Cryptocurrency regulations: A problem for the Darknet?

10/04/2022Darknet News, USA

The Financial Stability Oversight Council of the US recently published a report pushing for more cryptocurrency regulations. We examine if and how this could affect trading on darknet markets such as Vice City or Darkfox should suggested legislature like this come into effect.

What is the reason for new regulations?

The short answer is: The US (and other governments) feel like they are missing out on tax income. If you break down the arguments, it really only comes down to this. A way for the government to tax savings and cyptocurrency trades.

Of course, the actual report reads nothing like this, the language is rather subtle and emphasizes on user protection. From the document:

Many crypto-asset activities lack basic risk controls to protect against run risk or to help ensure that leverage is not excessive.

Crypto-asset prices appear to be primarily driven by speculation rather than grounded in current fundamental economic use cases, and prices have repeatedly recorded significant and broad declines.

Many crypto-asset firms or activities have sizable interconnections with crypto-asset entities that have risky business profiles and opaque capital and liquidity positions.

In addition, despite the distributed nature of crypto-asset systems, operational risks may arise from the concentration of key services or from vulnerabilities related to distributed ledger technology.

Essentially the governments wants to enforce regulations that enable the control of cryptocurrency exchanges. What is unsaid here is that with such information, the trades and income on such crypto exchanges would be easily taxable under such control.

Gaps in the current cryptocurrency regulation

Furthermore, the report emphasizes three gaps in current regulation: First, the spot markets for crypto-assets that are not securities are subject to limited direct federal regulation. As a result, those markets may not feature robust rules and regulations designed to ensure orderly and transparent trading, prevent conflicts of interest and market manipulation, and protect investors and the economy more broadly.

Second, crypto-asset businesses do not have a consistent or comprehensive regulatory framework and can engage in regulatory arbitrage. Some crypto-asset businesses may have affiliates or subsidiaries operating under different regulatory frameworks, and no single regulator may have visibility into the risks across the entire business.

And third, a number of crypto-asset trading platforms have proposed offering retail customers direct access to markets by vertically integrating the services provided by intermediaries such as broker-dealers or futures commission merchants. Financial stability and investor protection implications may arise from retail investors’ exposure to certain practices commonly proposed by vertically integrated trading platforms, such as automated liquidation.

Recommendations

To address regulatory gaps, the Council recommends the passage of legislation providing for rulemaking authority for federal financial regulators over the spot market for crypto-assets that are not securities as well as steps to address regulatory arbitrage including coordination, legislation regarding risks posed by stablecoins, legislation relating to regulators’ authorities to have visibility into, and otherwise supervise, the activities of all of the affiliates and subsidiaries of cryptoasset entities, and appropriate service provider regulation and finally the study of potential vertical integration by crypto-asset firms.

What does that mean for darknet trading?

The short answer is: Nothing. First of all, it is unclear whether such recommendations would ever be written into law. It’s not the first time such an attempt failed. But more importantly, all these regulations would only affect crypto exchanges and users running accounts on those platforms.

Darknet users typically use their personal wallets which will remain hidden from public scrutiny as always. So, in conclusion: The darknet markets will be unaffected by such but if you have crypto assets on exchanges, possible future regulations could impact you.