Since the launch of Bitcoin in 2009, the cryptocurrency ecosystem has expanded rapidly. Many of the thousands of cryptocurrencies (or cryptos) that are currently in use have seen their values soar, while others have been abandoned by their inventors or have been revealed as frauds.
Decentralized digital currencies are becoming more widely accepted, however the majority of companies and retail establishments still do not accept cryptocurrency as payment. Customers can purchase and sell using bitcoin through the online payment provider PayPal, and Visa, a credit card business, recently said it would accept cryptocurrencies as a form of payment. Customers will be able to use Amazon’s own cryptocurrency to pay for goods and services on the website when it launches. Cryptocurrencies can also be used for anonymous financial transactions, low-cost money transfers, and non-cash remittances to certain countries.
There has been unequal development in the adoption of its use in financial markets. El Salvador made the decision to embrace bitcoin as legal cash in early June. However, the U.K. prohibited the cryptocurrency exchange Binance from participating in regulated operations in its markets later that month.
What is the current situation with cryptocurrencies
The leading cryptocurrencies by market capitalization are Bitcoin, Ethereum, Tether, and Binance Coin, but there are thousands of different digital tokens, or virtual currencies, on the market right now. These digital tokens are used to conduct financial transactions online. Cryptocurrencies are neither recognized as legal cash or insured by the Federal Deposit Insurance Corporation in the United States (FDIC).
Regulations governing cryptocurrencies in the US
The regulatory landscape for digital assets is still unclear and a source of growing investor interest in Bitcoin and other cryptocurrencies. The complexity of cryptocurrencies has resulted in a range of ideas from the Securities and Exchange Commission (SEC), the Commodities Futures Exchange Commission (CFTC), and others regarding how cryptocurrencies should be understood or regulated.
Initial coin offers (ICOs), which are the cryptocurrency sector’s take on initial public offerings (IPOs) and are used by new businesses to obtain capital, are governed by the SEC since it views cryptocurrencies as securities. While the Internal Revenue Service (IRS) views cryptocurrencies as taxable assets, the CFTC, which regulates both the foreign exchange and commodities futures markets, refers to them as commodities. In fact, the IRS must now be notified of any bitcoin transfer valued at $10,000 or more, according to the Treasury Department.
New draft guidelines on regulating cryptocurrencies and other virtual assets was recently released by the Financial Action Task Force (FATF), an intergovernmental group that establishes international standards for preventing money laundering and terrorist financing. The recommendations would demand that participants participating in virtual asset transactions be identified if they were to be accepted. FATF has long spoken in favor of stricter regulations for the cryptocurrency industry.
Friction amongst regulators is a major barrier to the swift implementation of new regulations in the United States as participants in the financial services and cryptocurrency industries demand more regulatory clarity from the SEC, CFTC, Treasury, and Federal Reserve.
The 2020 Anti-Money Laundering Act
The Bank Secrecy Act (BSA) has undergone the most important revision in decades with the Anti-Money Laundering Act of 2020 (AMLA 2020), which updates and changes the BSA. The AMLA 2020 changes how the federal government and business sector respond to growing dangers in addition to upgrading AML and CTF laws and regulations.
The AMLA 2020 requires firms that exchange or send virtual currency to register as money services businesses, codifying earlier recommendations from the Financial Crimes Enforcement Network (FinCEN) (MSBs). These organizations now have to comply with BSA registration and compliance requirements thanks to the new law. Additionally, transactions from one cryptocurrency to another are subject to the AMLA 2020 reporting obligations. Future rules will offer more instructions.
Additionally, according to the law, federal financial authorities must research cryptocurrencies and other new payment methods and report to Congress on how they are being used for money laundering and other illegal acts. The objective is to modify regulatory frameworks in light of the findings to address developing fintech technology.
The digital dollar’s and cryptocurrencies’ future
Even though numerous government organizations and departments continue to wrestle with issues relating to tokens—the cryptocurrencies themselves—and the exchanges or platforms on which users buy and sell digital assets, the regulatory framework is still up in the air. In the long run, stricter regulation might give cryptocurrencies greater legitimacy and safeguard investors and exchanges.
Jerome Powell, the head of the Federal Reserve, has expressed interest in creating a digital dollar that is issued by the Federal Reserve, although he has noted that there are still substantial technological and regulatory challenges.
An organization called The Digital Dollar Project is researching the development of a tokenized, central bank-issued version of US cash. It is led by former US regulators and executives of consulting firms. The group recently revealed its plans to start pilot programs that will examine the potential functionality of a central bank digital currency (CBDC) that would be issued by the Federal Reserve.
Emerging technologies are the center of the financial world in the twenty-first century. The ever-evolving fintech landscape now includes the bitcoin sector.
