Cryptocurrency Regulation in the United States Prior to 2024

As of 2023, the United States had a complex and evolving landscape for cryptocurrency regulation, marked by increased enforcement actions and legislative efforts. The primary regulatory bodies involved were the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC).

SEC and CFTC Enforcement

In 2022, the SEC and CFTC intensified their enforcement activities related to cryptocurrencies. The SEC focused on entities it believed offered securities, while the CFTC sought to expand its jurisdiction to cover regulatory gaps in non-security digital assets. The SEC’s enforcement actions reached a record number, with 30 cases and $242 million in penalties, indicating a heightened focus on individual actors within the crypto industry. The CFTC also increased its enforcement actions, targeting cryptocurrency derivatives and unlawful commodity transactions​​.

Key Regulatory Focuses

The SEC targeted various aspects of the crypto industry, including staking services offered by exchanges like Kraken, Gemini, and Coinbase. The SEC’s stance that staking products could be considered securities offerings necessitated registration and adherence to disclosure standards. This aggressive regulatory approach led to criticisms of the SEC engaging in ‘regulation by enforcement’ rather than establishing clear industry rules​​.

The CFTC, under Chairman Behnam, echoed the need for greater crypto regulation and requested congressional action to expand its jurisdiction. This request aimed to enhance the CFTC’s role in crypto enforcement and due diligence on businesses operating in the digital asset space​​.

Other Executive Agencies

Other executive agencies, like the U.S. Department of the Treasury and the Internal Revenue Service (IRS), expanded their regulatory reach in the crypto domain. The Treasury regulated cryptocurrencies in international transactions and settled with crypto companies over alleged sanctions violations. The IRS hired new agents for its Criminal Investigation division to focus on digital assets and cybercrime​​.

DOJ’s Role and Legislative Developments

The U.S. Department of Justice (DOJ) continued enforcing federal criminal laws against cryptocurrency-related violations, including prosecuting the first-ever cryptocurrency insider trading case in 2022. This case emphasized the DOJ’s commitment to tackling illegal activities in the crypto space​​.

In response to the growing need for clear regulatory guidelines, various legislative proposals were introduced in Congress. These proposals aimed to establish a more regulated and transparent cryptocurrency industry, focusing on areas like anti-money laundering, investor protection, and stablecoin regulation​​. The bipartisan interest in scrutinizing the cryptocurrency industry suggested a potential shift towards a more regulated environment, with an emphasis on market stability and investor protection​​.

This period in U.S. history witnessed a significant shift in the regulatory approach towards cryptocurrencies, characterized by increased enforcement actions, legislative proposals, and a growing recognition of the need for comprehensive regulation in the digital asset space.