Who Regulates Bitcoin? 

Bitcoin has been around for more than fifteen years and has millions of users, but its regulatory outlook remains unclear. While there is yet to be a concise regulatory umbrella for Bitcoin to fall under, various federal agencies have attempted to adapt to this evolving financial sector by adjusting their existing guidelines. 

SEC 

The Securities and Exchange Commission (SEC) does not consider Bitcoin to be a security, meaning that the SEC does not regulate it. However, the SEC does regulate when Bitcoin forks are used to raise capital for a venture in Initial Coin Offerings (ICOs). This means that before using an ICO, it must be registered with the SEC. The SEC is also responsible for issuing Exchange Traded Funds (ETFs), like the Bitcoin spot ETF, and it investigates groups and individuals for securities exchange violations. 

CFTC 

According to the Commodity Futures Trading Commision (CFTC), virtual currencies such as Bitcoin have been determined to be commodities and therefore fall under the Commodity Exchange Act.  As a result, such virtual currencies are argued to be regulated by the CFTC, the agency that regulates the commodity futures and options markets. However, the CFTC cannot regulate Bitcoin itself, because the protocol is permissionless and distributed across thousands of computers all over the world. What the CFTC can do is step in when somebody uses Bitcoin in a derivatives contract or when there’s fraud or manipulation involving bitcoin bought or sold in international commerce.  

FinCEN 

Companies that operate in the U.S. and deal with Bitcoin, like exchanges, must register as a Money Service Business (MSB) with the Financial Crimes Enforcement Network (FinCEN). FinCEN is a bureau of the US Department of the Treasury and exercises regulatory functions under the Bank Secrecy Act and the United States PATRIOT Act. They analyze Bitcoin transactions to prevent financial crimes like money laundering and terrorist financing. FinCEN regulations determine CoinFlip’s Anti-money-laundering (AML) and Know Your Customer (KYC) policies, which apply to all ATM users. 

OCC 

The Office of the Comptroller of the Currency (OCC), another bureau of the US Treasury Department, supervises national banks that provide Bitcoin custody services to customers. The OCC mandates that any bank wishing to provide Bitcoin-related services must have proper risk management policies and get written approval from their supervisory office, among other requirements.  

IRS 

The Internal Revenue Service (IRS) is responsible for collecting taxes based on the income generated by Bitcoin investments and transactions. The IRS views Bitcoin as property for U.S. Federal Tax purposes. Any person or company in the United States that produces income from Bitcoin, including miners, traders, and merchants, must report that income to the IRS and pay the required tax.  

Moving Forward 

For the most part, these federal agencies have been applying existing regulations to Bitcoin. However, Bitcoin and cryptographically enhanced blockchains are revolutionary technologies with unique regulatory needs that do not fit well into the same category as other financial services. As Bitcoin becomes more widely accepted as a legitimate form of investment and payment, a new set of regulations is necessary to ensure that Bitcoin users and providers are protected. 

Bitcoin gives millions of people access to essential financial services that they do not have access to under traditional banking systems (see our article on financial inclusion). It has created thousands of jobs, provided a new store of value, and has generated billions of dollars. A clear and concise regulatory framework is something the cryptocurrency space needs to better protect consumers, stimulate innovation, and continue widespread adoption. 

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