22 January 2024

Virtual Currencies Comparative Guide

Virtual Currencies Comparative Guide for the jurisdiction of United States, check out our comparative guides section to compare across multiple countries
United States Technology
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1 Legal and enforcement framework

1.1 In broad terms, which legislative and regulatory provisions govern virtual currencies in your jurisdiction?

In the United States, federal and state regulations and laws govern virtual currencies. While the US Congress has proposed federal legislation over the last two years, Congress has yet to pass any form of legislation directly addressing virtual currencies. Instead, governmental agencies – such as the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Office of the Comptroller of the Currency and the Financial Crimes Enforcement Network (FinCEN) – provide guidance through reports and administrative decisions.

Additionally, US federal courts continually create precedent by applying traditional authoritative statutes through judicial determinations regarding virtual currencies. Overall, a significant portion of the regulatory provisions governing virtual currencies in the United States are from:

  • guidance released by a governmental agency;
  • case-by-case administrative decisions by a governmental agency; and
  • federal and state court rulings.

For example, in 2013, FinCEN published guidance on the Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies. The guidance interpreted implementing regulations previously promulgated by the Treasury that implement the Bank Act.

Since this release, thousands of cryptocurrency payment applications, Bitcoin ATMs, virtual currency transmitters and other companies transferring cryptocurrency have had to adhere to the rules under the Bank Secrecy Act and FinCEN's guidance. In sum, much of the virtual currency industry in the United States is governed by administrative law. That said, many court rulings – typically in the criminal context – have set precedent regarding virtual currencies.

Separately, the SEC – one of the more active agencies in the virtual currency industry – has issued guidance as well as several administrative rulings that make up a general framework for companies operating in the industry. In July 2017 the SEC issued the first securities-based administrative decision against a virtual token. Called The DAO Report, the SEC targeted the Decentralized Autonomous Organization (DAO), an organisation offering its own tokens for purchase using the Ethereum Blockchain token, Ether. The tokens represented interests in the DAO platform and its organisers would invest in projects that received a majority vote from DAO token holders. Created by, the platform was marketed as a "for-profit entity whose objective was to fund projects in exchange for a return on investment".

Applying the Howey test, the SEC focused on the fact that used "various promotional materials disseminated by test, the SEC focused on the fact that used "various promotional materials disseminated by and its cofounders informed investors that [t]he DAO was a for-profit entity whose objective was to fund 12 projects in exchange for a return on investment". Additionally, the DAO token satisfied the expectation of profits prong because "the DAO's investors relied on the managerial and entrepreneurial efforts of and its co-founders, and the DAO's Curators, to manage the DAO and put forth project proposals that could generate profits for the DAO's investors". Lastly, while DAO token holders had certain voting rights, this did not grant them "control over the enterprise", and thus the fourth prong of the Howey test was also satisfied.

Furthermore, while Congress has not passed any federal legislation, several states have passed their own legislation addressing virtual currencies. In Wyoming, state legislation was passed in 2019 which classified:

digital assets within existing laws; specifying that digital assets are property within the Uniform Commercial Code; authorizing security interests in digital assets; establishing an opt-in framework for banks to provide custodial services for digital asset property as custodians; specifying standards and procedures for custodial services under this act; clarifying the jurisdiction of Wyoming courts relating to digital assets; authorizing a supervision fee; making an appropriation; authorizing positions; specifying applicability; authorizing the promulgation of rules; and providing for an effective date.

Several other states have also passed legislation.

Overall, the regulatory environment addressing virtual currencies in the United States is mostly comprised of federal governmental agencies, state legislatures and federal courts.

1.2 In broad terms, which legislative and regulatory provisions govern entities that provide services relating to virtual currencies? Must they be registered or licensed by a regulatory authority?

Companies that issue digital securities must either register with the SEC or find an exemption to the Securities Act of 1933. This typically involves filings with the SEC.

