A quick lesson in U.S. Bitcoin regulation
It is no secret that U.S. President Trump is no fan of Bitcoin. He is not an enthusiastic fan of cryptocurrencies in general. The crypto community has known this for some time, so it is baffling that so many people were upset when President Trump spoke harshly of cryptocurrencies in early July 2019. His remarks set off widespread fears that he was just one stroke of the pen away from banning Bitcoin in the U.S.
This post aims to alleviate any fears you might have. It is intended to offer a quick lesson in U.S. regulatory practices so that you do not spend the next several years worrying that Mr. Trump will take away your ability to buy and sell Bitcoin. It is not going to happen. And even if it were to happen, it's not as easy as so many people make it out to be.
The President's remarks
President Trump, as you know, often uses Twitter to speak what is on his mind. The platform is a great vehicle for him due to his tendency to speak off-the-cuff. But understand his remarks for what they are. When Mr. Trump tweets, he is usually making a point to be provocative. It is part of his political strategy.
In a series of recent tweets, Trump said "I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air." He also tweeted that "Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity."
Trump is not alone in his sentiments. There are hundreds of government leaders and bureaucrats who have made similar remarks in public forums. So why did the price of Bitcoin plunge so drastically in the hours following the Trump tweets? Because people mistakenly believe that the president of the United States can make law with impunity. They mistakenly believe he is some sort of unrestrained despot who can do what he pleases, when he pleases. Yet it simply is not true.
Cryptocurrency regulations in the U.S.
One of the big challenges of regulating cryptocurrency in the U.S. is one of jurisdiction. In other words, it's not quite clear if any U.S. agency has direct control over digital assets. America's Internal Revenue Service (IRS) views digital assets as similar to traditional securities for tax purposes. So if you make a profit on Bitcoin, you pay capital gains tax on it.
The Securities and Exchange Commission (SEC) does have power to regulate how cryptocurrency is offered through crypto exchanges or as a more traditional security traded like an EFT. But outside of those two conditions, the SEC has no say in how cryptocurrency is bought and sold.
Finally, the Federal Trade Commission could intervene to create cryptocurrency banking regulations. But if investors, exchanges, and individual cryptocurrency users do not utilize the banking sector, there really is no way for the FTC to get involved.
Any attempt by President Trump to ban Bitcoin would require going through one of these three agencies. But the president cannot simply take something that is currently legal and make it illegal with the stroke of a pen. He does not have the authority to do that.
Despite what you may have heard, the president's use of what is known as the 'executive order' is limited. He cannot use an executive order to create law. All laws in the United States must originate either in Congress or through a regulatory agency that answers to Congress. The best Trump could do is direct one of the previously mentioned agencies to pursue some sort of policy. Any such direction is no guarantee of the desired results, though.
How regulations become law
Assume for just one minute that President Trump did want to ban Bitcoin. Let us also assume that he decided his best avenue was to direct the SEC to create regulations that would all but make it impossible to invest in cryptocurrency on any scale. So he writes an executive order to that end.
Before the SEC can enact any regulations, they have to come up with a proposal and then open it up to public comment. The SEC must wait until the close of the public comment period to make a decision. During that time, Congress has every opportunity to look at the proposed regulations in detail.
It is highly unlikely that the majority of the public comments would be in favor of banning crypto. So if the SEC were to proceed anyway, they would have to justify their decision in light of public opinion. In the meantime, Congress could completely override any decision the SEC made simply by passing a law. With enough votes to override a presidential veto, they could render any attempt by the SEC to ban cryptocurrency moot.
As you can see, a presidential executive order does not guarantee any action will be taken. All it does is direct a federal agency to make the moves necessary to implement the president's will. But there are no guarantees that the end result of an order will be what the president originally envisioned.
Inevitable court challenges
There are some presidential executive orders that go off without a hitch. But these are generally orders that do not create new regulations. For example, President Trump signed an executive order early in his presidency, directing the IRS not to fully enforce the individual mandate provision of former President Obama's signature legislation, the Affordable Care Act (ACA).
Trump did not create new law or regulation with his order. All he did was instruct the IRS to change the way it did business in relation to ACA enforcement. Any executive order written to create law where none currently exists would be illegal and would subsequently trigger inevitable court challenges.
Administration attorneys would have to demonstrate to the court that the order was not in violation of the separation of powers established by the U.S. Constitution. That would be a nearly impossible task given the fact that executive orders do not carry the weight of law. Thus, any court challenge would likely succeed.
The wheels of regulation are slow
The fact of the matter is that the wheels of regulation are generally quite slow. Moreover, the slow pace of regulation is not unique to the U.S. Almost all world governments take years to enact regulations thanks to a mountain of bureaucratic red tape. This is one case in which the slow pace of government is a good thing.
It is true that President Trump is no fan of cryptocurrency. It is also true that plenty of the members of the U.S. Congress are not big fans either. But the chances of cryptocurrency being banned in the States are almost zero. There is too much money involved now to take any decisive action against it. If American lawmakers attempted to ban cryptocurrency, Bitcoin would crash. That would have a massive impact on global economics.
Bitcoin is illegal in many countries already. For example, there are outright bans on crypto in Middle Eastern countries like Jordan, Iran, Saudi Arabia, and the UAE. But people still buy and sell with Bitcoin anyway. Banks may not be able to deal in crypto, but merchants still accept it. Buyers still buy with it as well.
Crypto as a monetary system
It would appear as though the best that government regulators can do is control how cryptocurrencies are offered to investors. Just as they can control everything from stocks and shares to bonds and commodities, regulators can control large volumes crypto trading on public exchanges. But that's about it.
There is little that regulators can do to prevent individual consumers from purchasing coins and using them to buy things. As such, Bitcoin's future as a monetary system is pretty much insured. There are just too many bitcoins in circulation to prevent people from buying and selling with them. Likewise, the future looks fine for Bitcoin Cash, Litecoin, Ethereum, and the rest.
As a monetary system, crypto does exactly what its original inventors intended. It provides an alternative method for paying for goods and services without relying on traditional banking avenues. It allows people to buy and sell online, across borders, and even right in their own neighborhoods. No banks need be involved.
Nothing to worry about
Hopefully this gives you a little comfort as a small-scale cryptocurrency user. You have nothing to worry about in terms of holding a few hundred dollars in coin so that you can do business online. There is no danger of it being taken away from you.
If you are a large-scale investor, there is always reason to keep an eye on government regulators. But there is no need to panic. Just because the U.S. president has openly shown his disdain for cryptocurrency does not mean it is one executive order away from being banned. It doesn't work that way.
If President Trump wants to severely restrict cryptocurrency in his country, he has to go through a long, drawn-out process that was put in place specifically to prevent a U.S. president from acting like a king. Experts agree that in all likelihood, enacting a ban in the United States is not going to happen.