The collapse of FTX exchange and other large investment funds and crypto projects once again clearly shows how the cryptocurrency industry needs regulation. Regulators in many countries are now talking about stricter control.
But given the current economic and political situation, it is likely that the SEC will continue to determine crypto politics through judicial proceedings. And other countries' regulators will already be guided by the SEC's actions.
Let's take a look at how legislative regulation is done in the U.S. to make predictions for the future given the impact of U.S. economic and political power around the world.
Recent changes in U.S. law
The main development was the de minimis tax exemption for small crypto transactions. This freed users from capital gains tax liability every time they buy a coffee using cryptocurrency.
Such legislative measures promote wider acceptance and use of cryptocurrencies because on the one hand cryptocurrencies become regulated in the country, on the other hand no taxes need to be paid on daily and regular small payments, which greatly simplifies the use of digital assets.
Republican Representative Tom Emmer's bill provides protections for non-custodial crypto providers. A bipartisan bill on Stablecoin could be passed in the near future, as the need to regulate Stablecoin is no longer in doubt by anyone.
Cryptocurrency advocates in Washington have made great progress this year. No one could have predicted in 2018 or even 2020 that two United States senators, Democratic Senator Kirsten Gillibrand and Republican Senator Cynthia Lummis, would appear at several crypto conferences in 2022, promoting a bill they wrote to provide regulatory clarity.
And while the need for measures to protect the rights of crypto investors is now being actively debated in Congress, the process of passing legislation itself is extremely slow and could take a long time.
At the same time, it should not be forgotten that the U.S. has a precedent plateau, which means that the Securities and Exchange Commission may win some lawsuits that will serve as the basis for future regulation of cryptocurrencies.
And events such as the collapse of exchanges or large investment funds with numerous injured U.S. citizens will only accelerate the court decisions. Because every crash is followed by a law enforcement investigation and trial.
The issue of Ripple's lawsuit against the Securities and Exchange Commission is still unresolved. This case uses the Howey test. Historically, the SEC has never brought cases under the Howey test against new investment opportunities that it actually wanted to register as legal investment tools. This test is actively used as a bludgeon against real fraudsters.
If Ripple makes it to the Supreme Court, experts believe Ripple has a chance to change the game and eventually win its epic fight with the SEC.
The need for more privacy
2023 is the year in which crypto users become even more aware of the need for privacy.
The more government efforts to oversee users and their crypto assets gain momentum, the greater the need for protection and privacy.
Crypto-confidentiality in the United States is under constant attack.
While a number of Know Your Customer (KYC) laws that apply to private wallets have not yet been finalized, users of crypto assets still face enormous privacy threats.
The U.S. Treasury Department in 2022 authorized the only functional tool on Ethereum to ensure full privacy - Tornado Cash.
CoinJoin and Samourai Wallet do a good job of masking transaction history for complex bitcoin.
At the same time, many countries including the U.S. are now actively fighting against anonymous coins. Because of this, many centralized exchanges prefer not to work with anonymous cryptocurrencies and their prices are rapidly falling.
Developers offer different approaches to the trade-off between privacy and usability of digital assets. Zcash, for example, provides optimal privacy in protecting assets and transactions and works on usability issues. While Monero is more vulnerable to asset tracing, it has become more widely used.
Privacy is still seen as a fundamental idea in the crypto industry. At the same time, millions of users of Bitcoin, Etherium and other networks are blithely unaware that their transactions might be tracked.
This means that those who sold cryptocurrencies in 2022 but didn't pay the capital gains tax due will soon learn of thousands of new IRS agents trained to use simple blockchain search tools and more sophisticated tools to analyze transactions taking place in the blockchain.
Regulation of cryptocurrencies in the EU
The European Union's approach to the issue of new tokens is more reasonable than in the United States, with an easy registry-based disclosure approach.
At the same time, the EU's aggressive approach to surveillance of private wallets threatens user privacy as exchanges are forced to verify personal wallets using KYC procedures.
The U.S. has a chance to compete with Europe in developing the crypto industry if it can better streamline rules for centralized crypto organizations and leave the DeFi sector alone, ignoring the voices of outspoken supporters of adopting KYC procedures to effectively destroy the crypto industry.