The US Takes Action Against Cryptocurrency in 2023: OilPrice.com
Crypto companies worldwide have carried out mining and trading activities relatively unchecked in recent years, as governments have dragged their feet in establishing adequate regulations to manage the sector. Meanwhile, many companies have been using vast amounts of energy to power the activities required to mine crypto, as demand for the digital currency has steadily increased. The U.S. is now taking legal steps to punish companies that have abused their position of economic power. However, the lack of regulation shows the need to develop a clear political and legal framework to manage the sector, in such a way as has been seen in Canada, Europe and other parts of the world.
The U.S. had a busy year last year when it comes to crypto crimes, having carried out severe legal action against several major firms over the last year. In 2023, the crypto miner Binance was ordered to pay over $4 billion to U.S. authorities following a guilty plea for money laundering from the company’s CEO, Changpeng Zhao. Meanwhile, FTX founder Sam Bankman-Fried was found guilty in November of stealing from customers, leading to the bankruptcy of the company. This shows the need to enforce strict regulations on the sector, to ensure these crimes cannot take place in plain sight.
But it’s not just crypto-related crime that the U.S. and other governments are trying to tackle. While cryptocurrency has played a major role in the global economy in recent years, providing key funds in some instances – such as to Ukraine throughout the ongoing war with Russia – it also presents a threat to energy and environmental security. Mining cryptocurrency requires vast amounts of energy, with the production of Bitcoin alone using around 127 terawatt-hours a year, more than the energy usage of some countries, such as Norway. Crypto mining in the U.S. is estimated to produce between 25 to 50 million tonnes of CO2 a year. This threatens environmental security and undermines government efforts to achieve a green transition, meaning that countries must work quickly to ensure that adequate regulations are in place to curb energy usage in the crypto industry and decarbonise the sector.
Renato Mariotti, a former prosecutor in the U.S. Justice Department’s Securities and Commodities Fraud Section explained of the U.S. situation, “Other countries have a comprehensive regulatory framework in place. We don’t⦠As a result, issues that should be determined by legislation or regulation are instead litigated.” He emphasised that the use of legal action in the U.S. reflects a ‘regulation by enforcement’ approach. To date, the White House has not introduced comprehensive regulations on digital currencies, although certain states have introduced state-level legislation on crypto. And the industry does not expect new legislation to be enacted any time soon.
Alyse Killeen, the managing partner of Stillmark Capital, stated “Clearer regulatory frameworks and stance from regulators globally have provided a sense of legitimacy and security, encouraging more widespread participation in the bitcoin market,” urging the U.S. government to provide clear guidelines for the sector.
In contrast, several countries around the globe have introduced national-level cryptocurrency regulations. China has some of the strictest limitations on digital currencies, having banned the mining of Bitcoin in 2021 and forbidding crypto exchanges from operating in the country. However, China has been developing its own digital currency – the digital yuan (e-CNY) – since 2022. Canada has also been proactive in its approach to crypto regulation, classifying all crypto investment firms as money service businesses and requiring them to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). It was also the first country to approve a Bitcoin exchange-traded fund (ETF), with several trading on the Toronto Stock Exchange. Meanwhile, the United Kingdom has not introduced any cryptocurrency-specific laws to date and cryptocurrency is currently considered as property, rather than legal tender.
In April last year, the EU approved the world’s first comprehensive framework for crypto regulation, introducing the Markets in Crypto Act, or MiCA. The Act imposes several requirements on crypto platforms, token issuers and traders around transparency, disclosure, authorisation, and supervision of transactions. Customers are informed on crypto platforms about risks associated with digital currencies under the new rules. Further, the European Securities and Markets Authority can intervene if it deems a crypto platform is not properly protecting investors or threatens market integrity or financial stability. MiCA also responds to environmental concerns by requiring crypto companies to disclose their energy consumption and the impact of their digital assets on the environment.
Countries have been managing the rapidly emerging cryptocurrency sector in a range of ways, from allowing them to operate unchecked to introducing national regulations or carrying out legal action on any criminal activity in the sector. However, it has become clear that the regulatory path works in a preventative way, ensuring that best practices are followed in the industry and that crypto companies can be monitored to better manage both economic and environmental security.
By Felicity Bradstock for Oilprice.com
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