A brief analysis of the current status and prospects of the United States' regulatory policy on virtual currency

The existing regulatory system in the United States and the functions of each department

In general, as far as the US regulatory framework is concerned, there is no unified and one-stop legislative and regulatory authority, resulting in high regulatory and compliance costs. Practitioners find that they need to report to multiple departments or apply for licenses when doing business; if they cannot meet all of them, they may be punished.

The Treasury & IRS (Treasury and Internal Revenue Service) will formulate and enforce crypto taxation related regulations.

The SEC (Securities and Exchange Commission) regulates governance tokens loosely and generally does not consider them securities. Whether it is a domestic project or a foreign project, as long as an American buys the tokens of the project, the SEC has jurisdiction over it. Therefore, American projects basically design their own tokens as governance tokens, which is the only loophole that can be exploited at present.

The CFTC (United States Commodity Futures Commission) is a relatively friendly regulatory authority for the crypto industry, but its regulatory scope is limited to the derivatives field, mainly crypto (commodity contracts). Compared with the CFTC, the SEC has a broader jurisdiction and greater power.

The OCC (Office of the Comptroller of the Currency) is similar to the China Banking Regulatory Commission, and its jurisdiction will involve many aspects of stablecoins. Both USDT and USDC have bank deposits as reserve assets, and stablecoins are inextricably linked with banks. At present, the relevant laws and regulations are still blank, and the OCC may issue detailed rules on how banks serve stablecoin issuers in the future. If the relevant policies are more open, Bank of America may provide reserve asset custody services for overseas stablecoin issuers. This will maintain the prosperity of the crypto industry while ensuring the issuance of stablecoins.

The CFPC (Consumer Financial Protection Bureau) will supervise project parties that provide financial services to consumers (mainly stablecoins and Defi) to protect consumer rights.

FinCEN (Financial Crimes Enforcement Agency) is a regulator focused on the payment sector, mainly in charge of anti-money laundering and anti-terrorist financing. Exchanges and brokers in the United States need to register for MSB licenses, so as to facilitate FindCEN to establish formal information channels. Both exchanges and brokers need to collect customer identification information, verify customer transactions, and prevent customers from engaging in money laundering and terrorist financing. In the future, FinCEN will supervise the Defi field. Because the responsible person in the Defi industry is not clear, FinCEN will be more troublesome to supervise, and may be held accountable in specific cases.

Outlook on future U.S. regulatory policy developments
Stablecoins: Stablecoins have a great impact on the entire crypto industry, and are also a matter of great importance to government agencies. There is a loophole in U.S. regulation of stablecoins, which may have been intentional by the government. In the traditional financial field, users must complete KYC before obtaining financial services; however, stablecoins have broken through this iron law in the US financial industry, and there is no KYC in the process of stablecoin circulation (unless redemption by the issuer is applied), No matter who you are, you can get financial services of stablecoins without barriers, and of course criminals can too. The United States' caution may be to expand dollar credit to the world through stablecoins.

Because the U.S. government realizes that stable coins will involve money laundering and terrorist financing, on the one hand, KYC will be strengthened in the future, including that users holding stable coins are not so anonymous. Another aspect is how banks get involved in the business of stablecoin issuers like Circle. Stablecoin issuers like Circle are forced to hold a certain percentage of liquid reserve assets, such as government bonds or bank deposits. Of course, at present, the impact of stablecoins on the US dollar is not that huge.

Taxation: The current U.S. government's taxation measures for virtual currency involving Defi transactions are not clear enough. In the future, regulators will focus on introducing specific enforcement policies in tax collection. Another point is the tax on unrealized profits that Yellen mentioned, which applies to stock listings as well as crypto. Once the policy is introduced, this will be a major negative for the capital market.

Securities Issuance: It is a commonplace question whether the issuance of coins by crypto-industry projects is considered a kind of securities issuance. In fact, officials in many securities departments in the United States have realized that it is problematic to use the old securities law framework to regulate virtual currency issuance. It will cause some originally decentralized projects to be unable to issue coins; if applying for securities registration according to the original securities law, it will affect the progress of the project.

SEC commissioner Hester Peirce once proposed a draft of the safe haven rule, which aims to give certain crypto projects a transition period (say three years). If the project achieves a sufficient degree of decentralization, the issuance of coins will no longer need to meet the requirements of securities issuance, which is actually a very big breakthrough. It means creating a new class of asset issuance outside the securities law system. Although this is only the idea of the SEC commissioner, it is actually very meaningful and very in line with the industry situation. As for whether this draft can be used as a written legislation, it may take a long time to be implemented in the future. Secondly, it involves members of Congress who can fully recognize the de-neutralization characteristics of this industry in order to promote the implementation of the bill. So far, there has been no substantial progress at the government level after the release of the draft safe haven regulations. The new chairman of the China Securities Regulatory Commission, Gary, is not particularly interested in this draft. Instead, it is the new official who has taken office three fires, constantly investigating and punishing various currency issuance projects.