Industry the March 2024 issue

U.S. Crypto Regulations Emerge, Tentatively

Legislation introduced makes its way through committees.
By Russ Banham Posted on March 1, 2024

The settlement put the spotlight on crypto’s dark underside.

Since the launch of the first cryptocurrency, Bitcoin, in 2009, the industry has been associated with shady dealings. “[C]rypto has become the preferred tool for terrorists, for ransomware gangs, for drug dealers and for rogue states that want to launder money,” Sen. Elizabeth Warren (D-Mass.) said in December 2022 during a hearing of the Senate Committee on Banking, Housing, and Urban Affairs.

In 2022, upon the introduction of the Digital Asset Anti-Money Laundering Act, co-sponsored with Sen. Roger Marshall (R-Kan.), Warren estimated that $14 billion of crypto was involved in illegal transactions in 2021 alone. Since 2021, the U.S. Securities and Exchange Commission (SEC) has filed about 55 enforcement lawsuits, according to data from Cornerstone Research released by The Wall Street Journal. The SEC’s approval of 11 spot Bitcoin exchange-traded funds (ETFs) in January 2024 suggests it sees value in at least one cryptocurrency, despite deep concerns over suspicious transactions.

The U.S. government continues to wrestle with its regulatory approach to crypto and has yet to establish a full regulatory regime. A March 2022 White House executive order intended to establish a “whole of government” approach to addressing digital assets has to date not produced any regulations.

The Warren-Marshall legislation, meanwhile, remains in committee.

Two important crypto-related pieces of legislation were introduced in 2023. HR 4766, the Clarity for Payment Stablecoins Act, calls for establishing a framework for dual federal and state regulation, supervision and enforcement of stablecoin issuers. A stablecoin is a fixed-price cryptocurrency with a market value tied to a stable asset like a commodity or currency. The Lummis-Gillibrand Responsible Financial Innovation Act, S 2281, seeks to establish a comprehensive digital asset policy, with mandatory registration for crypto exchanges with the Commodity Futures Trading Commission (CFTC) and strict rules and penalties for violating anti-money-laundering rules, among other provisions.

Articles in crypto-focused news sites like The Block express doubt about the bills’ passage in 2024, given that it is an election year and there is—per The Block— “pushback from some lawmakers who are concerned [the bills] don’t go far enough to regulate the sector.” CoinDesk, another leading news brand in the digital asset space, said, “The long-awaited rules of the road are likely to remain largely unwritten [in 2024].” Regulations will take shape, sooner rather than later. The SEC filed a slate of lawsuits in 2023 against crypto exchange platforms Coinbase, Kraken and Binance. As these cases journey through the courts, the outcomes may compel the agency to issue its first regulations governing the industry. “The CFTC has been very vocal about their desire to regulate crypto,” says former SEC counsel Coy Garrison, now a partner in the blockchain cryptocurrency practice at law firm Steptoe. “Fast-forward five or 10 years, the pieces will come together, and we will have a regulated crypto market. Once in place, the door will open further for retail-facing [crypto] products. People will trust the disclosures being made.”

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