The enormous wealth of those at the top of the Bitcoin market; countered by the equally huge losses made by MtGox (and others) and on the back of this a large number of smaller investors.   

As cryptocurrencies gain popularity and momentum around the world, the regulators are playing catch-up. The surge in glory came during 2017 with a whopping $750 billion market value in cryptocurrencies by mid-December. The dam ultimately had to burst, and by early 2018, the value dropped to lower than $400 billion.

The enormity of crypto fund fraud and scams has become the number one priority for governments globally with the United States trying to put a definition to the term cryptocurrency and to find where this meets with SEC and IRS regulations already in place and where there needs to be better governance. While the USA is uncertain as to the territorial legality, two regulators have made some headway as to the Federal Jurisdiction of Cryptocurrency Exchange Regulations.

Fintech Start-Ups and ICOs Feeling the Heat

In an effort to prevent fraudulent startup projects, The SEC (Securities and Exchange Commission) has documented their move to crack down on the cryptocurrency industry. The SEC labels ICOs as securities as opposed to their “owners” lobbying the federal government in order to be considered assets and commodities.

In his far-reaching address at the Yahoo Finance All Markets Summit: Crypto, William Hinman, Director, Division of Corporation Finance said that one of the things he often sees in the cryptocurrency realm is that promoters are selling tokens or coins to raise money to develop the network, where the plan is to operate with digital assets. He said that this is as opposed to selling shares, obtaining bank financing or issuing notes. Hinman likened the practice to the conventional system of securities offering.

Confusion: Are they Utility Tokens, Commodities or Securities Tokens?

Much of the blame is laid at the door of the crypto industry players themselves. Whether this has been intentional or not, it is quite clear some players took advantage of the situation to create for themselves a way to “print money” before the legal eagles caught on.

The regulators acknowledge that the wording in ICO or startup is paramount and forms the basis for the definition of the difference in the types of cryptocurrencies touted.

This means that the designation of responsibility among the US regulatory bodies, SEC and CFTC (Commodity Futures Trading Commission) have been hard pushed to find common ground under a single umbrella agency. In multiple courts in the past 12 months, federal judiciary rulings have been varied and confused.

As a commodity, cryptocurrency would fall under the jurisdiction of CFTC: ruling by a federal judge.

In a second, contradictory decision, another court judge ruled, “Congress’ purpose in enacting the securities laws was to regulate investments, in whatever form they are made and by whatever name they are called…” thereby passing the regulatory framework and responsibility to the SEC.

The only certainty coming from all the discussion is that regulators are very keen to catch up and having people in D.C. who know the industry and can pass on correct information through lobbyists will be good for the industry.

It’s a jungle out there!

Even the most astute regulators caught napping on this one.

Cryptocurrency and Bitcoin, in particular, has been part of the blockchain evolution within Fintech since 2009. Why has government and regulatory agencies been so far behind the eight ball?

Why government legislation matters

In the early years, it seems all they were interested in was catching “bad guys” using the dark web to trade in drugs and other illicit goods and services (or spy on the nation!).  It appears that regulators were unaware of moves by crypto designers and how these would affect Joe Citizen and therefore, state and federal government.

There has been ample opportunity for even the most astute regulators around the world to get to grips with this phenomenon not only to protect their fiat currency but also to safeguard their citizens when it comes to crypto-crimes. In a race to catch up, it seems that regulators have latched on to ICOs as the place to start. While there are cases of fraud with these start-ups, not everyone should be tarred with the same brush.

Questions that every government should be asking are industry specific. Is there a breach in the law relating to capital gains tax, money laundering, securities, commodities, investment, and trading practices? Crypto-currency exchanges or traders should come up against the same type of scrutiny as every other registered company.

The press has been quick to single out extortion in the crypto-space, driving the regulators to get to educate themselves fast. Whereas ICOs could be used for terrorist financing and money laundering, studies show that around 59% of US citizens are not reporting capital gains in cryptocurrency to the IRS.

