All Things FinReg


Recent events in the cryptocurrency markets, including the wild swings in the trading prices of bitcoin, the growing incidence of initial coin offerings (ICOs) entailing the offer and sale of unregistered securities, and the launch of bitcoin futures trading, have encouraged the federal government to ratchet up its interest in virtual currencies. Not only have the Commodity Futures Trading Commission (CFTC) and the US Securities and Exchange Commission (SEC) made public announcements about virtual currencies and taken enforcement action against virtual currency companies or initial coin offerors in recent months, but Congress now is showing increased interest in bitcoin and other virtual currencies. A few very recent signals of heightened governmental interest in virtual currency are highlighted below:

  • The Senate Committee on Banking, Housing, and Urban Affairs (Senate Banking Committee) held two hearings in January during which virtual currencies were discussed in connection with strengthening anti-money laundering (AML) laws
  • Reports indicate that the Senate Banking Committee will hold a hearing in February to analyze the implications of cryptocurrencies. CFTC Chairman Christopher Giancarlo and SEC Chairman Jay Clayton will likely testify at the hearing
  • On January 19, Mr. Giancarlo called on the Futures and Derivatives Bar to “set the course for the future” of virtual currencies
  • In a January 22 speech, Mr. Clayton again cautioned market professionals and “gatekeepers” that they need to “do better” in their handling of ICOs, and said that the SEC staff will be on “high alert” for ICOs that may be “contrary to the spirit of our securities laws.”

At a recent Senate Banking Committee hearing, Committee Chairman Michael Crapo (R-Idaho) highlighted virtual currencies, articulating his concern that the rise of virtual currencies could enable “their potential to facilitate sanctions evasion and perhaps, other crimes.” Actions by other federal agencies further demonstrate the growing federal government interest in cryptocurrency oversight and regulation:

  • In July 2017, the Financial Crimes Enforcement Network of the US Treasury Department (FinCEN) assessed a $110 million fine against BTC-e, an internet-based, non-US money transmitter that exchanges fiat currency as well as the convertible virtual currencies (including Bitcoin, Litecoin, Namecoin, Novacoin, Peercoin, Ethereum, and Dash). At the time of the FinCEN action, BTC-e was one of the largest virtual currency exchanges by volume in the world and facilitated transactions involving ransomware, computer hacking, identity theft, tax refund fraud schemes, public corruption, and drug trafficking.
  • FinCEN also assessed a fine against Russian national Alexander Vinnik, one of the operators of BTC-e, for his role in the firm’s violations.

The trend in federal government interest in virtual currency, which is consistent with a growing non-US regulatory and law enforcement interest in cryptocurrency activities, likely will have broad ramifications across the financial sector. While it may be unclear how federal law governing virtual currency will develop, one thing is clear: the federal government now is very interested in virtual currency. Morgan Lewis is monitoring governmental actions in connection with virtual currencies and will continue to report on developments in this area.