Companies conducting virtual currency transmission are considered a ‘money service business' under the Bank Secrecy Act, and therefore must register as a money service business with FinCEN. Depending on the specific business that the entity conducts, it may also need a money transmitter licence in the state in which it conducts business. For example, Coinbase, one of the largest cryptocurrency exchanges in the world, has money transmitter licences in every state.

Any company dealing in virtual currency futures in the United States must typically register with the CFTC as a futures commission merchant. This is governed by the Commodity Futures Act.

1.3 Which bodies are responsible for enforcing the applicable laws and regulations? What powers do they have?

The SEC, the CFTC, FinCEN and the Internal Revenue Service are all federal agencies that possess the administrative power to enforce regulations against entities operating under their respective authority. This authority stems from the federal acts that grant each agency the authority to regulate. In other words, if a company violates a regulation that falls under the authority of one of the governmental agencies, that agency can bring federal administrative proceedings against the entity.

Federal and state courts deal with judicial issues arising in the industry. Courts have the ability to made judicial rulings and set precedent, depending on the court.

The US Congress has yet to provide any legislation in the virtual currency industry.

State legislatures have passed legislation that addresses different aspects of the virtual currency industry.

1.4 What is the regulators' general approach to virtual currencies?

The approach is mixed, for lack of a better term. It wholly depends on the governmental agency. For example, the SEC – considered the most active agency regarding virtual currencies – takes an ad hoc approach to issuing fines and punishing companies that violate the Securities Act. In contrast, the CFTC, which possesses similar powers to the SEC in the futures trading context, have not issued nearly as many administrative rulings.

Overall, the United States is considered a strict jurisdiction for conducting virtual currency business, due to the significant amount of regulations and various governmental agencies that each company must consider.

1.5 Has there been any notable enforcement action relating to virtual currencies?

Yes. The most recent – and certainly the highest-profile – case to date involves enforcement actions against San-Francisco-based Ripple Labs Inc, the company behind XRP. In December 2020 the SEC filed a complaint alleging that Ripple – along with Brad Garlinghouse and Chris Larsen, both Ripple executives – had raised $1.3 billion in capital for Ripple by selling over 14.6 billion XRP tokens through an unregistered security offering. This case is ongoing.

In 2019 the SEC determined that had violated the registration provisions of the federal securities laws and required the company to pay a $24 million civil monetary penalty. consented to the order without admitting or denying its findings.

Overall, the SEC has charged around $175 million in total fines to date, while the CFTC has levied about $23 million in fines and other charges.

2 Definitions

2.1 How are ‘virtual currencies' defined in your jurisdiction? Have there been any judicial decisions which have helped to define virtual currencies or their interplay with the existing body of laws (eg, contracts law, property law)?

There is no uniform definition in the United States. There are several different terms for ‘cryptocurrency' and defining the technology is mostly left to the governing body evaluating the situation. In other words, more agnostic definitions are created to allow for broad determinations. For example, the Internal Revenue Service treats certain cryptocurrencies as property. Conversely, the Securities and Exchange Commission (SEC) may define certain virtual currencies as securities. Bitcoin, specifically, is typically treated as property.

2.2 How are ‘initial coin offerings' and ‘security token offerings' defined in your jurisdiction?

There is no universal definition of either of these terms. Instead, due to the SEC issuing enforcement actions, beginning with the DAO Report in 2017 (see question 1.1), initial coin offerings (ICOs) became taboo and are considered high risk due to the lack of regulatory clarity. Security token offerings (STOs) are essentially ICOs that are registered with the SEC or filed under an exemption to the Securities Act of 1933, such as those under Regulation D, S, A or CF. As a result, if the SEC or a court were to apply the Howey test (the judicial test used to determine whether a financial instrument is a security in the United States) and determined that the token was a security, the offering would be an STO.

In 2019 the SEC published guidance stating: "Both the Commission and the federal courts frequently use the ‘investment contract' analysis to determine whether unique or novel instruments or arrangements, such as digital assets, are securities subject to the federal securities laws." The guidance explains how the SEC analyses what it says are the three Howey test elements for digital assets. As a result, companies must either consult with the SEC or make a risk-based determination on whether they should conduct an ICO or an STO. ICOs are far less common in the United States because of this regulatory change.