This ignorance on the part of government and regulators makes it clear that there is a large amount of risk involved for consumers. Regulations in the stock market through the SEC, the commodities market through the CFTC and the currency trading market by the Federal Reserve and Department of the Treasury show that a certain amount of regulation allows transparency,  impartiality, and equality for all.

However, the fourth asset class of crypto-currencies has emerged as a nascent, but burgeoning without a single regulator, which is leading to uncertainty and confusion for all.

It is becoming abundantly clear that the United States is now at a junction in the road to the expansion of the blockchain platforms for financial growth in all industries. The lack of clear and formal regulations in the crypto-currency market means that entrepreneurs are hanging back for fear of breaking the law.

Investors too are sitting on the fence in uncertainty. Their skepticism is two-fold:

  1. Will they invest in a company that runs afoul of the law
  2. What will the future hold for valuations of their currency (asset)

While the government quandary goes on, there is a further risk in allowing dishonest vendors to gain traction while disqualifying genuine purveyors of their rightful place in the market. This means that the frauds continue; one study estimates ICO rip-offs at 80%.


Decentralization is Crucial”Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers”: Ref: William Hinman, SEC Division Head of Corporation Finance recently told his audience at the Yahoo All Markets Summit: Crypto in San Francisco.

William Hinman told his audience that the critical issue with the SEC and cryptocurrencies is the underlying expectation by purchasers/investors that there is a return on investment. This intimates that people believe they are buying assets, which will give a financial return.

Key to this whole issue is the decentralized blockchain protocol as the foundation of Bitcoin. This means that the crypto is not considered as security. The decentralization excludes a central party in the network as a means to determine the value.

While on the subject, ETH (Ethereum’s Ether) are governed by the same decentralized protocols and therefore do not qualify as securities.


The USA is in a commanding position with 25% of the world GDP. With this kind of wealth to drive any global market, it comes as no surprise that the USA plays a significant role in affecting the price of Bitcoin and other crypto-currencies. A recent survey showed that around 18 million Americans hold cryptocurrency or altcoins of one type or another, with Bitcoin and Ethereum the most popular.

Demand Drives Prices

Given that 18,000,000 United States citizens have invested in cryptos, it is little wonder that regulation in the market will play a vital role in that country. As more and more people understand the dynamics of cryptocurrency, the net worth of each offered token increases exponentially. The adoption of blockchain and cryptocurrency technology in a major way in New York, Chicago and Silicon Valley, the potential for more of the general population taking up this form of “safe” investment also increases the number of buyers, thereby getting closer to the market cap.

Even with all the US Regulation hype-surrounding cryptos, or regardless of it, the majority of coins in the market are all on the ascendency.  Bitcoin price continues to soar back from the low point at the beginning of 2018.

Ethereum is not far off their market cap of $23.8 billion, and the price is rising dynamically. This means that there is space in the burgeoning market, which has given momentum to XRP and Ripple each gaining higher market share of the top ten altcoins.

Media Exposure

The media plays a vital role in the way the market responds. History proves that whether positive or negative, just getting the name out has given Bitcoin the boost it was looking for nine months ago. Last year there was a feeding frenzy, which pushed the price from $900 to almost $20,000 per token (coin), and then, in one major eruption, the bubble popped and it crashed. The media coverage on the way up was all about getting in before it was too late.

The drop came around the holidays when few people were on the ball, but other factors were leading to the slump, such as MtGox selling their “stock” of coins. Back again came the naysayers, putting a damper on the price, until it dropped under $6,500 in June 2018.

Then the regulators got involved, and the media started headbutting both sides, and the result is another growth spurt. At the same time, news coverage from around the world has been good for other coins, driving the cryptocurrency world and blockchain on a positive footing.

Takeaway- Regulation Good for Crypto Business

The US Regulatory bodies have been slow to get their ducks in a row. However, they are catching up fast and well set to make things legal in one form or another, and this is proving a good thing for the crypto world.