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With all new markets, products and technologies, it takes time for government agencies to catch up and determine what it is and how it should be regulated. Crypto is no different.
Today, the US regulatory landscape with respect to crypto is complex and overlapping, producing a multi-regulatory approach that includes oversight by:
- The Securities and Exchange Commission (SEC),
- The U.S Commodity Futures Trading Commission (CFTC), and
- The Treasury’s Financial Crimes Enforcement Network (FinCEN).
Unfortunately, allowing different US agencies to have concurrent authority over the same ecosystem is a regulatory minefield for businesses looking to enter the space. And this overlap often produces inconsistent and unfair results.
However, there is hope.
As my friend, colleague and former CFTC regulator Jeff Bandman says, we are “on an arc toward greater legal and regulatory certainty for virtual currencies, tokens and blockchain.”
And he’s right. Eventually, crypto entrepreneurs will know exactly what is needed from a regulatory perspective to pursue their business ventures. However, as Jeff points out, the path to regulatory certainty “will not be linear.”
At Crypto Law Insider, we believe this path will be jagged, unpredictable and dangerous for those who are not informed. And that’s because the regulatory process pits powerful constituents against one another, each one with different interests and desired outcomes.
Competition Between Regulators
First, there are several powerful federal agencies competing with one another to determine which agency will have oversight.
The SEC, CFTC and FinCEN all want a greater piece of the regulatory pie. Like all government agencies, they want more power, prestige and ultimately more resources. To win this turf war, each agency leverages its influence amongst politicians and industry participants to secure its role.
Internal Divisions with Regulatory Agencies
Second, within each federal agency, there are different divisions competing with one another to determine who will manage crypto related issues within the agency.
For example, the SEC has over 4,000 employees divided into a number of divisions and offices. It is not immediately clear which division or office should take the lead on crypto matters and thus it is likely that an internal turf war will take place within the SEC to settle the matter.
The winner of this battle will have far greater influence on the ultimate regulations that are enforced and see its allocation of resources increase.
Political Interests In Regulation
Third, US politicians play an important role in crypto regulation because they have the power to enact new legislation. Moreover, federal agency leadership is appointed by the US President, making individual leaders part of the political machine.
As such, regulators are constrained in the same way as other politicians. Namely, they owe favors to others for helping them achieve political success. So they’ll participate very much like other politicians.
What do politicians want out of all this? To gain voters, promote the interests of their constituents and then hopefully do what they think is best.
Ultimately, this means each politician will have very different interests, concerns and motivations and will seek to influence the outcome differently.
Business Stakeholders in Regulation
Fourth, Big Business has a lot to lose, or gain, depending on how crypto is regulated.
You can be sure their armies of competing lobbyists are working to influence regulators, politicians and even the general public. Do Big Banks like JP Morgan and Goldman Sachs see crypto as a new product to sell to investors and therefore something they can profit from? Or do they see crypto as a threat to their existing business?
The reality is probably a bit of both and they, like regulatory agencies, are undergoing their own internal turf wars. Add to this fact that Big Business is not a united entity. There are competing industries and even companies within the same industry making Big Business’ influence fragmented and complex.
What does this mean for Crypto Law Insiders?
As an entrepreneur or investor in the crypto ecosystem, you need to understand the environment you’re operating in. Don’t be surprised to see conflicting statements from different federal agencies or even from within the same agency. Don’t overreact to any particular statement.
Expect to see one SEC Commissioner say one thing today, and another Commissioner say another thing tomorrow. Remember, the path to legal and regulatory certainty is nonlinear so expect to be pushed and pulled in multiple directions.
Only those who are prepared to withstand the whiplash will be strong enough to thrive in this uncertainty.