Is crypto money?

The Perception of Cryptocurrencies: A Regulatory Perspective

Cryptocurrencies have been subject to varying interpretations and classifications by different regulatory bodies, shaping how they are perceived by institutions, businesses, and the general public. The perception of cryptocurrencies is not monolithic; rather, it is influenced by the stance taken by key regulatory agencies such as the Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC), Internal Revenue Service (IRS), and Financial Crimes Enforcement Network (FinCEN). Each of these institutions defines and regulates cryptocurrencies differently, affecting their legitimacy, use cases, and the level of scrutiny they face.

Cryptocurrencies as Commodities (CFTC)

The CFTC classifies cryptocurrencies, particularly Bitcoin and Ether, as commodities under the Commodity Exchange Act (CEA). This designation places cryptocurrencies in the same category as gold or oil, subjecting them to regulations concerning derivatives and futures trading rather than securities laws. The CFTC’s approach suggests that cryptocurrencies function as tradeable assets rather than ownership claims in a business or organization.

This perspective affects market perception by reinforcing the idea that cryptocurrencies, especially decentralized ones, are akin to digital commodities with value determined by market supply and demand. The classification also places cryptocurrencies within the jurisdiction of futures trading, leading to the creation of regulated derivatives markets such as Bitcoin futures.

Cryptocurrencies as Securities (SEC)

The SEC, in contrast, views many cryptocurrencies as potential securities under the Howey Test, which determines whether an asset qualifies as an investment contract. If a cryptocurrency is issued through an Initial Coin Offering (ICO) or involves expectations of profit from the efforts of others, the SEC may regulate it as a security. This classification has significant legal implications, requiring issuers to comply with federal securities laws, register their tokens, and ensure investor protections.

This stance has led to lawsuits and enforcement actions against projects deemed to be selling unregistered securities, influencing how both investors and developers approach new cryptocurrency ventures. The perception of cryptocurrencies under SEC regulation leans toward cautious scrutiny, particularly when projects involve centralized governance structures.

Cryptocurrencies as Property (IRS)

The IRS treats cryptocurrencies as property for tax purposes. This means that transactions involving cryptocurrencies—whether trading, earning, or spending—are subject to capital gains taxes similar to stocks or real estate. This classification creates a perception of cryptocurrencies as investment assets rather than conventional currencies, affecting their use as a medium of exchange.

For individuals and businesses, this treatment introduces tax complexities, requiring meticulous record-keeping of every transaction to determine taxable events. The property classification also discourages small, frequent transactions due to potential tax liabilities, reinforcing the perception of cryptocurrencies as speculative holdings rather than everyday money.

Cryptocurrencies as Money (FinCEN)

Unlike the IRS, which sees cryptocurrencies as property, the Financial Crimes Enforcement Network (FinCEN) categorizes them as money for anti-money laundering (AML) and counter-terrorism financing (CTF) purposes. FinCEN regulates cryptocurrency exchanges and businesses as money service businesses (MSBs), requiring them to implement Know Your Customer (KYC) and AML policies.

This classification impacts the perception of cryptocurrencies by reinforcing their role as a potential alternative to fiat currency. However, it also subjects them to strict compliance measures, particularly in financial transactions that cross borders or involve large sums of money. This approach seeks to mitigate illicit use cases while acknowledging cryptocurrencies’ function as a medium of exchange.

The Broader Implications for Perception

The fragmented regulatory treatment of cryptocurrencies contributes to a complex perception among institutions and the public:

• Investors may see cryptocurrencies as a mix of speculative assets (SEC, IRS) and tradeable commodities (CFTC).

• Entrepreneurs and businesses must navigate compliance challenges based on whether their projects fall under securities (SEC), commodities (CFTC), or money transmission (FinCEN) regulations.

• Governments and financial institutions adopt a cautious stance due to regulatory uncertainties and compliance burdens.

• Everyday users face challenges in treating cryptocurrencies as money due to tax implications (IRS) and financial surveillance (FinCEN).

Conclusion

Cryptocurrencies remain a dynamic and evolving asset class with multiple regulatory interpretations that shape their perception. The CFTC sees them as commodities, the SEC as securities, the IRS as property, and FinCEN as money. These definitions impact adoption, market behavior, and regulatory compliance, influencing how different stakeholders interact with digital assets. As regulatory frameworks continue to evolve, the perception of cryptocurrencies will be shaped by legal developments, market trends, and technological advancements.