2.3 Are stablecoins treated as virtual currencies in your jurisdiction or do they fall under an existing category (eg, electronic money)?

Yes. In 2019 Financial Crimes Enforcement Network Director Kenneth Blanco stated that stablecoin issuers were money service businesses under the Bank Secrecy Act and therefore needed to comply with anti-money laundering laws. In 2021 the Office of the Comptroller of the Currency issued an interpretive letter that allows the use of stablecoins for bank payments. This allows banks to live-test digital assets in a relatively safe corner of the market. Now, banks are likely to expand their operations to build expertise in areas such as anti-money laundering and cybersecurity.

3 Virtual currencies market

3.1 Which virtual currencies have become most embedded in your jurisdiction? Does this vary depending on the specific use?

Bitcoin and the Ether token are the most embedded. It does depend on the specific use, but at the currency stage in the industry, these two virtual currencies are considered ‘intro' tokens, in that most individuals or entities are acquiring them as their first virtual currency acquisition. Additionally, most over-the-counter transactions are conducted in Bitcoin because the Securities and Exchange Commission has stated that Bitcoin is not a security.

3.2 What different products and services are offered?

The United States has an extensive list of products and services. The most prominent services are through cryptocurrency exchanges. Additionally, many banks and financial institutions are using stablecoins as a form of payment settlement. Paypal allows users to purchase Bitcoin. Many other applications allow for access to virtual currencies.

Separately, smart contracts are becoming more widespread in terms of usage. From legal services to decentralised transactions, several companies in the United States are offering enterprise-level blockchain services.

Blockchain-related services include identity verification, privacy protection, asset storage, lending, contracting, settlements and banking, among others.

3.3 How are virtual currency service providers generally structured? How are they generally financed?

Most service providers are licensed corporate entities. Mirroring traditional finance, many service providers are corporations. That said, trusts and foundations are utilised for specific use cases. For example, the Gemini Exchange is a chartered trust entity based in New York that offers enterprise virtual currency services for businesses and individuals.

3.4 Are virtual currency trading platforms subject to a specific regulatory regime in your jurisdiction? Must they be registered or licensed by a regulatory authority? Does this vary depending on whether the platform accepts legal currency or whether the platform is custodial? Are virtual currency trading platforms subject to any form of ‘market abuse' regulation?

Yes. Trading platforms must register as a money service business with the Financial Crimes Enforcement Network at the federal level and obtain a money transmitter licence in each state in which it conducts operations. Obtaining a money transmitter licence in each state is a costly endeavour. The most significant regulatory burden is when an exchange desires to operate in New York, where a BitLicense is required. This is a higher burden in terms of the information that the entity must provide to the regulators.

Each exchange is registered at the federal level and licensed at the state level. Most states have application in one state to another state if that state is a part of the compact. Several states are not a part of this compact, and thus exchanges must apply with the state regulators in that state separately. It can take up to two years to obtain all 52 money transmitter licences.

These requirements are for exchanges that accept fiat and allow virtual currency trading. If the company solely offers custodial services, it must still comply with anti-money laundering and know-your-customer rules, but may not require a money transmitter licence.

In 2019, the Financial Conduct Authority (FCA) issued guidance that regulates market abuse by exchanges. The Market Abuse Regulation (MAR) determines which crypto assets are subject to the regulation.

The FCA has clarified what it considers to be the three broad categories of crypto asset (see FCA PS19/22). The original categories were security tokens, utility tokens and exchange tokens. The FCA revised the token categories to security tokens, e-money tokens and unregulated tokens. Only certain security tokens may be directly caught by MAR depending on their individual characteristics. So while there are market abuse regulations, many of the traditional virtual assets do not necessarily fall under the regulation.

Exchanges that operate MAR-scope trading venues must have in place systems and controls to prevent, detect and report market abuse. Unregulated crypto asset exchanges listing crypto assets that are outside the regulatory perimeter are not subject to such obligations.

