The U.S. approach to regulating the crypto-industry has been to work within its current laws rather than introduce new ones, as well as highlighting the risks of people involved in ICOs and trading.
At the end of 2017, the Securities and Exchange Commission (SEC), the regulator in the U.S., issued a warning to investors.
“A number of concerns have been raised regarding the cryptocurrency and ICO markets, including that, as they are currently operating, there is substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation,” the regulator said in a statement.
A lot of debate in the U.S. has been about how to class cryptocurrencies. At the moment, the SEC says that bitcoin and ether are not securities. The watchdog uses a method called the “Howey Test” to decide if something is a security. The ruling comes from a 1946 U.S. Supreme Court case that classifies a security as an investment of money in a common enterprise, in which the investor expects profits primarily from others' efforts.
While bitcoin and ether may not be securities, the SEC said that some coins created out of ICOs might be.
"A token, a digital asset, where I give you my money and you go off and make a venture, and in return for giving you my money I say 'you can get a return' that is a security and we regulate that," SEC Chairman Jay Clayton told CNBC in an interview earlier this year. "We regulate the offering of that security and regulate the trading of that security."
Clayton said that the SEC won’t change securities laws to cater to cryptocurrencies. To that end, some founders behind fraud ICOs have been prosecuted by the SEC. In April 2018, the SEC charged two founders of a cryptocurrency firm that was endorsed by champion boxer Floyd Mayweather, with carrying out a fraudulent ICO.
But it’s not just the ICO markets that U.S. regulators are looking at. There has been recent rising interest from professional institutional investors wanting to get involved in the cryptocurrency space. But the lack of regulation and difficulty in buying crypto-assets on exchanges has put them off. Many feel that the regulations do not offer enough protection. So these investors have been looking to traditional financial instruments to help them invest in digital coins.
One of those products that was launched last year was bitcoin futures. Both the CME and CBOE launched futures last year. This is a product that tracks the price of bitcoin but investors aren’t actually buying any of the digital currency. It theoretically allows them to short, or bet against, bitcoin. So far, futures have been the extent of professional products in the U.S.
There has also been a drive to introduce a product known as a bitcoin exchange-traded fund (ETF) onto the market. An ETF is a security that tracks the price of an asset, in this case bitcoin, and is listed on a stock exchange. The biggest proponents of a bitcoin ETF in the U.S. are Cameron and Tyler Winklevoss, founders of crypto exchange Gemini. They have tried twice to get a bitcoin ETF listed, but have been slapped down both times by the SEC.
Bitcoin investors are currently in wait and see mode in the U.S. about the SEC’s next steps.