Future Regulatory Framework for Blockchain and Cryptocurrency

The Problem

In their present state, blockchain and cryptocurrency have definitely shown that they will likely endure. They provide the possibility of low-cost financial transactions. This will help the U.S. economy. It is also clear that some cryptocurrencies will not survive, which will create a loss for some investors. For this reason, the U.S. government is beginning to consider how to regulate cryptocurrencies so that investors do not get wiped out when some of the cryptocurrencies fail, as is expected.

The Security and Exchange Commission’s Lack of Coherency

The Securities and Exchange Commission (SEC) is considering regulating when cryptocurrencies are allowed to become traded securities on the exchange markets. The problem is that the SEC is not speaking with one voice on this matter. The SEC’s Director of Corporate Finance stated that securities laws already on the books indicate that cryptocurrencies can be classed as securities if their ledgers are centralized. Meanwhile, SEC Chairman Jay Clayton said that Bitcoin, which is becoming more centralized, is not a security.

Congress is also empowered to enact laws to regulate currencies, but it will likely not act on cryptocurrency regulations with a divided power structure in place since the Democrats are in charge of the House and the Republicans control the Senate.

The Treasury Department’s Take

The Treasury Department is also in a position to regulate cryptocurrencies. They have expressed an interest in regulating cryptocurrencies via one set of rules. The problem with this tactic at the current stage of infancy in cryptocurrency development is that there are over 2,000 different cryptocurrencies. They are traded with many different types of systems – some centralized and some decentralized. Right now, the mechanisms and the market for crypto-assets has not settled. Still, the government would like to provide some protection for investors.

Another issue with the SEC and the Treasury Department moving in different directions is that there is the very real possibility that different government departments will issue disparate rulings that will stifle trading. It is clear there is a need for a balanced approach that contains some regulation to make the markets safe for investment, while not suppressing the growth of the new form of currency.

Working With the Brexited U.K.?

Ike Brannon, the president of Capital Policy Analytics, a Washington D.C. consulting firm, has written a paper that proposes another solution to governmental cryptocurrency regulation. He suggests that the U.K., having exited from the E.U. is in a good position to work concurrently with the U.S. on financial issues. He suggests that the U.K. is already making overtures to the U.S. to work jointly on financial regulatory systems since the former will be creating new financial regulation of markets post-Brexit. The U.K. has already begun regulating blockchain and cryptocurrencies. Brannon suggests that such a U.S. and U.K. joint financial regulatory venture would help create a huge financial market that would be a joint venture of both countries and their considerable assets. Brannon believes that other countries would likely follow suit with the same types of regulatory structures created by the U.S. and U.K. regulatory alliance.

Conclusion

Investors clearly would like some type of regulation for blockchain and cryptocurrency before they dive wholeheartedly into the waters of the new crypto-assets being developed. They also desire the regulation to be consistent and coordinated and not stifle the emerging currencies. A U.S. and U.K. regulatory alliance, if carefully planned with the insights of leaders in the technology field, might help create some safety for investors.