Federal regulators increasingly reaching out for answers, while U.S. states define their own rules.
The articles we at BitOoda read every day on regulatory issues generally come in two flavors: one is a market participant or industry group clamoring for clearer guidance from the SEC and CFTC (for example, last week we discussed the Chamber of Digital Commerce’s National Action Plan for Blockchain). The second type is news about enforcement actions or public comments by federal regulators, which the crypto world examines with a magnifying glass to glean whatever hints we can infer, in the hope of fitting another small piece into the still-largely-incomplete regulatory puzzle. The obvious example this week is SEC Chairman Jay Clayton’s letter to U.S. Representative Ted Budd stating that digital assets should be classified based on the circumstances of the transaction, which may change over time. Every word of Clayton’s letter has been analyzed at this point, so we will instead offer our thoughts on a broader trend that we see emerging: federal regulators are increasingly reaching out for input on how to better govern the space, while individual states are forging ahead with their own regulatory plans.
SEC and CFTC press releases and speeches typically note that they welcome direct engagement with crypto and fintech firms to discuss the issues firsthand; apparently that was a genuine offer, as both the SEC and CFTC in the past week have initiated new outreach to industry and public groups. The CFTC announced a public meeting of its Technology Advisory Committee (chaired by Commissioner Brian Quintenz, who supports the creation of a crypto-focused SRO), where it will discuss distributed ledger technology (DLT) and virtual currencies. SEC’s FinHub announced a series of peer-to-peer meetings, and last Friday also announced that it will hold a public form on DLT and digital assets.
At the same time, the pace of activity at the state level seems to be accelerating, as evidenced by the numerous legislative actions in the past few weeks. Colorado on March 6 passed the “Colorado Digital Token Act” that exempts cryptocurrencies from state securities regulations; California on February 22 introduced a virtual currency registration bill that would prescribe specific licensing and other requirements on virtual currency businesses; Texas proposed a bill that would require a person receiving cryptocurrency to verify the identity of the person sending it; and Wyoming has now passed 13 blockchain-friendly laws since 2018 that establish a clear structure for crypto activities in the state.
It is probably too early to get either nervous or excited (depending on your perspective) about the proliferation of state-specific regulations that are filling the gap created by the absence of comprehensive federal guidance. But as we at BitOoda continue to spend a great deal of time navigating all of the federal and state requirements that apply, we are wary of the dichotomy of individual states taking it upon themselves to propose ways for crypto to fit into existing law, while federal agencies continue to try to figure out the issues. We continue to advocate for a more coordinated regulatory structure that clarifies and deconflicts the multiple sets of requirements that apply to digital assets, but as more states set up their own rules, the potential for confusion in the future could increase. But we also have to ask: at what point is something better than nothing?