regulatory attention to
cryptocurrency investments may have a chilling effect on these go-go launches.
To be sure, it is not over
yet: In 2017, crypto-enthusiasts saw their coins and tokens surge to a
cumulative high of $750 billion in market value before the current “crypto
winter” of global market capitalization fell to less than $400 billion. But
even at these levels, cryptocurrencies are up approximately $300 billion in
aggregate since April 17, 2017. This represents an 11x investment for
those who invested just one year ago.
One thing is
certain—regulators are looking to catch up.
The rapid ascent of
cryptocurrency valuations caught even the most astute regulators off-guard, and
they are scrambling to understand the risks and provide guidance. According
to Coindesk, the SEC is specifically concerned about Initial Coin
Offerings (“ICOs”) due to their security-like nature, and recent comments by
the Commission appear to foreshadow coming regulations of ICOs as securities.
Questions about the inherent
properties of cryptocurrencies have caused confusion to both the regulator and
layperson. Specific issues continue to puzzle the top legal and financial
experts in areas of securities and commodities law, capital gains taxes,
international transactions, anti-money laundering, and trading and investment
practices.
While cryptocurrencies
remain a relatively unregulated field, 2018 may change that.
Furthermore, fraud in the
crypto-space is spurring regulators to learn and potentially act quickly.
Investors and speculators have already been scammed out of millions. ICOs may
be utilized for money laundering and terrorist financing. Certain studies report that as many as 59% of Americans don’t
report appropriate cryptocurrency-based capital gains to the IRS.
Remember the good old days
in cryptocurrency-land? Scores of passionate, earnest entrepreneurs with
nothing more than an idea and a whitepaper could raise tens of millions of
dollars on a promise. Today, not so much. Regulatory attention to
cryptocurrency investments may have a chilling effect on these go-go launches.
To be sure, it is not over
yet: In 2017, crypto-enthusiasts saw their coins and tokens surge to a
cumulative high of $750 billion in market value before the current “crypto
winter” of global market capitalization fell to less than $400 billion. But
even at these levels, cryptocurrencies are up approximately $300 billion in
aggregate since April 17, 2017. This represents an 11x investment for
those who invested just one year ago.
One thing is
certain—regulators are looking to catch up.
The rapid ascent of cryptocurrency
valuations caught even the most astute regulators off-guard, and they are
scrambling to understand the risks and provide guidance. According to Coindesk, the SEC is specifically concerned about Initial Coin
Offerings (“ICOs”) due to their security-like nature, and recent comments by
the Commission appear to foreshadow coming regulations of ICOs as securities.
Questions about the inherent
properties of cryptocurrencies have caused confusion to both the regulator and
layperson. Specific issues continue to puzzle the top legal and financial
experts in areas of securities and commodities law, capital gains taxes,
international transactions, anti-money laundering, and trading and investment
practices.
While cryptocurrencies
remain a relatively unregulated field, 2018 may change that.
Furthermore, fraud in the
crypto-space is spurring regulators to learn and potentially act quickly.
Investors and speculators have already been scammed out of millions. ICOs may
be utilized for money laundering and terrorist financing. Certain studies report that as many as 59% of Americans don’t
report appropriate cryptocurrency-based capital gains to the IRS.
And, the government is
hardly sitting idly by:
- In early 2018,
the SEC sent requests for information to crypto-funds, ICOs and
exchanges;
- The IRS collected 14,000 Coinbase account user’s activity logs;
and
- OFAC indicated
that it may be adding crypto-wallet addresses to its Sanctions List.
As the government evaluates
the responses to its subpoenas, we should expect that mid- to-late-2018 will
hold a new wave of guidelines and/or regulation.
What about state and
international bodies?
Within the United States,
state governments are reacting differently. For example, Arizona is attempting to pass the “Bitcoin Bill,” New York is requiring “BitLicenses” and Washington put
reserve quotas on cryptocurrency exchanges.
Across the world, each
nation is approaching the cryptocurrency regulatory puzzle differently. Estonia
moved to digitize citizenship, healthcare and banking on the blockchain, and
Algeria has banned them outright.
What next?
2018 is poised to be a year
of regulatory clarity for cryptocurrencies – but in what capacity?
Legislatively or via regulatory action? Under state or federal law? Or will it
be some combination of all the above? And, even if government action can catch
up, how long can that parity last before the crypto-space speeds ahead?
Governments inherently, and
usually appropriately, move slowly and with deliberation, and investors may
hesitate as they wait for government action. In that case, the market may
need to step in to police itself. Cryptocurrency managers should
anticipate and get ahead of these coming changes by identifying their own risk
areas, developing mitigation controls or even a formal market-wide due
diligence process.
In the cryptocurrency space,
“best practices” is a phrase currently wide open and in need of a definition.
Crypto-entrepreneurs who want to continue to ride the wave of growth should get
on board now with a framework that makes investors comfortable – before the
government makes investing impossible.
Click here
for the original article from Forbes.