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USA Regulations affecting bitcoin and digital currency trading The US government has not quite come to grips with crypto currencies and how to deal with them. According to a report by the Columbia Science and Technology Law Review, regulatory responses to crypto currencies and to blockchain in particular display a range of mixed feelings from excitement to suspicion to indifference. The law review states that the U.S. federal government has not exercised any pre-emptive power to regulate blockchain to as it usually does with financial regulation and seem unwilling to do so leaving the individual states free to set their own regulations.

Although there are potential Bills in the pipeline undergoing review it is the states that are most active with regard to rules and regulations concern bitcoin and blockchain. By way of example, in June 2015 New York became the first state in the U.S. to regulate virtual currency companies through state agency rulemaking. And last year (2017) eight US states have been working on bills relating to the acceptance and promotion of bitcoin and block chain with two of them already passing laws on the currency. Arizona, Vermont, Chicago and Delaware have all either started or completed blockchain. It seems evident that with the recognition in Arizona of smart contracts and in Vermont blockchain as evidence, Chicago (real estate records) and significantly in Delaware impending authorization registration of shares of Delaware companies in blockchain form, that the states have carte blanche to form their own regulations.

Federally, A new proposed bill, Bill S1241: Modernizing AML Laws to Combat Money Laundering and Terrorist Financing is being proposed and discussed with a view to closing a number of perceived gaps in the law including looking at the role digital currencies play. The U.S. Senate Judiciary held a full panel hearing focusing on the bill designed to modernise anti-money laundering (AML) laws, which included looking at the role that digital currencies play. The hearing, chaired by Chuck Grassley, a senior U.S. Senator from Iowa, and the current chairman of the Judiciary Committee of the 115th Congress, opened the hearing noting that the introduction of S1241 is designed to give law enforcement the tools it requires to do its job, stating that, “This bill will modernize our AML laws by providing new tools, modernizing methods, and closing loopholes to make sure that law enforcement can prevent, identify, and prosecute those who break the law.” At the hearing backing Senator Dianne Feinstein stated, “The bill is intended to address a number of gaps in current law. It is the product of years of work and it builds on the recommendations included in a bipartisan report titled ‘The Buck Stops Here: Improving United States Anti-Money Laundering Practice.”

A recent study by the Tax Justice Network, points out, however, that the U.S. is one of the easiest places in the world for terrorists, human traffickers, and corrupt foreign politicians to hide illicit money. And Jennifer Fowler, deputy assistant secretary for terrorist financing and financial crimes at the U.S. Department of the Treasury, has claimed that the U.S. dollar continues to remain a popular currency for illicit commerce and money laundering. She added, “That the Treasury is continually monitoring the use and development of new payment technologies, such as digital currencies.” She continued, “Although virtual currencies are used for illicit transactions, the volume is small compared to the volume of illicit activity through traditional financial services.”

The main query or confusion seems to be how to regard bitcoin. If it is wholly a currency then little additional regulation would be required but if it is viewed as an investment then existing investment regulations would apply. One government website lists bitcoin as a commodity. (commodity: an economic good: such as; a product of agriculture or mining)

‘Bitcoin and other virtual currencies have been determined to be commodities under the Commodity Exchange Act (CEA). The Commission primarily regulates commodity derivatives contracts that are based on underlying commodities. While its regulatory oversight authority over commodity cash markets is limited, the CFTC maintains general anti-fraud and manipulation enforcement authority over virtual currency cash markets as a commodity in interstate commerce. Thus it can be traded and would be subject to the usual trading regulations. Anyone trading in bitcoin would be required to hold a licence to do so.’ However, buying bitcoin for personal use and in using it as a purchase medium would place it firmly in the currency arena.

Getting back to the individual States, currently eight US States are working on bills accepting and promoting the use of Bitcoin and Blockchain technology over the past year, and a couple of them have already passed bills into law. The bills cover a wide arena including transparency in State operations to protecting consumers from additional taxation. Some have been quite specific in their definition of blockchain and smart contracts. 

The latest State to pass legislation concerning blockchain technology at the time of writing was Vermont passing Senate Bill 135 in both the Vermont House and Senate late last year. The section relating to Blockchain, ‘calls for any fact or record verified through the use of a blockchain to be authentic.’ This significantly gives Blockchain-notarized documents, including those on the Bitcoin blockchain, added a legal bearing in a court of law.

Arizona is another State that recently passed House bill 2417. This one explicitly defines and supports blockchain technology for public use. This choice morsel defines blockchains and smart contracts, while at the same time, declaring that all data tied to a blockchain is "considered to be in an electronic format and to be an electronic record," acceptable for use by the State.

In Maine, the Lobster Capital, Senate Bill 950 is basically a bill to study blockchain. No actual resolve has been established as yet in this State.

In progress is Nevada’s senate bill 398 which acknowledges and authorises the ‘use of blockchain technology” as well as smart contracts by Nevada residents. The bill states that no governmental entity can impose taxes on fees on blockchains or on smart contracts and no government licence is required to use them.

Hawaii is a different kettle of fish. Although it has classified ‘crypto currency using business’ as Money transmitters or transferrer’s it has prohibited from doing business within the State. Although how it intends to enforce that is moot as Hawaiian residents can simply go overseas online to buy and sell bitcoin. Despite the State of Hawaii recently re-classifying cryptocurrency- using businesses as Money Transmitters, forcing Coinbase to stop doing business within the state, the Hawaiian state legislature is no closer to passing House Bill 1481. The bill, mostly focused on Tourism looks at how bitcoin could be developed economically for Hawaii. “Digital currencies such as bitcoin have broad benefits for Hawaii,” the bill reads. It goes on, “A large portion of Hawaii's tourism market comes from Asia where the use of bitcoin as a virtual currency is expanding.  Hawaii has the unique opportunity to explore the use of blockchain technology to make it easier for visitors to consume local goods and services and to drive the tourism economy.” While awaiting a vote by both branches, the bill has passed several committees, however little has been done since March 2017.

In Illinois House Resolution 120, known as the “Blockchain Task Force Resolution,” has been formulated in both the House and Senate as a joint resolution and calls for a focused investigation into the technology and how the State could benefit from blockchain technology primarily for recordkeeping and service delivery. The legislation has passed a House vote and several amendments and is now before a committee. It seems evident there is no regulations on bitcoin in Illinois.

North Dakota Senate Bill 2100 is a bit more relevant to bitcoin as it does mention “the feasibility and desirability of regulating virtual currency, such as bitcoin.” While it was passed unanimously in the Senate, a nearly-unanimous House vote against it followed soon after.

A bill from California, Senate Bill 741, only seems concerned with charities and mentions bitcoin briefly in relation to,. “A raffle ticket shall not be sold in exchange for Bitcoin or any other cryptocurrency.” This is the first time we can find where bitcoin has been outlawed for a specific purpose. The bill has not yet been passed however.

On the federal level, no bills have been submitted. However, in September 2016 the US House of Representatives proposed the non-binding Resolution 835, promoting economic growth nationally. While the document is not a bill and cannot become law, it calls on Congress to create a national policy for specific technology, including digital currencies and blockchain.

Currently there is no bill at federal or state level that specifically prohibits the use or buying and selling of bitcoin. However one should not be complacent as this is an ongoing process and it is strongly suggested that one does one’s own research and become familiar with any legislation potential or actual relating to crypto currencies in one’s State.

This article is for information purposes only and is not to be construed as financial information for any purposes such as investment or speculation and it is the responsibility of the reader to perform proper due diligence before acting upon any of the information provided. We recommend that you consult with a licensed, qualified investment advisor before making any investment decisions.