In the United States, federal and state governments have been casting a watchful eye over cryptocurrencies in the past few years. While agencies such as the Internal Revenue Service (IRS), the Office of the Comptroller of the Currency (OCC), and the Financial Crimes Enforcement Network (OCC) have all engaged with cryptocurrencies, there is yet to be widespread rulemaking at a federal and state level.
Although some policymakers have praised blockchain technology as having an important part in the US’s technological development and future infrastructure, there are still concerns about how digital assets should be approached. Federal regulators recently demanded that congress grant them more power to properly regulate stable coins. Democrats also urged federal agencies to address the use of cryptocurrencies for ransomware attacks which have been increasing recently.
Clearly, there is a lot of confusion surrounding the best way to proceed in terms of regulation, but some states have taken decisive action both favorably and unfavorably for cryptocurrency.
How are States Approaching Legislation?
Some states are passing regulations to make sure cryptocurrencies are exempt from laws that would inhibit them. Local policymakers want to leverage investment in technology to improve the economies in their cities. In Miami, Florida, they are generating their own coin to be used by residents exclusively in the city as purchasing tokens. Even the Mayor, Francis Suarez, announced that he will be receiving his paychecks in cryptocurrency. Additionally in Wyoming, the State Senator has publicly announced his attention to economic diversity by embracing the crypto industry. Wyoming passed legislation to create a new type of crypto-focused bank to allow businesses to hold digital assets safely and legally.
Elsewhere, Colorado passed a bill exempting cryptocurrencies from state security regulations. This means that transactions are free from security registration requirements, but also the persons dealing in the tokens are exempt from the broker-dealer requirements. Lastly, the Oklahoma Senate introduced a bill authorizing cryptocurrency to be used and accepted within its governmental agencies. These states see the benefits of cryptocurrency and are coming up with innovative bills to harness it.
However, the nationwide approach is far from uniform. In contrast to Oklahoma, Iowa introduced a bill prohibiting political subdivisions from accepting cryptocurrency payments. Furthermore, many other states have issued warnings regarding crypto investments.
New York has some of the strictest cryptocurrency exchange rules of any U.S. state. The BitLicense passed in 2015 means any company wanting to buy, sell, store, or issue a virtual currency needs a license. In fact, in October this year, the attorney general for the state said, “We are now directing two crypto companies to shut down and forcing three more to answer questions immediately.”
How are different states enforcing cryptocurrency legislation?
Earlier this year, the security regulators of Alabama, Kentucky, New Jersey, Texas, and Vermont issued cease-and-desist notices against various actors including the cryptocurrency firm BlockFi and their cryptocurrency accounts. The states claimed that BlockFi violated their security laws due to the interest earned via their cryptocurrency accounts.
On a national level, the National Cryptocurrency Enforcement Team was created as of October 2021 in the hope of tackling “prosecutions of criminal misuses of cryptocurrency, particularly crimes committed by virtual currency exchanges.” With this promise to investigate and prosecute cryptocurrency cases more frequently, cryptocurrency exchanges will need to be aware of their legal standing in various states and ensure that they are abiding by local regulations.
For more information about cryptocurrency regulation, check out our blog on the topic here.