Bitcoin's Regulatory Future
Before you put (more) money into these assets... things will change soon. Be careful
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SPECIAL NOTE: Gold people will recognize this pattern of regulation immediately.
Intro: We are fans of thorough analysis and have written some amateur legal stuff in the past on: Gold, Crypto, and market structure manipulation. We have also been consulted in more than one Gold manipulation case that was newsworthy. But this lengthy piece on Crypto legislation pending is something both thorough and readable. It had to be shared. It is quite long and in depth. Therefore it may be best digested in pieces. Expect to see this posted in parts. Today's part is the overview on what was analyzed. Should you have the time to read more, the link to the full article will be at bottom of each installment. This feels like s a legal brief, but reads like to business analysis written by someone who has a foot in both the crypto world as well as the legal regulatory one. We cannot verify if it is 100% accurate of course. But the stated regulatory moves described are completely what we'd expect from regulatory agencies and are not outside historical regulatory normalcy. The trick is how will you as an investor behave knowing this could happen. Because right now companies are jockeying for positions to make sure they can take advantage of whatever comes of the rules put in place. That said, the wild west in the USA will get tamed whether we like it or not. No opinions or "takes" will be added here. Any emphasis we add will be noted.- VBL
US Crypto Regulation Far More Invasive Than We Thought
US Congress intends to regulate crypto on a level far deeper
than currently understood―They will:
Designate Bitcoin, Ether, and their hard-forks as commodities and regulate their transactions accordingly;
Create legal uncertainty for all other crypto projects and ICOs by allowing them to be labeled as securities;
Ban the use of (unauthorized) stablecoins;
Introduce prison sentences for the use of mixers and privacy coins;
Rebrand smart-contracts that take longer than 24 hours to deliver as futures contracts and regulate them accordingly;
Re-define legal tender and change the way money is created by the Federal Reserve; and authorize the issuing of a digital USD of which all transactions are recorded;
Introduce foreign regulations into US law for all virtual asset service providers in the US (and with US clients).
In short: Congress wants to bring crypto-currencies under full oversight and control.
These new regulations introduce massive regulatory burdens on existing projects, ban and criminalize current normal activities, restrain innovation and free enterprise, and even introduce a transparent central bank digital digital currency that redefines money as we know it!
According to United States representative Don Beyer, congress should incorporate “digital assets into existing financial regulatory structures.”1)“Press Release: Beyer Introduces New Legislation To Regulate Digital Assets,” (United States Congressman Don Beyer, Washington, July 28, 2021), accessed on September 6, 2021, https://beyer.house.gov/news/documentsingle.aspx?DocumentID=5307 As you will see, they intend to do just that.
And it will change the way things are done for crypto forever…
What This Article Is About
This article provides an overview of the crypto legislation currently (September 2021) being put through US congress; it does not just look at the proposed bills, but rather at the wide range of laws that are to be amended.
Once all the puzzle pieces are put together, the big picture reveals shockingly strict regulations of crypto and a complete overhaul of the idea of “money.” This could have serious effects not only on the crypto sector, but also on the financial system as a whole.
Behind the excuses of preventing money laundering and ensuring investor protection, the use of crypto is transformed in something it was not supposed to be. Especially delicate is the fact that part of this legislation is drafted outside the US.
Disclaimer: This report provides a high-level overview of the US laws that are to be introduced/amended by two new bills. Its depth is limited by the inadequate knowledge of the author of the large body of US law involved, and given that these bills are subject to amendments and have not even passed into law yet, none of this information can be considered legal or financial advice.
What Is Going On?
On April 06, 2021, a “must pass” bill was introduced called the “Infrastructure Investment and Jobs Act”2)“H.R.3684 – Infrastructure Investment and Jobs Act, 117th Congress (2021-2022),” (US Congress, Washington, April 6, 2021), version EDW21A09 WG9, https://www.congress.gov/bill/117th-congress/house-bill/3684/ (“Infrastructure Bill”). It passed in the House of Representatives and, after fierce debate, the Senate. Hidden in this bill, an amendment to the Internal Revenue Code was added. It introduced new reporting requirements and obligations for record keeping.
While this bill created a lot of public outcry, more recently, a real game-changing bill was introduced in the House on July 28, 2021, namely the: “Digital Asset Market Structure and Investor Protection Act”3)“H.R.4741 – Digital Asset Market Structure and Investor Protection Act, 117th Congress (2021-2022),” (US Congress, Washington, July 28, 2021), https://www.congress.gov/bill/117th-congress/house-bill/4741/
[author: there is so far on September 17, 2021 only one version of the bill]. (“Digital Asset Bill”).
This bill proposes amendments to the Federal Reserve Act, the Bank Secrecy Act, Securities Exchanges Acts, and the Commodity Exchange Act. It changes the definition of legal tender, and it introduces international crypto regulation into US law.
This article looks at each of these amendments…
Commodities or Securities?
The main take-away is that two different bodies of law will apply to crypto projects: commodities and securities laws. So far, only Bitcoin, Ether, and their hard-forks are confirmed to be commodities (see below). All other cryptos are subject to future guidance by market regulators:
“Not later than 150 days after the date of the enactment of this section, the SEC and CFTC shall jointly publish, for purposes of a 60-day public comment period, a proposed rulemaking that classifies each of the major digital assets.
Not later than 270 days after the date of the enactment of this Act, the SEC and CFTC shall jointly publish a final rule that classifies each of the top 25 major digital assets by (i) highest market capitalization and (ii) highest daily average trading volume as—
(1) a digital asset; or
(2) a digital asset security.”4)“H.R.4741 – Digital Asset Market Structure and Investor Protection Act,” SEC. 104. JOINT SEC AND CFTC RULEMAKING ON MAJOR DIGITAL ASSET CLASSIFICATION, page 7.
Interpretation:
Cryptos will be subject to two different regulatory regimes: commodities and security regulations.
Services engaged with both digital assets (commodities) and digital asset securities (securities) could be subjected to both regulatory regimes.
END PART 1
VBL's Daily Bitcoin Trading Podcast
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— VBL (@VlanciPictures) September 28, 2021
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