US Crypto Legislation 2024
Since the introduction of Bitcoin over a decade ago, regulators and lawmakers around the world have been playing catch-up with the explosive growth of cryptocurrencies. It’s no help that, over the short lifetime of the industry, there have been numerous large-scale frauds, system hacks, and bankruptcies.
Over the last few years, however, regulators have begun crafting more and more sophisticated bills and rules around the operations of blockchain-related companies. In this article, we take a look at the most recent major crypto regulations — both current regulations and proposed future bills.
Crypto Legislation in The US
The United States is known for having particularly stringent financial regulations. This is in no small part due to the US’s multi-century history of financial crises and recessions. When it comes to crypto, US regulators are on high alert.
The US has a number of regulatory authorities, including the Securities and Exchange Administration (SEC), the US Department of the Treasury, and the Commodity Futures Trading Commissions (CFTC). These authorities have the right to pursue legal action against companies that may be engaging in dangerous or fraudulent financial practices. In the US, it’s often the case that these regulators outpace Congress and the White House in setting legal precedents for how cryptocurrency cases should be handled.
Below we take a look at a blend of regulatory and legislative actions. We also have a full article on crypto SEC settlements.
Existing Legislation
1. Framework for Responsible Development of Digital Assets
Date: September 2022
In September 2022, the White House released a wide range of plans detailing the regulation of digital assets and cryptocurrencies. The framework made headlines for its call to explore the creation of a Central Bank Digital Currency (CBDC), which would be a blockchain-based version of the US Dollar. The framework also included the following:
- Encouraged agencies like the SEC and the FTC to “aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space.”
- Committed to working with financial institutions to strengthen their ability to identify and address digital vulnerabilities.
- A crackdown on illegal money transfers and the use of cryptocurrencies for illicit activity.
- A call to explore the creation of a CBDC US Dollar that would advance the interests of the US and “align with democratic values.”
2. U.S. Treasury Sanctions Tornado Cash
Date: August 2022
In one of the largest crackdowns of 2022, the US Department of The Treasury sanctioned the cryptocurrency “mixer” service Tornado Cash. The service was used to anonymize funds by receiving money on one end and outputting it anonymously on the other, thus making the path of money untraceable. The service was used to launder money for several high-profile cryptocurrency criminal organizations, the most famous of which was the North Korean Lazarus Group.
This sanction by the US Treasury famously led to a majority of Ethereum blocks being “censored” to not include transactions from the sanctioned addresses. This caused concern in the crypto community about the neutrality of the Ethereum protocol in the face of regulation. Censorship peaked when almost 80% of the entire Ethereum validator network excluded the OFAC sanction list before coming down to under 50% in 2023.
3. New York DFS Regulatory Guidance on Stablecoins
Date: June 2022
In June of 2022, the New York Department of Financial Services became the first US state agency to issue guidance regarding USD-backed stablecoins. The following provisions apply to stablecoin issuers that are under the scope of the NY DFS.
- All stablecoins must be fully backed, which means that the entire value of the stablecoin must be backed by a reserve of assets that’s equal to the value of the stablecoin.
- Holders should be able to redeem their stablecoins at any time.
- Reserves must be held in custody with US-chartered banks and must be in the form of US Treasury Bills and bonds.
- Reserves must undergo audits and examinations by a licensed CPA at least once a month.
4. Office of the Comptroller of the Currency Allows Banks to Custody Crypto
Date: July 2020
The Office of the Comptroller of the Currency (OCC) is responsible for regulations that ensure a safe banking system. In July 2020, the OCC issued new guidance which allowed national banks and federal savings associations to provide custody services for cryptocurrencies. This means that you can now store your cryptocurrencies and other digital assets in traditional US banks.
The OCC allowed banks to hold crypto assets and their associated cryptographic keys as a response to the growing digitization and adoption of virtual currencies. Acting Comptroller of the Currency Brian P. Brooks said, “This opinion clarifies that banks can continue satisfying their customers’ needs for safeguarding their most valuable assets, which today for tens of millions of Americans includes cryptocurrency.”
5. New York DFS BitLicense Requirement
Date: June 2015
In 2015, the New York Department of Financial Services started requiring all entities handling virtual currencies in New York to have a “BitLicense” in order to operate in the state. A BitLicense is required by any business that provides the following services to New York residents:
- Transferring and receiving virtual currencies.
