Global Cryptocurrency Regulation: Operating Beyond Government Control But Within Undefined Bounds
Cryptocurrency needs a comprehensive regulatory framework to protect investors, global economies, and the industry itself while maintaining an environment conducive to innovation and accessibility. A cryptocurrency is a type of digital currency.[1] Cryptocurrencies use cryptography to secure transactions, so they are not centrally regulated and thus offer the unique characteristic of being outside the bounds of traditional governmental control over currencies.[2]
While some countries, such as China, have banned cryptocurrencies altogether, others are adopting them as legal tender, such as El Salvador.[3] The United States, in contrast, finds itself somewhere in the middle, largely embracing a regulation-through-enforcement approach resulting in immense pressure on litigation as a solution to regulatory questions.[4] Regardless of a country’s approach to cryptocurrency, this globally disjointed approach to regulation has led to vague guidelines surrounding the industry and created international implications for economies, investors, and industry leaders.[5]
While other countries have a comprehensive regulatory framework, the United States has championed a regulation-by-enforcement approach to cryptocurrency.[6] The U.S. has attempted to regulate crypto platforms, focusing on whether crypto is classified as a security based on the Howey test.[7] The Howey test consists of four criteria – investment of money, expectation of profits, common enterprise, reliance on efforts of others – to determine whether a transaction qualifies as a security.[8] Recently, even some courts, including the Southern District of New York, have begun to question why there has not been uniform, decisive legislative action to determine whether certain crypto qualifies as a security.[9] Currently, the approach to regulation in the U.S. is likely to remain as SEC regulation through enforcement.[10] Thus, the lack of clarity and predictability in the international cryptocurrency industry is unlikely to find resolution solely with U.S. decisions.
Internationally, regulatory authorities have taken different approaches to regulating cryptocurrency.[11] For example, India, while recently removing a crypto ban, has maintained a dismissive approach; meanwhile, China has banned all transactions of virtual currencies, and Brazil continues to pursue the creation of a national digital currency.[12] This disjointed international approach to cryptocurrency, coupled with the U.S. ‘regulation through enforcement’ approach, has left legal and regulatory gaps in the market.
International regulators, faced with the issue of regulating an industry that markets itself as outside the bounds of conventional financial regulation, have largely applied a piecemeal approach to cryptocurrency regulatory and legal issues.[13] Collaboration amongst global policymakers may serve as a solution.[14] By sharing information and collaborating across borders, cryptocurrency regulation has the potential to innovate the industry itself.[15] Consistent regulations would promote predictability in the market for all participants and allow for more efficient legal and regulatory analysis of novel issues in digital currency.[16]
Industry leaders, market participants, and worldwide economies need clarity to continue innovation while protecting digital currency participants.[17] The international demand for clearer policies on crypto has gained support. While progress has been achieved in certain areas, there remains a lack of clarity, especially regarding global standards.[18] A comprehensive, uniform legal foundation creating a clear regulatory framework offers the opportunity for effective and continued growth of the cryptocurrency market, protecting investors, global economies, and the industry itself.
Mariah Patuel is a staff member of Fordham International Law Journal Volume XLVII.
[1] See Coryanne Hicks, Cryptocurrency Regulations Around The World, Forbes: Advisor (Apr. 3, 2023, 9:01 AM), https://www.forbes.com/advisor/investing/cryptocurrency/cryptocurrency-regulations-around-the-world/.
[2] See id.; What is cryptocurrency and how does it work?, Kaspersky, https://usa.kaspersky.com/resource-center/definitions/what-is-cryptocurrency (last visited Feb. 26, 2024).
[3] See Julie Pinkerton, The History of Bitcoin, the First Cryptocurrency, U.S. News & World Rep.: Money (Nov. 14, 2023), https://money.usnews.com/investing/articles/the-history-of-bitcoin.
[4] See MacKenzie Sigalos & Ryan Browne, United States acts as top cop – setting the crypto standards for the world, CNBC (Jan. 2, 2024, 8:38 AM), https://www.cnbc.com/2023/12/31/state-of-crypto-regulation-in-2023-eu-laws-approved-but-us-is-top-cop.html.
[5] See Aditya Narain & Marina Moretti, The right rules could provide a safe space or innovation, IMF: Fin. & Dev. (Sept. 2022), https://www.imf.org/en/Publications/fandd/issues/2022/09/Regulating-crypto-Narain-Moretti.
[6] See Sigalos & Browne, supra note 4.
[7] See Hicks, supra note 1; Jay Dubow et al., SEC Continues to Regulate Cryptocurrency Through Record High Enforcement Efforts, LAW.COM: The Legal Intel. (Feb. 26, 2024, 9:14 AM), https://www.law.com/thelegalintelligencer/2024/02/26/sec-continues-to-regulate-cryptocurrency-through-record-high-enforcement-efforts/; see also SEC v. Howey Co., 328 U.S. 293, 301 (1946) (“[t]he test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others.”).
[8] See SEC v. Howey Co., 328 U.S. at 301 (1946).
[9] See Dubrow, supra note 7.
[10] See id.
[11] See Narain & Moretti, supra note 5.
[12] See Sigalos & Browne, supra note 4; Hicks, supra note 1.
[13] See Sigalos & Browne, supra note 4.
[14] See Tobias Adiran et al., Crypto Needs Comprehensive Policies to Protect Economies and Investors, IMF: Blog (July 18, 2023), https://www.imf.org/en/Blogs/Articles/2023/07/18/crypto-needs-comprehensive-policies-to-protect-economies-and-investors.
[15] See id.
[16] See id.
[17] See Hicks, supra note 1.
[18] See Adrian et al., supra note 14.
This is a student blog post and in no way represents the views of the Fordham International Law Journal.