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Uncle Sam Sticking His Fingers into the Crypto World; Bitcoin Regulations on the Horizon

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We knew it was only a matter of time.

Uncle Sam has suddenly become very interested in Bitcoin.

Over the last several months, we’ve reported on various countries announcing plans to regulate cryptocurrencies. Now Congress is looking to get into the act.

In December, South Korea announced plans to tightly regulate cryptos with rules that could go as far as banning exchanges.  Last fall,  China prohibited trading cryptos on domestic exchanges and outlawed initial coin offerings. This month, it took things a step further, blocking all websites related to cryptocurrency and ICO trading, including foreign platforms, in an effort to crush the market completely. Austrailia has looked to regulate cryptocurrencies under anti-money laundering laws.  Earlier this month, Indian Finance Minister Arun Jaitley announced plans to ban the use of cryptocurrencies as payment, saying, “The Government does not consider cryptocurrencies legal tender or coin and will take all measures to eliminate use of these crypto-assets in financing illegitimate activities or as part of the payment system.”

And now the US government is looking to get into the cryptocurrency regulatory act. According to a Reuters report, several members of congressional leadership say stricter oversight is on the way.

Bipartisan momentum is growing in the Senate and House of Representatives for action to address the risks posed by virtual currencies to investors and the financial system, they said. Even free-market Republican conservatives, normally wary of government red tape, said regulation could be needed if cryptocurrencies threaten the US economy.”

Senate Banking Committee member Sen. Mike Rounds (R-S.D.) told Reuters, “There’s no question about the fact that there is a need for a regulatory framework.”

Rep. Bill Huizenga (R-Mich.) chairs the House Financial Services Subcommittee on Capital Markets. He said the growth in virtual currencies has made him “more comfortable” with regulation. As if a politician ever suffered any discomfort regulating anything.

Lawmakers haven’t said exactly what kind of actual risks or threats Bitcoin poses to the economy, but in the world of politics, that’s not really necessary. Vague warnings about “danger” are generally enough to justify government intervention into – pretty much anything. After all, these people think they have a divine mandate to protect us from ourselves. As Rep. Tom MacArthur (R-N.J.) put it, “We have to look carefully at all of the cryptocurrencies and make sure individuals don’t get taken advantage of.”

According to Reuters, “much of the concern on Capitol Hill is focused on speculative trading and investing in cryptocurrencies, leading some lawmakers to push for digital assets to be regulated as securities and subject to the SEC’s investor protection rules.” The SEC has already stuck its regulatory claws into the world of “Initial Coin Offerings” (ICOs). The Commodity Futures Trading Commission has also gotten into the act, identifying digital assets as a commodity subject to anti-fraud rules.

And of course, with regulation comes the specter of increasing taxation.

While Uncle Sam’s regulations won’t likely prove as draconian as what we’re seeing in China and India, they represent another speedbump in front of the growth of cryptos.

The dirty little secret is, governments can’t ultimately control cryptocurrencies. Two people with a smartphone and wifi can exchange Bitcoin privately and anonymously. But governments can certainly have a major impact on the evolving crypto marketplace – including exchanges, coin offerings, and other public transactions.

Some in the crypto world argue increasing government scrutiny will ultimately be good for the crypto world, spurring innovation that increases privacy, security and anonymity in an effort to keep regulators out. On the other side of the coin, pro-government types say regulation will create a more stable marketplace and increase public trust, allowing cryptos to enter into the mainstream of the financial system.

However you look at it,  in the meantime, increasing regulation and threats of government interference may well drag down the value of Bitcoin and other cryptocurrencies – at least in the near-term.

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