Crypto Industry Frustrated by Haphazard Regulation

In a parable from ancient India, six blind men touch different parts of an elephant, like its trunk, leg or tusk, and come up with wildly divergent ideas about what the animal is — a snake, for example, or a tree or a spear.

And so it is with regulators in the rapidly evolving crypto space, who are coming up with wildly divergent ideas about what it is and how to regulate it.

The tumult hit peak farce in a couple of televised congressional hearings in the winter and spring that the crypto crowd turned into memes.

Asked to describe the current state of crypto regulation in the United States, Perianne Boring, president and founder of the Chamber of Digital Commerce, an industry group, said, “It’s unorganized and incredibly complicated, and it’s really putting the U.S. at risk of falling behind from an innovation and technology perspective. There are turf wars between the different regulatory agencies and turf wars between the feds and the states, and none of this is in the best interest of the U.S. or the blockchain technology industry.”

Two of the biggest issues that touch an alphabet soup of regulators are securities law and taxation.

Most pressing in the securities realm is the question of whether projects raising funds with cryptocurrencies like Bitcoin or Ether should be subject to federal registration and disclosure requirements.

The fund-raising mechanism, known as an initial coin offering, or I.C.O., has made it easier for entrepreneurs to raise large sums of money without the hassles of regulators, investor protections or accountants.

The coin offerings were inspired by initial public offerings, or I.P.O.s, that companies use to sell stock to investors.

But unlike stock offerings, coin offerings are generally designed so that investors don’t get an ownership stake in the projects. If the coin does provide an ownership stake, the Securities and Exchange Commission has said, the companies must comply with all securities law. A few coins have done this, but most have tried to avoid it.

Photo: Erin Schaff for The New York Times

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