4 Crossover with banking

4.1 How are virtual currencies positioned within the broader banking landscape in your jurisdiction?

The United States is in the preliminary stage of virtual currency adoption in the banking section. BNY Melon, one of the oldest banks in the world, announced it would begin working towards holding Bitcoin for users. Additionally, several banks have patents for custodial service mechanism for virtual assets. Many banks use virtual currencies for payment settlement or contract with a third party that provides this service. Overall, the banking sector is on the cusp of widespread adoption.

4.2 What impact could mainstream adoption of virtual currencies have on the ability to control inflation in your jurisdiction?

Virtual currencies are increasingly viewed as a hedge against inflation. Many institutions are acquiring Bitcoin as a hedge against inflation. MicroStrategy and Tesla are prime examples of a hedge by purchasing large amounts of Bitcoin. Mainstream adoption will propel Bitcoin even higher in terms of its ability to hedge against inflation.

4.3 What other implications could the mainstream adoption of virtual currencies have for the banking system in your jurisdiction (eg, with respect to payment services)?

Payment processing will become faster and cheaper. Settlement payments using virtual currencies, such as stablecoins, will drastically change settlement processes and create a faster process. The heavy costs of cross-border payment settlements will virtually disappear. Additionally, banks will no longer have justification for long processing waits for customers. Overall, the entire payment ecosystem will increase in speed.

4.4 Regarding decentralised finance, do the banking regulations in your jurisdiction apply to loans of virtual currencies or interest-bearing deposits of virtual currencies? Does this vary depending on whether stablecoins are loaned or deposited?

There is scant regulatory clarity regarding decentralised finance in the United States. We do not expect significant clarity in this industry for several years. The banking regulations provide little to no clarity regarding decentralised loans or interest-bearing deposits. However, the traditional loan regulations will most likely be used as the standard moving forward until new standards are set.

Ownership is the most significant factor regarding virtual currencies in banking. As a result, where a virtual currency is loaned or deposited, this will affect the responsibilities of third-party service providers. Many platforms run into issues where they attempt to claim no responsibility when in fact they had control over the virtual assets. Margin lending is a prime example. Control of the virtual currency and the wallet are the two most important factors that the regulations consider when determining culpability.

5 Technology

5.1 Is blockchain technology in itself regulated in your jurisdiction and what specific legal issues are associated with its use?

Technically no. The United States has no blockchain-specific regulation. That said, a plethora of precedent regarding online technologies does apply. However, as blockchain is a novel technology, any regulation would be hard pressed to incorporate all capabilities and use cases.

Legal issues arise when entities or individuals build applications via blockchain and use those applications. For example, software developers may run into legal issues where they create a platform that allows for decentralised transactions that are illegal. The nexus between the developer and the platform will depend on the developer's actions.

5.2 What other implications could the mainstream adoption of virtual currencies have from a technological perspective?

Outside of changing the financial sector, asset ownership and distribution will drastically change. The way that traditional assets, such as real estate, are owned will become far more digitally focused. As more adoption occurs, more use cases and applications will arise through tokenomics which will move away from traditional financial structures that typically deal with users and providers. Entities that operate as middle service providers will need to revaluate their business models due to the ability for certain virtual currencies to connect peer-to-peer or direct business-to-business. Custodial services embedded in blockchain will continually change the way that assets change ownership.

6 Data security and cybersecurity

6.1 What is the applicable data protection regime in your jurisdiction and what specific implications does this have for virtual currencies?

There is no single principal data protection law in the United States. Generally, the US Federal Trade Commission (FTC) has the ability to bring enforcement actions to protect consumers against unfair or deceptive practices and to enforce federal privacy and data protection regulations.

Generally, virtual currencies present benefits and challenges to the FTC. On the one hand, virtual currencies create more transparency due to distributed ledger technology. However, there are use cases that allow users to circumvent regulators, making it difficult to carry out enforcement.

6.2 What is the applicable cybersecurity regime in your jurisdiction and what specific implications does this have for virtual currencies?

