The U.S. Regulators' Recent Actions and Statements
RegulationBit News Today3 min read
In September, the U.S. Securities and Exchange Commission (SEC) once again denied approval for a Bitcoin mutual fund, and suspended trading for a Bitcoin tracking stock. This follows its April rejection of a Bitcoin exchange-traded fund (ETF). The Commission cited "unclear and significant" questions on pricing, liquidity and trading of Bitcoin, among others. This is despite some experts' suggestions that a Bitcoin ETF is inevitable.
The SEC has previously signalled it is open to a Bitcoin ETF, but has yet to see one it can approve. This is despite several ETF applicants in collaboration with major financial services companies. At least one Bitcoin ETF applicant has appealed to the SEC and is now in federal court. In the meantime, the SEC has also flagged concerns over the Coinbase and GDAX cryptocurrency exchanges' role in fraud cases. ## The CFTC: First Criminal Case, But Still Letting Bitcoin Exchanges Operate
Meanwhile, the U.S. Commodity Futures Trading Commission (CFTC) announced the first federal criminal case involving Bitcoin (and virtual currency generally) as a commodity. The CFTC has also brought a civil case, alleging that a company misappropriated Bitcoin and fake Bitcoin.
The news follows a fraud case involving several cryptocurrency exchanges, including GDAX. The CFTC has so far not taken action against any exchanges or the companies that operate them, although in September a Coinbase central account was accused of loss that other traders allegedly made. Co-founder Brian Armstrong has denounced the suggestion of insider trading, saying no Coinbase employees have such knowledge. ## The IRS: Bitcoin Is Still Taxable
The Internal Revenue Service (IRS) has issued guidance clarifying that Bitcoin is taxable, despite being an unofficial currency. It states that Bitcoin cannot be excluded from gross income. This is a rebuke to those who thought that the IRS guidance of a few years ago meant Bitcoin was a tax shelter. It also means that Bitcoin will still be treated as property for tax purposes, and that the standard wash sale rules apply. ## The Federal Reserve: Embracing the Potential of Blockchain, But Not Bitcoin
Lastly, the Federal Reserve has published a "white paper" on the potential of blockchain and distributed ledger technologies (DLT). This follows a long period of cryptocurrency skepticism, with a Federal Reserve Governor earlier in the year warning of the risks of Bitcoin. However, the Fed now has a dedicated DLT working group, and has committed to exploring the possibilities of DLT beyond Bitcoin. They are particularly interested in whether it could improve payment, clearing and settlement systems. ## Implications
These steps from various agencies are an important reminder that the U.S. government is still concerned with the risk of Bitcoin and initial coin offerings (ICOs). They also highlight the potential regulatory conflicts in the U.S.'s current regulatory framework. Bitcoin is still not considered a commodity, currency or security - leaving some uncertainty for investors and developers. It also indicates that ICOs will remain a key focus, despite the SEC's warnings on potential fraud.
The steps from the Federal Reserve, while still modest, are a sign of growing momentum for DLT in the U.S. It suggests that while the U.S. may be slow to adopt Bitcoin, it is open to the potential of the technology behind it. This is a positive sign for developers, but a potential risk for companies that are relying on Bitcoin to avoid regulatory scrutiny.
