Cryptocurrency Regulation

February 23, 2023

Cryptocurrencies and digital assets have been around for over a decade and in that time they have grown from a speculative investment to a new asset class. Particularly in the last several years, we have seen tremendous growth and volatility in crypto assets for example, Bitcoin is up 45% YTD but is still less than half of the heights it achieved in 2021. Crypto assets have also grown in their scope taking the shape of many different products and services. This alone is enough to raise calls for increased regulation in the crypto space, coupled with the recent collapse of crypto exchange FTX, we may see even swifter action taken by the federal government.


While we have established regulatory bodies for the traditional financial world, regulating crypto has some added difficulties. As stated by the International Monetary Fund´╗┐, “The actual or intended use of crypto assets can attract at once the attention of multiple domestic regulators—for banks, commodities, securities, payments, among others—with fundamentally different frameworks and objectives.” These regulators all operate with different objectives and methods - some prioritizing consumer protection while others are more concerned with the overall stability of the financial system. The current lack of clarity on who has the authority to regulate crypto assets has created an environment with many regulators trying to set favorable precedents for their future power over the space. In an ongoing lawsuit that began in 2020, the Securities and Exchange Commision (SEC) sued Ripple, a blockchain-based digital payment network, for raising over $1.3 billion by selling their token XRP. The SEC argues that these were unregistered securities and therefore fall under their jurisdiction. SEC chairman Gary Gensler has gone so far as to say “Nothing about the crypto markets is incompatible with the securities law," and "Investor protection is just as relevant, regardless of underlying technologies."


In September 2022, the White House released a comprehensive framework for responsible development of digital assets. The framework includes encouragement for the Federal Reserve’s research, experimentation, and evaluation of a U.S. Central Bank Digital Currency (CBDC) in order to preserve the status of the U.S. as a global financial leader. The framework also suggests regulation to protect consumers from fraud, scams, and theft in digital asset markets.  


On the flip side of the coin, some argue that crypto assets should be left unregulated. One argument as to why crypto should be left alone is that the decentralized nature of the assets requires a lack of regulation for them to function independently as intended. Others say that regulation creates legitimacy thus leading to responsibility. Along that line of thought, if the U.S. leaves crypto unregulated, consumers are free to partake in those marketplaces if they wish knowing that it has no regulatory backing and thus is a riskier choice. This argument does not mean that we have to let scams and theft run rampant either. Supporters of unregulated crypto believe that existing laws against fraud, theft, and false promotion already protect consumers and thus there is no need to add more complication. Further, some think that leaving crypto unregulated and unaffiliated from the traditional financial world protects financial institutions from the volatility of digital assets. 


While we don’t think we’ll see the Fed announce a US Central Bank Digital Currency anytime soon, we do think the regulation of crypto assets is an important topic to keep an eye on. The quickly evolving crypto world is posing some big questions for regulators all over the world and we’ll be watching for more important developments.

Detterbeck Wealth Management is a fee-only financial planning / wealth management company with offices located in Palatine, IL (Chicago area) and Charleston, SC areas serving clients locally and across the country. To contact us about setting up an appointment, please see our contact us page