U.S. crypto regulations: Will New Jersey pave the way?
- New Jersey has taken the first steps toward introducing a crypto regulation bill.
- However, analysts have noted that the bill is not without its issues.
When one looks into the crypto regulatory landscape of the United States, certain discrepancies prop up. The notable issue is that there is no clear framework for cryptocurrencies in the country.
Now, the state of New Jersey has stepped up with a crypto bill to fill the void left by the federal government.
One could say U.S. crypto companies are working in a gray area when it comes to regulation. The basic question that still remains in the U.S. is how to classify cryptocurrencies. Are they securities or commodities or a different class altogether?
The Securities and Exchanges Commission (SEC) has been of the stance that all digital assets are securities, except for Bitcoin [BTC]. Whereas, the Commodity Futures Trading Commission (CFTC) deems them as commodities.
Whether the SEC or CFTC should be the guardian of crypto markets has been a subject of debate for years. The dispute arose mainly because there has been no clear guidance to date.
Though the U.S. Congress advanced a bill in July to develop a regulatory framework for cryptocurrencies, there hasn’t been much progress. The bill sought to define when a cryptocurrency can be classified as a security or commodity.
The state of New Jersey plans to tackle these inconsistencies with its new bill.
New Jersey takes the lead
New Jersey has introduced a bill to help decide when a cryptocurrency could be deemed a security and when a commodity. According to the bill, all virtual currencies issued and sold directly to institutional investors would be considered securities.
The bill has defined institutional investors as,
“A company or organization that invests money on behalf of other people.”
Democratic Assembly member Herb Conaway introduced the bill on the 29th of November. It is to be noted that this bill would only apply to transactions governed by New Jersey law.
Moreover, the act doesn’t have any implication on how the SEC monitors the industry.
The New Jersey bill seems to be going in the right direction, but it is not without faults. As articulated by Florida lawyer Andrew Hinkes, there are some key issues.
A few issues here: Under this law, #digitalassets or #virtualcurrencies "issued and sold directly to an institutional investor shall be classified as a security…" Issued and sold by who? What does "directly" mean? Are secondary market transactions "direct issues/sales? /8
— Drew Hinkes (@propelforward) December 5, 2023
Does this mean Bitcoin would be considered a security under New Jersey laws? Bitcoin was the one asset that the SEC clearly stated was not a security.
Also, when the bill says assets will be sold “directly” to institutional investors, does it include the sale of warrants and options? And why has the bill left out retail investors?
It looks like New Jersey has to iron out many kinks in the bill before it is given the go-ahead.
Can New Jersey set a precedent?
New Jersey is a crypto-friendly state and welcomes crypto businesses. It has other digital assets bills pending as well.
The Virtual Currency and Blockchain Regulation Act recently passed both houses and is awaiting the governor’s approval.
It appears as if New Jersey is looking to follow in New York’s footsteps.
The state of New York has been striving to get ahead of the curve with crypto for some time now. It has issued guidance to crypto exchanges and other entities regarding the listing of coins.
In addition, New York plans to form a task force to study the effects of the implementation of cryptocurrencies on financial markets.
There are chances of other U.S. states replicating the actions of New York and New Jersey, considering the absence of federal laws to regulate crypto.
So, how the bills pan out in these two states can help hammer out crypto regulation and adoption in the U.S.