A decade back, people did not have much idea about cryptocurrencies and how they worked. People would either keep their money in the banks or would invest them in mutual funds and stock markets.

But with the change of time, the investment market has also changed greatly. And what has brought in the biggest change? Well, it's the crypto market.

As of March 2022, there are about 18,000 cryptocurrencies in the world today. Crypto like Bitcoin, Dogecoin, Ethereum, etc, have become very popular.

People are now not just investing their money in mutual funds and stock markets, but also, in various digital assets like cryptocurrencies. And just because a majority of the people are in this market, the US government had to come up with some set of policies.

Global Interest in Crypto

People all over the world are interested in this market and are watching this space closely. The 2021 boom in cryptocurrency has brought in a lot of new audiences and investors into this market.

Big entrepreneurs and billionaires like Elon Musk had declared that he would only accept payments in cryptocurrencies. Thus, with the rise in the value of Bitcoin, Stablecoin, and DeFi, the regulating bodies in the United States are setting up some policies. 

So, if you are someone who keeps interested in the cryptocurrency market, then this article is for you. In this article, I will be discussing everything that you need to know about cryptocurrency regulations and steps that the United States government is adopting to deal with the asset class. 

Can Crypto Be Regulated? 

Before understanding the various regulating bodies working in the United States and the policies they are adapting to deal with the cryptocurrency market, you must have a clear idea about whether cryptocurrency can be regulated at all. Cryptocurrencies are decentralized. And what does that means? Well, that means, unlike the traditional currencies, cryptocurrencies are not regulated by any banks or government organizations. 

The supply of cryptocurrency tokens does not depend on any kind of central government or authority. Cryptocurrencies are used by people as a medium of exchange to buy goods and services.

Every cryptocurrency transaction works on a particular blockchain network and thus, it is completely authentic. Every transaction is also recorded in a public ledger where no third party can interfere. 

So, the real question is, can cryptocurrency be regulated? Well, China wanted to take a strict stance on regulating cryptocurrency investment in their country. They shut down all kinds of crypto exchanges in their native country and stopped their miners to invest in this market.

Most of the cryptocurrency investors from China also had to fly to various countries especially, the USA But again, this action of China had no such dramatic effect on the cryptocurrency market. 

But why does the government face problems in regulating this particular market? Well, the cryptocurrency market works on the P2P network. The government has still managed to regulate a few venues like the Silk Road and the Pirate Bay. Unlike the traditional currency market, in the cryptocurrency market, transactions can be made by exchanges or even directly by the use of some cryptocurrency wallet. 

But does that mean the government cannot do anything to regulate this market? 

Crypto Regulations in the United States 

Well, even though it might seem like the cryptocurrency market is completely decentralized and far away from the reach of the government, it is not true. There are a lot of ways through which the government could crack down on this market easily. 

The U.S government is trying to control the flow of traditional or fiat currency in the market. And how will controlling fiat currency help in controlling cryptocurrency? Well, the regulatory bodes feel that if people are left with little money on their hands, they will not be able to invest it in cryptocurrencies. 

But even this technique is not flawless. The government might be able to put a huge burden of tax on people and limit fiat currencies in their pockets, but again that would be applicable to only very few tokens. Smart investors will have no problem using another kind of coin so that they can easily cash it out.

Controlling or regulating crypto is becoming more difficult due to the fact that most people in the U.S are not just buying crypto as an investment, but also using it as a medium of exchange to purchase goods and services instead of fiat currencies. 

There are also other specialized regulatory bodies in the U.S that have specific roles to play in controlling the cryptocurrency market in the country. For example, all the interstate commerce crimes in the crypto market fall under the jurisdiction of CTFC. All the invested-related issues fall under SEC, and capital tax gains or income tax gains fall under IRS.

Very recently, the Bitcoin futures ETF was canceled over CBOE and also CME by the SEC. In fact, the SEC has also not been approving a lot of futures even though a lot of ETFs have been submitted. And what role does the SEC specifically have? The main aim of the SEC is to regulate the ICOs in the crypto market. The SEC also has the power to stop any ICO if it is involved in some kind of fraudulent activity. 

Recent Actions Taken on Crypto by Regulatory bodies in the US 

You must know that the value of Bitcoin has depreciated recently by 10%. But do you know why that happened? Well, the CTFC recently took major actions against popular cryptocurrency exchanges, namely, Tether and Bitflex. And why did CTFC do that? It's because none of these exchanges could verify over 2.3 billion in reserves. 

