Friday, 19 April 2024

Crypto News

It’s time for the feds to define digital commodities

It’s time for the feds to define digital commodities

This month, the European Union (EU) agreed on the text for a unified licensing regime for cryptocurrency exchanges to operate across the EU bloc as part of its Markets in Crypto Assets Regulation (MiCA). The United States — despite being a traditional global leader in legal frameworks for technological innovation — has not provided that same regulatory clarity. 

National cryptocurrency exchanges in the U.S. are regulated at the state level through a patchwork of money transmission laws that overburden companies while under-protecting consumers. In our view, many digital tokens are properly characterized as digital commodities rather than securities. Yet, a unified federal regime for cryptocurrency exchanges listing digital commodities does not exist.

To create one, Congress must pass legislation that clearly defines “digital commodity” and creates jurisdiction for the Commodities Futures Trading Commission (CFTC) to supervise national digital commodities exchanges. Recent bipartisan bills addressing the topic suggest that this achievement may be within reach.

Don’t let a thousand flowers bloom at the state level

The individual states, rather than the federal government, are the primary regulators of cryptocurrency exchanges and other online payment providers under the rubric of money transmitters — a category of businesses that traditionally contemplate money wire providers with brick-and-mortar locations in the state.

These laws are aimed at ensuring that money transmitters do not lose, steal or misdirect a customer’s money and impose penalties on those who do.

Related: Biden‘s anemic crypto framework offered nothing new

Because cryptocurrency exchanges have customers across the country, they must understand and abide by the unique money transmission statute of every state.

Letting a thousand flowers bloom in “state laboratories of experimentation” may spur legal innovation in some contexts, but it is a poor fit with cross-border networked goods like money transmission. As a result, state-by-state licensing of modern money transmitters is inefficient, burdensome and under-protective.

More importantly, money transmission laws are not designed to protect consumers from market manipulation in spot trading of speculative digital assets among millions of people as occurs on cryptocurrency exchanges.

In that regard, the Securities and Exchange Commission has indicated that exchanges listing digital securities should be treated as national…

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