Regulation is coming for crypto. After more than a decade when cryptocurrencies and related technologies have surged, boomed, and busted in a regulatory vacuum, lawmakers in both the US and Europe are writing new rules for a sector that has grown dangerously large in both value and reach, touching $2.9 trillion at its peak in November 2021. The ongoing crash on crypto markets has only strengthened rule-makers’ resolve.
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On Thursday, EU institutions announced an agreement on two landmark pieces of regulation: the Market in Crypto-Asset Act (aka MiCA), regulating most providers of cryptocurrency services, and an anti-money-laundering package imposing robust checks on cryptocurrency transfers. In the US, several proposals have been put forward over the past few months. One notable example is the wide-ranging bipartisan bill sponsored by Republican senator Cynthia Lummis and Democratic senator Kirsten Gillibrand, which the crypto industry has saluted as beneficial, while others have condemned it as a capitulation to the crypto lobby’s requests. On the other end of the spectrum is Democratic senator Elizabeth Warren, a fierce crypto critic who sponsored a bill calling for robust checks on cryptocurrency transactions in order to stop the evasion of sanctions against Russia.
While none of these changes will come to pass in the immediate future, and some may never materialize, the age of untrammeled crypto experimentation (and bald-faced crypto scams) might be on the way out. The EU’s MiCA Act is “quite frightening for the crypto industry, actually,” says William O’Rorke, a Paris-based lawyer from ORWL Avocats, who specializes in crypto assets compliance. “We’ve never seen a financial sector being regulated so quickly.”
Anne Termine, a partner and cryptocurrency lead at the US law firm Bracewell predicts that even if none of the bills up for discussion so far were to be passed, “in two years’ time, there will be a bill out there.” She thinks that introducing rules for stablecoins is particularly high on lawmakers’ to-do list—echoing what US treasury secretary Janet Yellen said after the collapse of the terra-luna stablecoin.
But that is just the start. Here are all the hot-button crypto issues we expect legislators to grapple with—and what their proposals may look like.
While the OG cryptocurrency bitcoin was launched in 2009 as a type of digital money, other tokens launched after it have been marketed as ideal “shares” giving voting rights in cryptocurrency-based startups, or as purely speculative assets. That has raised the question of whether selling a token to the public is tantamount to peddling unregistered securities. If you ask the US Securities and Exchange Commission (SEC), in fact, crypto does not need more regulation: Most of the tokens launched and sold today should simply stick to existing securities regulations.
The SEC has generally submitted cryptocurrency projects to the so-called Howey test—by which every asset sold with the promise of profits deriving from someone else’s efforts qualifies as a security—and has slapped major players with lawsuits and fines for selling crypto tokens to the public without abiding by securities law. “A security issuer is supposed to file a registration statement with the SEC and disclose to investors a number of risk factors so that investors can really try to understand whether this is a good investment or not,” explains Todd Phillips, a financial expert with the think tank the Center for American Progress. “Cryptocurrency issuers aren’t providing those disclosures, and investors and speculators are getting harmed.”
SEC chair Gary Gensler famously thinks that most cryptocurrencies in existence, with the exception of bitcoin, are likely securities. Crypto entrepreneurs disagree, maintaining that some tokens have functionalities other than making their holders rich, and are therefore out of the SEC’s jurisdiction. Some have complained that the SEC’s approach lacks clarity on what kinds of crypto products are securities.
