Around the world, country by country, the architecture of global crypto regulations is falling into place. As each new country passes new legislation aimed at governing the crypto sector, the degree of alignment and friction between different overlapping and interacting regimes is becoming increasingly apparent.
For example, in an Australian policy proposal published on Monday, October 16, the government cited regulations in the EU, UK, Canada and Singapore, weighing the pros and cons of each approach. But in this international conversation, the United States is staying quiet. All the while, American crypto firms are increasingly pivoting to regions with clear-cut rulebooks.
In Australia, efforts to pass a dedicated crypto bill have been blocked in the Senate, where the opposition Labor Party holds a strong enough majority to push back against the government’s legislative agenda.
Taking a different tack, the government’s latest approach centers on bringing crypto services businesses into the fold of existing regulations. For instance, the proposal would require them to hold a financial services license with the Australian Securities and Investment Commission (ASIC).
While such an approach may work in Australia, efforts by the U.S. Securities and Exchange Commission (SEC) to establish its authority over the crypto sector have been fiercely resisted.
Instead, the most viable path forward for the U.S. is to pass new legislation that defines the specific oversight functions of different regulatory agencies. But so far, Congressional efforts to legislate have fallen flat.
In the absence of such legislation, US courts will need to settle questions over the scope and limit of each regulator’s oversight of the crypto sector.
In the US, the question of regulatory territory often circles back to the Securities Act of 1933 and the Securities Exchange Act of 1934.
Between them, the two acts circumscribed the SEC’s role as the United State’s supreme securities regulator. However, they offered only a limited and historically static definition of what a security actually is.
In the years since, the SEC has often sought to expand its dominion by claiming that different investment classes count as securities and should therefore be subject to its oversight.
Accordingly, the current battle over the legal status of cryptocurrencies is just the latest instantiation of a decades-long conversation regarding what is and isn’t a security.
Most of the increasingly bitter disputes between the SEC and American crypto firms stem from the fact that cryptocurrencies have some security-like qualities, but not necessarily enough to validate the SEC’s claim to authority over the sector.
Elsewhere, lawmakers have sought to sidestep the securities question by creating new legal classifications for different crypto tokens.
This has been the approach taken in the EU, where the Markets in Crypto Assets (MiCA) regulation establishes a detailed taxonomy of different token types while designating the responsibilities of specific oversight authorities in each member state.
Of course, one challenge that the US shares with the EU, as well as Australia and Canada, is the need to balance state and federal interests.
If the country remains on its current path of legislative inaction, the US risks fragmenting along regulatory lines, with some states like New York establishing clear licensing frameworks for crypto firms, and others not leaving the sector to its own devices.
In the EU, the risk of regulatory fragmentation was one of the key arguments lawmakers used when making the case for MiCA. Now, as the bloc looks toward the next stage of crypto regulation, the EU is moving toward even greater harmonization.