Four Things To Watch For In Cryptocurrency Regulation
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.
Rosemary Fanelli is the Chief Regulatory Strategist for Duff & Phelps