Crypto regulation stems from a few key sources:
What Are Commodities?
In everyday terms, commodities are raw materials or products. They are goods that are typically transformed into more consumable products or uses. Common examples are steel, coffee beans or pork bellies.
In the pork bellies context, Eddie Murphy gives some deep insight in Trading Places on how commodities investing works.
The Arizona Senate has passed a bill that would allow state residents to pay their taxes in cryptocurrency
Senate Bill 1091 still needs to pass in Arizona’s House of Representatives, but the fact a bill like this has passed in the Senate is unprecedented in the US. Under the bill, the Arizona Department of Revenue would convert the crypto tax payments into US dollars within 24 hours.
Fiat & Taxes
Ok, great, so Arizona is open to experimenting with crypto. So what? Why does it matter, especially if Arizona would just immediately convert the crypto to dollars?
Because there are convincing arguments that what makes fiat money valuable as “fiat” is the fact it’s the only currency the government you live under will accept for tax payments.
Colorado House Representative Jared Polis has petitioned the Congressional House Committee on Ethics to require that members of Congress should disclose any ownership of cryptocurrencies. Awesome.
Members of Congress are required to make certain disclosures about income and investments.
Right now most ICOs are for currencies or utility tokens. But there’s a third category that many believe will be more widespread and useful: security tokens.
What Is A Security Token?
A "security token" is a blockchain-based asset that functions like a traditional security. Instead of owning stock in a company, you would own a security token. That token would come with voting rights, distribution rights, and/or liquidation rights.
Security tokens are a way to bring blockchain efficiencies to traditional equity. Companies can issue tokens instead of stock, and have an up-to-date blockchain ledger of its shareholders at all times.
Money transmission laws may play a big role in the development of the cryptocurrency industry. So what are they?
The Bank Secrecy Act and its related regulations impose anti-money laundering ("AML") regulations on money transmitters. A money transmitter is an entity that provides money transfer or payment services. Examples include PayPal, Western Union and Barclays.
Federal Money Transmitter Laws
The consequences of being labeled a money transmitter at the federal level (by FinCEN) are that the you must:
State Money Transmitter Laws
Under state laws, a money transmitter must get a license. Under federal law a money transmitter only needs to register with FinCEN (in addition to the above requirements). But under state laws, you have to apply to a license, which is granted at a state's discretion and, as a result, is not guaranteed even if you comply with all other requirements.
State licenses typically have higher standards, including providing audited financials, personal financial records of key personnel of the transmitter, background checks, fingerprinting, bond posting requirements and others.
Importantly, state money transmission laws can apply to businesses that have no physical presence in the state if that business solicits or services any state citizens. So they're pretty wide-reaching.
An just like with state securities laws, transmission laws are ancient and not built for crypto. While federal law is slow to change, state laws are usually even slower.
Money transmission laws could apply to anyone handling crypto (including traders and everyday investors), miners, exchanges and others. The application of these laws to different crypto entities could inhibit adoption, but also promote legitimacy.
For example, FinCEN's 2014 release sees miners as money transmitters, and not everyday traders and investors.
How these laws will apply to crypto in the future is uncertain, but will be an important piece of the regulatory puzzle to consider as you might tax and securities laws
Today the Securities and Exchange Commission got a federal court order halting the altcoin ICO of AriseBank.
The ICO raised around $600 million in two months and planned to create the world’s first “decentralized bank” via a cryptocurrency, AriseCoin. AriseBank claimed it would offer consumer-facing products and services, including a cryptocurrency trading algorithm.
The crux of the order is that AriseCoin, in the SEC’s view, is a security and needs to either be registered or fit into an exemption.
Fraud Red Flags
There is the standard Howey framework for analyzing whether something is a security. However, in a lot of cases, the key isn’t so much whether an investment cleanly fits into the Howey framework.
I’ve been wondering about volatility of Bitcoin lately. In particular, I've been curious about the frequency of Bitcoin dips. I parsed through historical daily closing price data and mapped out the frequency of various sized dips ranging from 2013 through 2017.
Bitcoin (and all crypto) got a nice mid-January bloodbath, shedding around $8,000 (nearly 50%) over a few days.
A few crypto pundits arguing the cause is futures market muckery; the first Bitcoin futures expired January 17.
BTC had been trading in the mid-to-high $10,000s in the weeks leading up to that expiration, but dropped during the few days right before it. The first expiring BTC futures contract was set for $10,900, so any owner of that first round of futures had an interest in seeing BTC tank from its $17k highs.
The crypto markets right now are quite pure, due to their relative young age and light regulation. Pure in the sense that institutional actors like banks aren’t calling the shots. That, however, doesn’t mean these markets aren’t susceptible to manipulation.
The upside of this pure market state means banks aren’t using their weight to move the market to their will (yet).
The downside is . . . other actors may be.
“The present is the past rolled up for action, and the past is the present unrolled for understanding.” – Will & Ariel Durant
As per homo sapiens' availability biases, a course of events seems unlikely if we haven't experienced and can’t easily imagine them.
While studying history is fraught with risks (e.g. narrative fallacy), doing so may give us better ability to gauge whether a trend will take root.
The creation of an international private currency seems improbable, right? It's never happened before, right?
Decisive victory: Jamie Dimon regrets calling Bitcoin a fraud.
What are the odds JP Morgan bought a bunch of Bitcoin before he said so...