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A more hands-on approach is being taken by the Biden administration on the cryptocurrency industry, as it is very volatile. The market is famously hardly understood and hardly regulated. Investments in crypto are secured by blockchain technology, but the government does not offer much consumer protection for them.
The SEC, therefore, are attempting to regulate cryptocurrency investment schemes. Due to the vast expansion of cryptos, they have been placed in a regulatory grey area.
The regulatory institutions in the US are struggling to decide in what category to place cryptocurrency. The IRS thinks crypto is property, the CFTC commodity and the SEC said they “may be securities, depending on the facts of circumstance”.
The SEC have made it clear that they will regulate the crypto finance industry more assertively.
Coinbase (COIN) +0.42%, one of the largest cryptocurrency exchanges in the world have been working with the SEC for the past six months to launch their new product Lend. This product would make it possible for investors to earn up to 4% interest on crypto loaned to another user.
The SEC, however, threatened to sue Coinbase if they decide to launch Lend, according to the crypto exchange. Coinbase remains in the unknown about what makes Lend a security as the SEC did not provide sufficient insight.
The New York Times mentioned in a recent article that crypto is moving more towards the banking sector, providing services, normally backed by government issued currency. These have been regulated for decades.
The SEC first showed interest in investigating crypto when it launched a crypto regulation initiative in 2018. Now they are going in the offensive, having recently charged against BitConnect, for $2 billion in fraud for lending, and BlockFi, for giving out loans and high-interest deposit accounts.
Coinbase however is larger than these companies and the interest shown by the SEC in the exchange is an indication that the Commission will draw consequences for non-compliance. The case could also serve as an example to other firms.
The rules may be bulked up very soon and Biden is proposing a 2022 budget which includes crypto reporting requirements. Moreover, the IRS is joining the SEC in its crypto crackdown and crypto regulations became a temporary sticking point in the passing of the infrastructure bill.
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*Stock percentages taken on 10.09.2021 at 10:30.
*Morrison, Sara (09. September 2021). Vox: Biden’s SEC is ready to regulate cryptocurrency. Last viewed on 10.09.2021 on https://www.vox.com/recode/22663312/coinbase-sec-cryptocurrency-bitcoin.