The three main cybersecurity regulations are:

  • the 1996 Health Insurance Portability and Accountability Act (HIPAA);
  • the 1999 Gramm-Leach-Bliley Act; and
  • the 2002 Homeland Security Act, which included the Federal Information Security Management Act.

The United States Department of Health and Human Services carries out regulation of HIPPA.

7 Financial crime

7.1 What provisions govern money laundering and other forms of financial crime in your jurisdiction and what specific implications do these have for virtual currencies?

Federal Regulation of Financial Crime: The Currency and Foreign Transactions Reporting Act of 1970, also known as the Bank Secrecy Act, is the primary law used to combat money laundering by US government agencies. It imposes certain recordkeeping and reporting requirements on banks and financial institutions in order to combat money laundering and terrorist financing.

Amendments to the Bank Secrecy Act, such as the USA Patriot Act of 2001, introduced:

  • enhanced requirements for financial service provider relating to information sharing among institutions;
  • identity verification programme requirements; and
  • enhanced customer due diligence procedures.

In addition to these statutes, persons engaged in virtual currency activities are subject to the rulemaking authority of the Treasury Department and other governmental agencies. Such gap-filler regulations or policies assist government actors in enforcing the Bank Secrecy Act.

While the Bank Secrecy Act, as amended, does not directly address virtual currencies, the Financial Crimes Enforcement Network (FinCEN) and other federal regulatory agencies have commented on the application of the act's money laundering provisions to virtual currency actors.

In 2013, FinCEN issued guidance concluding that ‘exchangers' and ‘administrators' of convertible virtual currency are money transmitters under the Bank Secrecy Act. As such, they have an obligation:

  • to register with FinCEN;
  • to develop, implement and maintain an anti-money laundering compliance programme; and
  • to meet all applicable reporting and recordkeeping requirements.

In 2019 FinCEN issued guidance clarifying the applicability of the Bank Secrecy Act to certain business models involving virtual currency, such as peer-to-peer exchangers, hosted versus unhosted wallets, kiosk operators, distributed apps and anonymising service providers (tumblers/mixers). In most cases, businesses providing such services are considered a money transmitter and are thus required, among other things, to:

  • implement an anti-money laundering programme;
  • report suspicious activities and other transactions; and
  • maintain records of financial transactions.

State regulation of financial crime: Anti-money laundering is regulated and prosecuted at the federal level; but states regulate money service businesses, including money transmitters, through licensing requirements. For example, a money transmitter must:

  • obtain a money transmitter licence in each state in which it conducts money transmission activities; and
  • implement an anti-money laundering programme with sufficient policies and procedures to prevent financial crimes.

Each state defines ‘money transmission' a bit differently, and some states have issued conflicting interpretations of whether the transmission of virtual currency constitutes money transmission. For example, Pennsylvania's Department of Banking and Securities has issued guidance concluding that exchangers of virtual currency that do not handle fiat currency are not considered money transmitters under state law. Moreover, the guidance concludes that transactions of virtual currency made using kiosks or ATMs do not constitute money transmission because an exchange of virtual currency for fiat currency, or vice versa, does not constitute the transfer of money to a third party – a statutory requirement under the state's law.

The patchwork of laws and individual licensing requirements for each state makes obtaining money transmission licences in all 50 states an onerous task. For virtual currency businesses, this process is further complicated by the fact that each state may apply its money transmission licensing laws differently from the same virtual currency business.

8 Consumer protection

8.1 What consumer protection provisions apply to virtual currencies in your jurisdiction?

Federal agencies, through enforcement actions and consumer advisories, have increased consumer protection efforts relating to virtual currencies and digital assets following the initial coin offering (ICO) craze of 2017. The Commodity Futures Trading Commission (CFTC) published a consumer alert on 16 July 2018 warning customers to use caution and research before purchasing virtual coins or tokens. The advisory specifically addressed the high likelihood that many ICOs were either fraudulent or likely to fail. The CFTC also has a webpage dedicated to informing consumers about the risks of virtual currency trading, mentioning nefarious activities such as:

  • unregulated markets;
  • price action volatility;
  • market manipulation;
  • cybersecurity risks such as hacking of customer wallets; and
  • the potential for platforms to sell customer information.

