Thomas Wade has a new article that summarizes the state of financial regulation of cryptocurrencies (“crypto”). Eakinomics’ view of the universe is that cryptography is misunderstood but nevertheless remains a staple of cocktail discussions. For this crowd, the fun fact in Wade’s journal is that Bitcoin futures contracts are regulated by the Commodity Futures Trading Commission (CFTC), but Bitcoin itself is unregulated (by any of the financial regulators other than those with the unenviable responsibility of preventing financial cyber crimes). The coexistence of a regulated futures market with an unregulated spot market is strange (economic term) and probably very inefficient.
A second important point to remember is that cryptography is largely unregulated and patchy. As Wade puts it, “Except in limited circumstances, the taxation or activity of most cryptocurrencies and the treatment of digital assets is currently largely unregulated in the United States…. The lack of a primary regulator is only part (and perhaps a cause) of the regulatory patchwork of inconsistent agency regulations and guidance on various isolated aspects of crypto.
One of the reasons for the current state of regulation is that cryptography is misunderstood. In other words, what is crypto? If cryptography is a commodity, it is straightforward to attribute jurisdiction to the CFTC: “The CFTC defines a commodity as including all “goods and articles,…and all services, rights and interests…in which contracts for delivery future are currently or in progress”. the future treated and is not limited to tangible assets only. Or, is crypto a security, in which case the Securities and Exchange Commission has the turf? Per Wade: “The SEC defines a security as an ‘investment contract’ and relies on the Howey test, established by a nearly 100-year-old Supreme Court decision. Any financial instrument (potentially including cryptocurrency) is considered a security if it is: an investment of money; in a joint venture; with a reasonable expectation of profits; and arising from the entrepreneurial or management efforts of others. »