It was a pivotal year for the cryptocurrency industry, with the highly publicized crashes of Terra/Luna and cryptocurrency exchange FTX wiping out more than $2 trillion since the cryptocurrency market hit its all-time high in November 2021. .
As a result, there is increasing pressure on regulators to closely monitor the industry and create stricter regulations. Here are some big questions that remain before we proceed:
Is Crypto a Commodity or a Security?
There is currently no comprehensive plan to regulate cryptocurrencies, and one of the big unanswered questions is how exactly to classify cryptocurrencies, said Edward Moya, senior market analyst at OANDA.
According to Securities and Exchange Commission Chairman Gary Gensler, encryption is security. The Howey test, based on a 1946 Supreme Court decision in SEC v. WJ Howey Co. defines value as money invested in a joint venture with the expectation of benefiting from the efforts of others.
In a September statement, Gensler said that "many of these tokens are purchased by market advocates and the investing public to encourage or anticipate gains based on the efforts of others," in which case the cryptocurrencies are registered with the SEC would.
The SEC has already taken some action. In May, it announced a crackdown on cryptocurrencies by doubling the size of its crypto assets and units of account.
Others in the industry believe that cryptocurrencies behave like commodities, in which case they would come under the jurisdiction of the Commodity Futures Trading Commission.
"The advantage of the CFTC is that they are able to work better with cryptocurrencies because of their experience with other derivatives," Moya said.
It is extremely difficult to agree on how cryptocurrencies should be ranked, Yesha Yadav, a law professor at Vanderbilt University and associate dean for diversity, equity and community, said in an interview with MarketWatch. Congress needs to come to a conclusion because clarity on how cryptocurrencies are classified will provide clear answers on what regulation would look like, Yadav said.
What legal options are there?
As for the banknotes, there are several, it's hard to say which will prevail over the others, Yadav said, because they were created before the dramatic collapse of cryptocurrency exchange FTX, which filed for bankruptcy in November after billions of dollars disappeared were. in customer deposits. .
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A Senate bill sponsored by Michigan Democrat Debbie Stabenow and Arkansas Republican John Boozman would require all digital commodity platforms — companies, brokers, retailers and consumers — to register with the CFTC, giving them more regulatory power gives. Cryptocurrency than the SEC. This requires digital commodity platforms to prohibit abusive business practices, disclose conflicts of interest, have strong cyber security, and report suspicious transactions.
A bill sponsored by Sens. Cynthia Loomis, a Wyoming Republican, and Kirsten Gillibrand, a New York Democrat, will separate digital assets into commodities, securities and small caps. The draft law defines fringe assets as cryptographic tokens that, despite fluctuations in value over time, do not provide the holder with any profit or income shares or other financial interests.
Under this bill, cryptocurrency issuers will be required to provide certain information to the SEC. Issuances of digital assets are treated as a commodity and are therefore subject to CFTC regulation, reducing tensions between the SEC and other federal agencies.
"It's hard to predict which bill will win next year as I would say that every organization has supporters and many of them are in some way dwarfed by the political positions of the members," said political scientist Owen Telford . to Beacon Policy Advisors in an interview with MarketWatch. "As a result, I am not sure there will be a clear outcome next year as to which organization should take the lead."
“You have someone like (Sherd) Brown, the chair of the Senate Banking Committee, who totally questions the regulation of cryptocurrencies because he's not sure you should provide class legitimacy. 'Wealth,' said Telford. Brown, a Ohio Democrat, "I would be a key player in drafting any type of cryptocurrency legislation, and it's not clear at this point if I would necessarily support any of it."
So far this year, Bitcoin is down 63.57% and Ethereum is down 66.88%, both according to CoinDesk data. According to CoinMarketCap data, the global cryptocurrency market cap is $811.87 billion, up 1.53% over the past 24 hours.