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A foreign currency exchange is nothing new. On the other hand cryptographic currency ("crypto" i.e. Bitcoin) is relatively new, as are their exchanges.

https://abcnews.go.com/Business/wireStory/sec-brings-charges-cryptocurrency-trading-platform-coinbase-99866462

If crypto is a currency, Why not regulate it as a currency and not a security?

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  • I’m voting to close this question because it belongs on politics.stackexchange.com Commented Jun 6, 2023 at 20:06
  • I'm ot sure if "currency" is synonymous, but El Salvador has Bitcoin as "legal tender".
    – user35069
    Commented Jun 6, 2023 at 20:32
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    @Rick A decision which El Salvador now sorely regrets.
    – ohwilleke
    Commented Jun 6, 2023 at 20:48

1 Answer 1

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Is Crypto the same as any foreign currency?

No.

Crypto is generally treated as a commodity and capital asset, like gold, and not like a currency, under U.S. tax law. Other jurisdictions vary in how they treat cryptocurrency legally and for tax purposes.

Bitcoin (unlike other cryptocurrencies) is also regulated on a non-tax basis as a commodity by the Commodity Futures Trading Commission. Other cryptocurrencies are regulated in the U.S. as securities by the Securities and Exchange Commission.

Why not regulate it as a currency and not a security?

Cyptocurrencies are not very much like currencies which is why they are not regulated in that way.

The basis for treating it more like a security and less like a foreign currency for securities fraud/disclosure purposes is that it is a better fit to securities law which is designed for more varied legal arrangements than foreign currency laws.

Foreign currencies are backed by the full faith and credit of sovereign countries (which are non-profit entities). Also, foreign currencies are transparently based upon laws that are almost always a matter of public record and relatively straightforward. And, of course, banks and money changing firms trading in foreign currencies are subject to significant tax and financial regulation of their own, although not as securities.

In contrast, like other securities, cryptocurrencies are private creatures of contract created by entities with shareholders which do not have uniform legal properties. New "coins" can be created in different ways in different crypto currencies, and the relationship between the cryptocurrency to the non-crypto financial markets varies. Securities-like disclosures are necessary for members of the public dealing with it to understand the risks, benefits, and mechanics of the cryptocurrency in question.

The U.S. Securities And Exchange position and its basis is suggested by the ABC News story linked in the question, which states:

Coinbase has been targeted by U.S. regulators in a new lawsuit Tuesday that alleges the cryptocurrency platform is operating as an unregistered securities platform and brokerage service.

The lawsuit from the Securities and Exchange Commission comes only a day after it filed charges against Binance, the world's largest crypto exchange, and its founder Changpeng Zhao are accused of misusing investor funds, operating as an unregistered exchange and violating a slew of U.S. securities laws.

Coinbase shares plunged nearly 15% early Tuesday.

In its complaint, the SEC said Coinbase made billions acting as the middle man for cryptocurrency buyers and sellers but did not give investors lawful protections while acting as a broker.

“Coinbase has for years defied the regulatory structures and evaded the disclosure requirements that Congress and the SEC have constructed for the protection of the national securities markets and investors,” the SEC said in its complaint, which was filed in U.S. District Court for the Southern District of New York. It seeks injunctive relief, disgorgement of ill-gotten gains plus interest, penalties, and other equitable relief.

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