As cryptocurrency evolves and comes into more common usage, so too do the regulations put in place to manage it. Upcoming laws and legal actions are likely to place more governmental controls over how virtual currencies are handled, and that means investors, firms, miners, and so forth need to be aware of the potential legal ramifications they may face in the near future.
The laws that currently (or may eventually) apply to virtual currencies like Bitcoin or Ethereum include those described in this article.
SEC Guidelines Over Cryptocurrency
One of the governing bodies that have taken action regarding cryptocurrency is the Securities and Exchange Commission (SEC). According to the SEC, cryptocurrencies often fall under the definition of securities in that they are exchanged with the expectation that they’ll result in profit. Because of this, various laws may apply to crypto trading firms and investors.
For instance, the Investment Advisers Act of 1940 may apply to those who manage funds invested in cryptocurrency. The law requires investment advisors to register with the SEC, and it includes certain reporting requirements for its employees. Other laws promote transparency by requiring firms to report specific information, something that may be difficult given that many crypto transactions are nigh untraceable.
The CFTC on Cryptocurrencies as Commodities
The Commodity Futures Trading Commission (CFTC) may also regulate certain transactions, though to a lesser extent than the SEC. While most cryptocurrencies aren’t covered by the CFTC, futures, and swaps that reference digital currencies may be considered commodity interests. As a result, the laws to Consider Wheney would require registration with the CFTC.
Cryptocurrency trading firms whose activities include commodity interests could be required to comply with certain disclosure and reporting requirements.
FinCEN and Cryptocurrency
The Financial Crimes Enforcement Network (FinCEN) is authorized to enforce various crimes that may be committed via cryptocurrency. In addition, under the Bank Secrecy Act (BSA), they can require exchanges to perform comprehensive risk assessments and create anti-money laundering programs. These requirements are put in place because FinCEN considers cryptocurrency exchanges, investors, traders, and the like to be money services businesses (MSBs), meaning they should be regulated as such.
Tax Laws and Virtual Currency
The IRS also has laws regarding virtual currency and taxation. In general, any income gained in the form of cryptocurrency—including as wages or from mining—should be reported as income on tax returns. Additionally, virtual tokens or coins sold for profit are subject to capital gains taxes. On the other hand, selling cryptocurrency at a loss could potentially reduce one’s tax burden. Rules governing capital gains apply in this area as they would with any other investment asset.
Employers who pay their employees in cryptocurrency also need to withhold taxes from their wages, which means a bit of extra bookkeeping may be needed to track virtual currency values over time.
Maintaining Regulatory Compliance
With the various laws that may apply to virtual currencies, and with the inevitable legal developments that are likely to occur in the future, it’s vital to stay on top of compliance. Maintaining regulatory compliance in such a dynamic field is challenging, so it’s best to involve a legal professional who is knowledgeable of current and upcoming developments.