In the US, the use of cryptocurrency or virtual currency like bitcoin is legal. They have the same payment, taxes and other requirements as any other currencies. Virtual Currency exists in a deregulated marketplace. There is no centralized authority that controls its issues. There is also no way to backtrack or monitor the company or the individual who created the bitcoin. It is difficult to find if the information on the ledger is correct or not.
And because of this, the US financial regulators are concerned about the effect of using virtual currency in any transactions and investments in the financial market. The Security Exchange Commission, or SEC, which is an independent agency in the US, regulates if the virtual currency is being offered or traded as securities or investment contract or collective investment fund.
In 2018, the Security and Exchange Commission had rejected 9 separate applications of Bitcoin. The Virtual currencies or bitcoins are not compatible with the requirements of the Social Executive Commission. To date, the latest interview with Security Exchange Commission Chairman Jay Clayton told Consumer News and Business Channel (CNBC) last June 25, 2019, that Bitcoin is not secured. Virtual Currency is a replacement of sovereign currency.
The US Commodity Futures Trading Commission or CFTC, which is the primary federal derivative regulator in the US, stated that virtual currency falls within their jurisdiction. The Commodity Futures Trading Commission has the power to bring a civil enforcement action against virtual currency alleging failure to comply with CFTC’s requirement. CFTC has a wide authorization to bring civil enforcement if there is fraudulent or manipulation of any transaction when it comes to commodity in interstate commerce.
Another Independent Agency of the US Federal is the Financial Crimes Enforcement Network or FinCEN which is under the US Treasury Department. This agency regulates the movement that transmits in the basis of the guidance for virtual currency exchanges.
Federal banking is also closely monitoring banking activities related to virtual currency. The 50 states of the United States of America have different financial and security regulators. Most of them are involved in monitoring the activities of virtual currencies. In some cases, if they found that it was used for money laundering or fraud, they are empowered to bring enforcement actions.
The market participants, such as the government, business firms, foreigners and consumers should assess their activities that could trigger registration and a related requirement under the Security Exchange Act, or SEA, which is administered by the Security Exchange Commission.
Some Important Terms to Remember
The market participants should know the definition of the Broker, Dealer, Exchange, Alternative Trading System(ATS), Clearing Agency and Transfer Agent. Security Exchange Commission is trying hard to regulate virtual currencies to the extent of these areas.
Broker and Dealer
Virtual currencies are generally required to meet the entity requirement of the Security Exchange Commission. A security broker is any person who is engaged in the business for the account of others. A securities dealer is a person involved in the business transaction who buys and sells securities for such person's account, whether it could be a broker or otherwise.
Exchange and Alternative Trading System (ATS)
Exchange is the system that brings together the securities of multiple buyers and sellers and uses a non-discretionary method. While Alternative Trading System is the non-exchange trading venue. It matches buyers and sellers to find counterparties for the transaction. ATS is typically broker-dealers rather than as exchanges.
It is any person who acts as a third-party moderator service between two parties of any business transactions including virtual currencies or cryptocurrencies. They facilitate the comparison of the data in terms of settlement of securities transactions. They also act as a custodian of securities.
This includes any person that engages on behalf of the securities issuer. They are the ones who countersign such securities once issued. They monitor the securities that were issued to prevent any unauthorized issuance. They register the transfer of the issuer's securities. They also convert or exchange securities. They are permitted to transfer the record of ownership of the securities without physical issuance of securities certificates.
The US regulatory rules and regulations are not so complicated if everyone complies with its requirements. Complying with the existing regulations does not only help cryptocurrency trading platforms avoid sanctions but could lead to the smooth flow of trading transactions. It is clearly shown that virtual currencies or cryptocurrencies such as bitcoin are slowly being recognized not only by the US government but by some countries across the globe.