As a new monetary system with a widening base of users, Bitcoin is highly susceptible to government regulation. Government agencies enact and execute the policies of the federal government. These agencies seek to protect the citizens of the United States from fraud, crime, and duplicity. Consequentially, their intervention can disrupt or alter the existing structures of Bitcoin. Investors in Bitcoin should be aware of the policies and expectations of these agencies, in order to understand the value of Bitcoin and comply with current laws. This article examines the mission statements, developments, and policies of four U.S. government agencies with varying degrees of jurisdiction over Bitcoin.
U.S. Commodity Futures Trading Commission (CFTC)
“The mission of the Commodity Futures Trading Commission (CFTC) is to foster open, transparent, competitive, and financially sound markets, to avoid systemic risk, and to protect the market users and their funds, consumers, and the public from fraud, manipulation, and abusive practices related to derivatives and other products that are subject to the Commodity Exchange Act.” –CFTC.gov
The CFTC actively monitors and responds to market failures. In response to the failure of Bitcoin exchange Bitfinex, the CFTC filed and settled charges in June 2016 for failure to register as a commission merchant as mandated in the commodity exchange act and for offering illegal transactions. Given that Bitfinex is a Hong Kong based exchange, this story signals the wide reach of cryptocurrency regulations and the importance of building international regulatory awareness.
U.S. Securities and Exchange Commission (SEC)
“The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” –SEC.gov
The SEC also exists to protect markets, with a greater focus on investor protection than the CFTC. In another piece of recent news, the SEC charged Connecticut-based companies GAW miners and ZenMiners for fraudulent mining activity. The companies were selling shares of their Bitcoin profits, supplied by their Bitcoin mining activities. However, they sold more shares of computing power than they had and were unable to meet their promises to investors. Consequentially, the SEC intervened. This instance demonstrates that Bitcoin investors and business owners alike need to be wary of new business models.
Internal Revenue Service (IRS)
[The IRS mission is to] “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.” –IRS.gov
Currently, the IRS treats virtual currency as property for federal tax purposes. More information and FAQs can be found on the IRS website. Investors should consult the IRS website in order to abide by the laws associated with the developing status of Bitcoin.
Financial Crimes Enforcement Network (FinCEN)
“FinCEN’s mission is to safeguard the financial system from illicit use and combat money laundering and promote national security through the collection, analysis, and dissemination of financial intelligence and strategic use of financial authorities.” –FinCEN.gov
In addition to its services, FinCEN provides a comprehensive list of anti-money laundering laws. In considering transactions, investors and businesses should consult the FinCEN anti-laundering website to help avoid illegal activities.