- Storing or otherwise holding in custody virtual currencies on behalf of someone else.
- Buying and selling virtual currencies.
- Providing “exchange” services for virtual currencies.
- Issuing or controlling your own virtual currency.
As a result of these regulations, many major exchanges exclude residents of New York from their services. Recently, the Department has made receiving a BitLicense easier by issuing conditional licenses.
Proposed Crypto Laws
1. Digital Asset Anti-Money Laundering Act of 2022
Date Proposed: December 2022
The Digital Asset Anti-Money Laundering Act of 2022 is a proposed bipartisan bill from Democrat Elizabeth Warren and Republican Roger Marshall. If passed, the bill would put in place strict requirements designed to prevent money laundering and illicit activities on the blockchain. Wallet providers (such as MetaMask) and block miners would be required to conduct know-your-customer (KYC) checks to verify the identities of users.
Since this requirement cannot be enforced on a blockchain level, the bill would also require any institution that interacts with a wallet that has not conducted KYC checks to report the transaction to the Financial Crimes Enforcement Network (FinCEN).
This bill caused an uproar in the crypto community, as it would force a significant decline in the anonymity currently enjoyed by many crypto users.
2. Responsible Financial Innovation Act
Date Proposed: June 2022
Crypto has long been plagued by regulatory uncertainty. There has been pushback from large exchanges such as Kraken and Coinbase on the practice of defining precedents through lawsuits from the SEC, rather than issuing proper guidance on what products should and should not be launched. The responsible Financial Innovation Act, a bipartisan bill proposed by Democrat Kirsten Gillibrand and Republican Cynthia Lummis, aims to change this.
The bill would:
- Provide clarity on which tokens are treated as “commodities” and which are “securities.”
- Defines standards for stablecoins that includes requiring them to be “fully-backed”, or hold 100% of their value in liquid reserves.
- Provided for “safe harbor” laws which would allow new crypto projects a period of two years to sell their tokens before they’re considered securities.
3. Markets in Crypto-Assets (MiCA)
Date Proposed: September 2020
“Markets in Crypto-Assets” is a proposed regulation in the law of the European Union. The bill has been around for several years, having undergone several votes, and is set for a final vote in 2023. If passed, the bill would become law for all 27 member countries of the EU.
The bill includes:
- A required licensing process for any company looking to provide cryptocurrency services.
- Guidance around stablecoins, including a requirement that all stablecoins are fully-backed.
- A requirement that crypto exchanges must continuously publicly disclose trading volumes and pricing mechanisms.
- Requirements that trades must be settled the same day that they are initiated.
- Crackdowns on insider trading which include online influencers, who would be required to disclose if they have a financial stake in a digital asset they are promoting.
To Sum it Up
Crypto is one of the most highly debated legislative areas in various countries around the world. After the large-scale collapses of companies like Terra/LUNA and FTX, regulators from every country are asking themselves how to best make laws about the space.
Frequently Asked Questions
There are many pieces of legislation that regulate crypto. In the United States, important bills like the New York DFS BitLicense Requirement and the Framework for Responsible Development of Digital Assets from the White House outline guidelines for the creation, use, and sale of digital assets.
In Europe, the Markets in Crypto-Assets (MiCA) is a bill set to pass in 2023 that will define rules regarding digital assets for all 27 EU member countries.
Over the last few years, crypto has enjoyed wider adoption than ever before. The nature of blockchains like Bitcoin ensures that crypto is difficult to “ban” or regulate out of existence, so crypto is not becoming illegal.
There are, however, growing considerations from regulators and financial authorities around the world on what crypto laws should be put in place to protect consumers.
In the US, some states have different crypto laws, yes.
For example, New York has strict requirements under the New York DFS BitLicense Requirement and the New York DFS Regulatory Guidance on Stablecoins, which require crypto companies to get licensed and follow certain rules before providing their services to New York residents.
Federal regulatory agencies such as the SEC, the US Department of the Treasury, and the CFTC have so far outpaced legislation when it comes to providing crypto guidance.
There are several major federal crypto bills in the US, however, that are currently being considered. These include the Digital Asset Anti-Money Laundering Act of 2022 and the Responsible Financial Innovation Act.