The Office of the Comptroller of the Policy (OCC) also plays a great role in regulating cryptocurrencies. OCC was primarily issued to supervise the operations of the federal savings associations and the national banks in the United States. But, the OCC also plays an important role in determining how the banks can accept cryptocurrencies as an asset in custody holdings and also on balance sheets. 

Such a regulation first came from Brain Brooks, the former acting Comptroller of Currency in 2020. This provided a set of regulations or guidelines to the national banks as to how they can use the cryptocurrencies for custody holdings, run blockchain nodes, and also, hold stablecoins in their authority. 

The major difference between cryptocurrencies and fiat currency is undoubtedly how the latter is backed by the government and the former is not. No matter how valuable cryptocurrencies become, they will never have the stability that fiat currencies have. These lack government-backed insurance. 

That is exactly why FDIC (Federal Deposit Insurance Corporation), an organization that provides more than $ 250,000 to the US bank deposits for every depositor, is planning to set insurance for stablecoins as well. In 2022, the FDIC said that it was studying USDF (Stablecoin), created by a set of banks in the US like the Frist bank of Nashville, Sterling National Bank, and also New York Community Bank.

Although insurance on such stablecoins can be a great risk, Martin Gruenberg, the newly appointed Acting Chair of FDIC said that assessing risks associated with cryptocurrencies would be their top priority in 2022. 

Lastly, the US Department of Treasury also has a huge role in determining the regulations of crypto assets. Sure, it is not a regulating agency, but this department surely deals with and manages the federal government's treasury. 

The Treasury Department also has the role of assessing what impact cryptos have on the Americal economic, monetary, and tax policies. Secretary, Janet Yellen, has warned people about how cryptocurrencies can be easily used to carry out illicit transactions, thus, putting a great risk on the US economy. 

Understand the Pros And Cons of Decentralized Cryptocurrencies

So, is it so bad to have a decentralized currency in the market? Well, here are some advantages that decentralized cryptocurrencies provide

  • None of the transactions can be reversed.
  • Cryptocurrencies have a very limited supply and thus can easily solve the issue of inflation.
  • The online platforms let users retain their anonymity unless they want to exchange their tokens or cash out using some kind of exchange platform.
  • All the investors have the liberty to handle their investments in this particular market without the involvement of any third party or middlemen.
  • When you invest your money in the share market, you have to go through a lot of paperwork. Thankfully, cryptocurrencies do not need their investors to go through that huge process.
  • All the investors are free to make smart contracts without the involvement of third parties.
  • The transaction fees involved in such cryptocurrencies are much less than what the credit / debit cards or other such financial instruments charge. 
  • The huge amount of competition in the cryptocurrency space gives the investors a greater amount of choice. 
  • Investors always have access to newer tokens in the market. 

Does that mean decentralized cryptocurrencies are better than fiat currencies? Well, no. Cryptocurrencies are not in the silver bullet. But it is also true that the fiat currency is controlled by government policies, and the interest rates are arbitrarily issued. Even the creditors do not have the interest of controlling the supply of money. 

Let us look into the cons of decentralized currencies - 

  • The crypto market is very volatile and thus, it easily affects the crypto's ability to work as a medium of exchange. 
  • Indeed there are more than 18,000 cryptos in the market, but it is also true that most of these face scalability issues.
  • Problems like artificial pricing are still persistent in the market.
  • Cryptos availability does not depend on its demand and thus, most blockchain networks fail to keep up with consumers' demand. 

You might have a lot of opinions about cryptocurrencies, but the fact is, this market has the potential of changing monetary policy all over the world. With new cryptocurrencies being created every now and then, no matter how much the government tries to regulate the market, it will still remain a never-ending game of cat and mouse. 

What's Next for Crypto Regulation? 

So the real question is, what will or what more can the US government do to regulate cryptocurrencies? 2021 saw the growth of cryptocurrencies. The market had reached a boom in the previous year thus making regulators all over the world pay close attention to the space. 

Not just Bitcoin, but also other 18,000 cryptocurrencies' regulations out there in the market became a hot topic for various policy-making and regulatory agencies. As mentioned earlier, agencies like FDIC, SEC, OCC, CFTC, Treasury Department, and also Federal Reserve, are continuously monitoring the space and adopting new guidelines to keep the space safe. 

With the continuous growth of digital assets and new cryptocurrencies being created every month, the US government will surely come up with more regulating agencies that will play an active role in regulating the market.