Ex-senior official at the US Commodity Futures Trading Commission (CFTC) Jeff Bandman recently shared his expectations on the future of cryptocurrency regulations, pointing to identity checks, a clearer tax obligation, and industry self-regulation as trending areas.
Bandman said that a turning point for cryptocurrency regulation came in 2013 when the US government auctioned off the substantial amount of confiscated Bitcoin seized in dark web outlet Silk Road’s closure.
”When the US government seizes narcotics they don’t auction it off to the American people, to me that was a real watershed moment,” he said, interpreting this as the government’s acknowledgment of it as something legal.
The area where Bandman sees greatest conversions is that surrounding around anti-money laundering (AML) and terrorist financing. Although he acknowledged that people are laundering at higher levels with cash than cryptocurrencies, he cites that statistically GBP 100 billion is estimated as launder in Europe every year, with around GBP 3 or 4 billion of that laundered in cryptocurrency. ”That’s still a lot and governments around the world are focusing on that,” he clarified.
”It’s a big theme as we go through 2018 and in to 2019… country by country mainstream departments of finance and justice will be handling this alongside an international group called the Financial Action Task Force which will have new standards by June.”
For businesses in this space, compliance to tighter regulation will be a core theme; ”whether or not you think its appropriate considering other certain software or consumer products are subject to KYC (know your customer) or AML at this level, it will be the defining characteristic for these types of assets.”
Bandman noted that taxing cryptocurrency came to the US government’s attention in 2013, 2014, although there was and still is no consistent treatment globally. Each country is trying to deal with taxation, albeit in different ways, he said with the common denominator being a lack of clarity and consistency.
He gave the example of France’s intention to impose a 20% capital gains task on cryptocurrency which taxpayers are still unclear of on the logistics; whether it relates to corporate income or just capital: ”If buying a coffee with Bitcoin is there going to be gains or losses in that transaction or is that an exemption?”
”Crypto businesses and retails need a clear taxonomy. Some products such as airdrops and forks are novel compared to other taxable assets,” Bandman shared, suggesting that a clearer taxation policy is crucial for supporting national industries.
With the trading landscape rapidly evolving, Bandman pointed to the US as going particularly quickly in this area of regulation partly because of the country’s extremely broad definition of a security and investment contracts.
Other regions benefit trading because their definitions are not so broad: ”In the EU, the definition of security generally excludes most cryptoassets. In the US, cryptoassets must comply with securities laws for the most part with exception of sufficiently decentralized coins like Bitcoin and Ether. Other countries have developed a bespoke framework, such as Gibraltar and Bermuda which have provided a specific framework for virtual currencies.”
Japan, however, is the nation that Bandman sees as setting the future trends for exchange regulations. He described Japan as ”leading the world” since giving specific authority to its financial market regulator to market cash or spot trading of cryptocurrencies. Now it has just authorized the first self-regulatory organization which gives trading platforms authority to police themselves.
”These are very important elements for trends in the landscape moving forward,” he concluded.
Bandom established and chaired the CFTC blockchain, virtual currency, and fintech working group from inception, serving with the CFTF from 2014-2017. He now lectures at Yale University and acts as Founder and Principal of Bandman Advisors.
His comments were made at Decentralized 2018, a blockchain conference that took place in Athens, Greece last week.
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