Consumer protection is arguably the mantra of the Securities and Exchange Commission (SEC), and in the wake of the ICO craze of 2017 and abundant fraud, you will find a litany of persons who drew the ire of one of the most powerful agencies in the United States. In addition to the enforcement actions against issuers of unregistered securities in the form of digital assets, the SEC has pursued prominent figures for violations of its anti-touting rules (see In the Matter of Steven Seagal Respondent, Release 10760 (27 February 2020); In the matter of Khaled Khaled, Release 10579 (29 November 2018); In the Matter of Floyd Mayweather, Jr, Release 10578 (29 November 2018); SEC v John David Mcafee (SDNY 2020) (20 Civ 8281)). In each instance, the respondents were charged with promoting investments in unregistered securities without disclosing that they were paid to do so. The SEC has also published various warnings to investors to be wary of celebrity endorsements, ICOs and pump-and-dump schemes. A list of the SEC's enforcement actions against blockchain companies and digital asset issuers can be found here.

Like the CFTC, the SEC has published various consumer warnings beginning as far back as 2014 (see Investor Alert: Bitcoin and Other Virtual Currency-Related Investments, 7 May 2014).

The Federal Trade Commission (FTC) has also published consumer advisory materials, electing to focus on more basic concepts related to using crypto for payment for goods or services, typical scams, cryptocurrency scams and deceptive marketing tactics employed by bad actors. In 2020 the FTC obtained a $470,000 settlement on behalf of consumers against a team of promoters that employed a multi-level marketing scheme to obtain cryptocurrency from consumers by promising a fixed rate of return.

Consumer protection is a common goal among federal agencies, and the laws and regulations at their disposal provide ample opportunity to pursue bad actors electing to take advantage of unwitting consumers in a rapidly evolving, technical industry.

State consumer protection: Generally, states have been slower than federal agencies to enact consumer protection provisions relating to virtual currency. When states have acted, they have done so with little uniformity or coordination. New York, however, is an outlier whose regulators moved to quickly enact the first virtual-currency money transmitter licence. The BitLicense framework has been highly criticised as creating onerous requirements for virtual currency businesses while adding few, if any, consumer protections provided under existing state and federal laws.

8.2 What other implications could the mainstream adoption of virtual currencies have from a consumer perspective?

The mainstream adoption of virtual currencies without a check on overreaching regulation can invalidate the privacy benefits afforded by blockchain technology. Some predict that excessive government control of the ‘off' and ‘on' ramps for virtual currencies would create two systems; one system where virtual currencies are in a regulated environment which they never leave and one system analogous to a dark market. If mainstream adoption leads to excessive regulation, the privacy benefits of blockchain may be unobtainable for the masses.

9 Competition

9.1 Do virtual currencies present any specific challenges or concerns from a competition perspective?

In 2017-2018, a company or an individual with a bit of technical savvy could launch an Ethereum-based virtual currency with a half-baked idea jotted in a sleek whitepaper and raise a substantial amount of money that did not reflect the value of the token…or the idea. Over time, many projects – whether valiant efforts or mere scams – fizzled. The market consolidated and competition led us to a marketplace of legitimate competitors.

Recently, regulators have voiced concerns about the ability of virtual currencies such as Bitcoin to compete with central bank currencies as a method of exchange. Central bank currencies are the status quo and the possibility of moving to a decentralised unit of exchange which cannot be exclusively controlled by a single government is a competition that few could have imagined prior to Bitcoin.

10 Taxation

10.1 How are transactions in virtual currencies treated from a tax perspective in your jurisdiction?

The Internal Revenue Service (IRS) defines ‘virtual currency' as "a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value". Virtual currencies may operate like real currencies in that they are accepted as a medium of exchange, but are not considered legal tender in any jurisdiction.

Virtual currency is treated as property and general tax principles applicable to property transaction will apply to virtual currency transactions.

