Why Is the US Not Yet a Leader in Crypto Regulation?

Various U.S. regulatory agencies have different stances toward crypto.

Earlier this summer, the Securities and Exchange Commission and the Financial Industry Regulatory Authority had jointly outlined regulatory compliance issues for cryptocurrency custodians and had not discovered those circumstances in which crypto could comply with the SEC's Customer Protection Rule.Resulting from complex legal and tax requirements imposed by several U.S. regulatory agencies, some of which has been named above, the U.S. still does not have a clear regulatory framework for the crypto industry at the federal level.

"Who said that the U.S. isn't the leader in crypto regulation? On the contrary, from an anti-money laundering regulatory perspective, the U.S. is certainly the leader.

"Another example of U.S. leadership in crypto AML regulation is how the Financial Action Task Force, the global body that sets standards for AML and counter-terrorist financing, recently provided guidance for regulating digital assets. This guidance was driven by the U.S. and largely reflects the framework already enforced by FinCEN.".

"One issue in the US is that this asset class falls on the borderlines of multiple regulatory agencies so jurisdiction has caused uncertainty. The SEC has stepped up as the primary regulator and is taking decisive action when it comes to enforcement but a more measured approach when it comes to actual regulation. There are many that feel the existing laws on the books are sufficient. This has caused many in the industry to look to Congress for rules."In addition to the above, many in the US feel that we already have robust capital markets and opportunities for innovation and don't have the same incentives as other jurisdictions that may be using this new industry to spur their economies.

"For the most part, U.S. governmental entities are allowing cryptocurrency regulation to evolve incrementally from existing laws, some of which have been in place for eighty or more years, rather than proposing a new regulatory framework.

"The disadvantage is that the lack of regulatory oversight makes it difficult for cryptocurrencies and related businesses to operate in the US without bright-line rules. A number of foreign countries have taken the opposite approach in an effort to establish cryptocurrency governance frameworks to lure investment."By allowing crypto regulation to evolve organically rather than developing a new framework to accommodate it, the U.S. is deliberately taking a wait and see approach on crypto.

Those complexities, combined with the challenge of addressing issues that fall under the jurisdiction several different regulatory authorities, are key factors preventing the U.S. from becoming a world leader in crypto regulation.

"Secondly, while the standard policy cycle often takes several years, emerging companies often develop disruptive technologies with global reach in just a few months. And history has taught us that regulations that are too fast can be just as bad as regulations that are too slow."Despite these challenges, U.S. policymakers are calling for action and are showing a strong effort to engage with participants in the blockchain space - a crucial step on the path toward meaningful regulation and guidance.

"Washington is also notoriously reactive. We saw this in the case with Facebook's Libra initiative, which caught regulators completely off guard and led to a scramble of fact-finding hearings. That all being said, I do have confidence that the US government will eventually figure it out and do so smartly so as to not stifle innovation and to [hopefully] position the US as the standard setter for crypto regulation."