Crypto in the Law’s Eye: How We Regulate Digital Assets Posted Jan 28, 2024

The regulatory scene in the United States and other parts of the world and market expansion keep evolving. Authorities are intensifying regulatory activities around digital assets and cryptocurrencies. This is happening at the same time as platforms like spin city casino that support crypto are launching. In many ways, it’s an excellent sign of acceptability at institutional and retail levels. Federal and state regulators are considering different approaches to make everything clear. Some crucial issues include licensing, financial crimes, fraud risks, and investor and consumer protections. However, digital assets regulation has been challenging. This article will discuss why we need to regulate digital assets and how different states do it. Continue reading to learn more.

Reasons We Need to Regulate Digital Assets

One of the selling points of crypto and digital assets is protecting user’s security and policy against corporations and governments. Since crypto was made for this community, the original users had no problems investing in the sector. However, the industry has grown massively and is now a $1 trillion industry. Some people will take advantage of innocent investors without regulations and consumer protection. To bring balance, regulators have to step in and offer restrictions. Some things that need regulations include Ponzi scheme projects, faulty token systems, misinterpretations, and initial coin offers. These can cost investors billions of dollars. For instance, the FTX collapse, highlighting the recent bankruptcies, shows why we must protect consumers.

The United States Regulatory Approach

According to the federal securities laws in the United States, digital assets are regarded as “securities.” They’re subject to the Securities Act of 1933 and the Securities Exchange Act of 1934 if the digital asset is an ‘investment contract.’ According to the acts, an investment contract exists if there is:

• Money investment;
• Expectation of profit;
• Common enterprise;
• Relying on the efforts of other people.

The first time the SEC (Securities and Exchange Commission) did a Howey Test on crypto and digital assets was in 2017. It happened when Munchee Inc. wanted to raise approximately $15 million through ICO to enhance its iPhone app. They knew this ICO didn’t need an SEC registration since it used utility tokens. Utility tokens are created with a specific use – in this case, they would only be used in the Munchee application. However, the SEC rejected this because the tokens were investment contracts. They were subject to regulation.

Two years later, the SEC established a 2019 Framework to determine whether a token is an investment contract. Today, the regulatory landscape for digital assets and crypto is evolving fast and fragmented. Depending on the asset’s structure and the underlying circumstances and facts, several regulators at the state/federal level might have authority. Overlaps and gaps are being designed as the sector grows. Crypto tech companies are working with regulated banking firms and financial systems to build crypto infrastructure. There are reasonable efforts to create a working regulatory regime, which includes chartering and licensing authorities. In such an incidence, regulation terms will change.

Global Treatment

Outside the US, multiple nations are taking vital steps towards regulatory frameworks of digital assets. The laws account for and recognize the uses of most digital assets. For instance, the Financial Conduct Authority established a Guidance on Cryptoassets in the United Kingdom in 2019. It separates digital tokens into unregulated and regulated tokens:

• Regulated tokens include e-money tokens and security tokens. They provide obligations and rights similar to the ones provided by “Specified investments” under FSMA, which have repayment and ownership rights.
• Unregulated tokens include exchange or utility tokens and other kinds of tokens. The Financial Markets and Services Bill by the UK parliament gives regulators a better oversight of digital assets in the country. It brings digital assets near FSMA, which makes it easier for regulation.

The Decentralized Ledger Technology Act was introduced in Switzerland in 2021. The act offers a legal framework for securities to be Blockchain-based. The EU is introducing MiCA (Market in Crypto Assets) laws to help regulate and capture all digital assets. Other nations in the process of establishing their own digital assets laws include Dubai, Australia, Singapore, Brazil, and Japan. Before investing in digital assets, you must check your country’s regulatory laws.

Experts Opinion on Digital Assets Regulations

Most experts believe the US has yet to adopt a comprehensive enforcement and regulatory framework for crypto and digital assets. Those aiming to participate in the digital asset market must consider whether the transaction will be regulated as a commodity or security. Moreover, regulatory frameworks differ among different countries. When engaging in global transactions with crypto and digital assets, you require further analysis and consideration. As potential legal frameworks start to take shape, investors in the crypto world should be ready for the coming changes. They can look at the regulations and rules to understand the future.