Receipt for payment for goods or services: If a taxpayer receives virtual currency as payment for goods or services, he or she must include the fair market value of the virtual currency, measured in US dollars, as of the date that the virtual currency was received to compute ‘gross income'. The basis of virtual currency that a taxpayer receives as payment for goods or services is the fair market value of the virtual currency in US dollars as of the date of receipt. The fair market value of a virtual currency listed on an exchange and the exchange rate is calculated by converting the virtual currency into US dollars at the applicable exchange rate. See IRS Notice 2014-21, IRS Virtual Currency Guidance.

Exchanges of virtual currency for property: If the fair market value of property (including other virtual currencies) received in exchange for virtual currency exceeds the taxpayer's adjusted basis of the virtual currency, the taxpayer has a taxable gain. Alternatively, the taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency.

The character of the gain or loss recognised on the exchange of virtual currency will depend on whether the virtual currency is considered a capital asset. If the virtual currency is considered a capital asset – for example, stocks, bonds and other investment property – as opposed to inventory held for sale, the taxpayer will owe taxes on virtual currency profits in accordance with short-term and long-term capital gains rates.

Taxes on mining: A taxpayer who ‘mines' virtual currency must include in his or her gross income the fair market value of the virtual currency as of the date of receipt. Virtual currency markets are highly volatile and can experience dramatic highs and lows in the span of one day. The IRS has not issued guidance on whether a taxpayer may use the open, close, high, low or an average price of the virtual currency mined to calculate fair market value for the purpose of determining gross income.

11 Trends and predictions

11.1 How would you describe the current landscape and prevailing trends in your jurisdiction as regards virtual currencies? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

For several years, regulatory guidance and judicial interpretations relied on extant laws to address issues stemming from a novel and revolutionary technology. It is clear that certain laws cannot be strictly applied to certain business models, such as applying the Travel Rule to cryptocurrency exchanges, and new laws or exceptions must be explored to avoid stifling innovation and privacy.

Consumer protection will continue to be a cornerstone of future regulation and enforcement efforts, but early efforts to educate the masses and weed out predatory scammers should lend to fair, light-touch regulatory developments for legitimate virtual currency businesses in the coming years.

The SEC will continue to enforce securities laws with an unwavering fervour against token issuers that fail to register their securities or comport with the requirements provided under Regulation D or other exemptions from registration. Enforcement actions brought to protect main street investors will be a key focus of the SEC under the new administration.

The Financial Crimes Enforcement Network and virtual currency businesses affected by the Travel Rule must work towards a solution that balances privacy concerns with the need to combat money laundering and terrorist financing. The Travel Rule requires financial institutions, including crypto exchanges, to transmit transaction and customer details to the next institution in certain cases to allow law enforcement agencies to detect domestic and international financial crimes such as money laundering. By maintaining and transmitting information about the original senders and ultimate beneficiaries of virtual currencies, institutions can work with governmental authorities to combat financial crimes. Currently, companies are faced with a Sophie's choice: implement burdensome information collection procedures, which creates the negative externality of becoming an even bigger honeypot for hackers, or fail to comply. Even if a financial institution decides to make every effort to comply with the Travel Rule, it may fail to because blockchain is decentralised. Any person can create an off-exchange wallet without the use of an exchange. An exchange customer can then send currency originating on the exchange to the off-exchange wallet of some unknown third-party. The exchange can collect no information about the person controlling the receiving wallet because there is no centralised repository of information about its owner. Thus, money transmitters cannot reasonably be expected to comply with the Travel Rule for all virtual currency transactions.

12 Tips and traps

12.1 What are your top tips for virtual currency providers seeking to enter your jurisdiction and what potential sticking points would you highlight?

On an individual basis, virtual currency providers should take the time to understand the applicability of current regulations to their unique business models. From a global perspective, provides should advocate and educate. Virtual currency providers are key to advancing the industry technologically and shaping the regulatory landscape. These innovators have amassed considerable knowledge about the wonderful capabilities of blockchain technology, and it is incumbent upon the industry's early movers and leaders to push for sensible regulations that protect consumers and privacy without stifling innovation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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