Jurisprudence, elections and legislation: Where will cryptocurrency regulation come from in 2024?

Source: TaxDAO

2024 is a busy year. Cryptocurrency is enjoying a resurgence, and last year’s conviction of Sam Bankman-Fried and Changpeng Zhao’s guilty plea, the possible approval of a spot Bitcoin exchange-listed fund, and a general rise in the market will have many hopeful about the future of the industry. But lawmakers and regulators are also unlikely to spend less time on cryptocurrency issues.

Nikhilesh De: There is no rest for the weary. While there's a lot going on in 2023, including criminal trials as a whole, next year is expected to be even busier. I'm interested in five main categories of events or activities that are likely to occur in 2024: court cases, elections, regulator actions, legislation, and the broader crypto market:

1 Court Cases

The SEC has clearly had a pretty active year, filing lawsuits against Coinbase, Kraken and Binance/Binance.US in the past 12 months (actually the past 7 months). While the regulator’s case against Ripple shows us that these cases may take a while to resolve, we will begin to see how the courts view the arguments presented.

The role of the Commodity Futures Trading Commission next year is also worthy of attention. Commission Chairman Rostin Behnam has said in multiple public appearances that he is proud of the numerous enforcement actions his agency has taken and that enforcement will not diminish next year.

In addition, there are national security and criminal cases. United States v. Avi Eisenberg, Roman Storm, Alex Mashinsky, Changpeng Zhao and even Samuel Bankman-Fried (second trial) will see federal prosecutors raise some interesting legal questions about the crypto industry.

Both SBF and Zhao Changpeng will hold sentencing hearings in the first half of next year. Changpeng Zhao, the former CEO of Binance, pleaded guilty to a charge of violating the Bank Secrecy Act and will be sentenced in late February 2024, with an expected sentence of about 10 to 18 months.

Of course, SBF will face a longer sentence after being convicted by a jury on seven different charges in early November. He also faces a potential second trial. It may be months before we know whether the Justice Department plans to proceed with a second trial, which is currently scheduled to begin in early March. SBF's sentencing, currently scheduled for late March, could be delayed if prosecutors move forward.

The Eisenberg and Storm cases will be more interesting simply from the perspective of the legal theories we will discuss.

A year ago, Eisenberg was arrested and charged with commodities manipulation and fraud for executing a "trading strategy" that resulted in Mango Markets losing $114 million. His trial is currently scheduled for April.

Storm, meanwhile, faces charges of conspiring to operate a money transmitter, facilitate money laundering and evade sanctions related to his work as a developer for cryptocurrency mixing service Tornado Cash.

As the bankruptcies get closer to resolution, we will continue to watch them to see what exactly former users of these companies will get back.

2 Elections

Next year, watch for elections in the US, EU, India, Indonesia and possibly the UK. Every election is important — even if the winner doesn’t take a clear stance on cryptocurrency issues, the department heads they appoint and the laws they push will clearly have an impact on the cryptocurrency industry.

In the United States, we once again have elections at all levels of government, from state and local affairs, to the House and Senate, to the Presidency of the United States. The campaign season is already in full swing, but over the next few weeks we will begin to see a gradual dwindling of the number of candidates in the primary.

It’s still unclear whether cryptocurrencies will actually become an issue for U.S. lawmakers and not just a common talking point, but we’ll see.

3 Agencies and Legislation

Although the Stablecoins and Market Structures Act represents more progress than previous legislation, no legislation has been introduced in Congress this year. Major crypto legislation. We may see these bills continue to be discussed next year. Of course the election will be an important turning point.

People to watch include Congressman Patrick McHenry, House Financial Services Chairman, who is not running for re-election; Congresswoman Maxine Waters (D-Calif.), House Financial Services Committee member; Senator Sherrod Brown (D-Ohio), chairman of the Senate Banking Committee, is running for re-election; Sen. Tim Scott (R-S.C.), who briefly ran for president.

McHenry has told Politico that he intends to advance encryption legislation during his final term. His time is running out, though, and Congress will be more focused on elections and campaigns than their jobs in Washington

Similarly, we'll see if federal regulators get involved in further rulemaking, and what they will do Adopt any proposed rules that have not yet been adopted.

4 The Wider Market

Of course, we cannot ignore the fact that prices are rising and people are pre-ordering paper returns (as well as some actual returns), and there are a lot of exciting things going on around it. Whether things are different this time around in terms of resilient platforms or market structures, and whether people are better protected from billions of dollars in losses, will impact how regulators around the world view the industry.

5 Looking back, looking ahead

This time last year, I predicted that questions about user data on bankrupt platforms would get more Watch; there will be more action from the SEC, but I don't have high expectations on the legislative front and how regulators will react to the 2022 collapse. I think some of these predictions are pretty spot on: The SEC has sued multiple exchanges, and legislation is progressing in committees but has yet to be approved by any major agency in Congress. I don’t think there’s been enough time yet for us to clearly see how regulators will react to the collapse of FTX and other companies, but lawmakers are clearly considering these issues.

Sandali Handagama (EMEA): In my preview for 2023, I said we would hear a lot about global norms for cryptocurrencies. Now the regulators are indeed here, and they're coming with force.

The Financial Stability Board (FSB) has released its long-awaited cryptocurrency policy recommendations. In a separate document from the International Monetary Fund (IMF), it also declared that a blanket ban on cryptocurrencies would not work. But that hasn't translated into looser rules for the industry, which has seen the law catch up with some of its former champions this year.

For example, the theoretically less volatile subset of cryptocurrencies—stablecoins—are being scrutinized globally. The International Securities Regulatory Commission (IOSCO) has rejected industry requests for special treatment for stablecoins in its policy recommendations. BCBS followed suit with plans to tighten the requirements for stablecoins to qualify as safer assets for bank exposures. Next year we will see more adjustments or the introduction of new standards for cryptocurrencies and stablecoins.

If 2023 is the year of cryptocurrency regulation, then 2024 will see some of these rules put into effect. The EU's landmark MiCA will come into force in December next year after being finalized this year. In 2024, businesses and EU member states will be racing to comply with MiCA. As my former colleague Jack Schickler predicted, businesses have indeed been playing a game of hopscotch, trying to choose the most suitable EU country to locate in time before the regulations come into force.

I will also pay attention to the 2024 EU Parliament elections. Although MiCA has been adopted, there are a number of related frameworks in the works, including one for the Metaverse and another for a digital euro.

We will have a better understanding of the new regulatory regime in 2023 in cryptocurrency hubs such as Dubai and Hong Kong, and also expect more legislation to be introduced in multiple jurisdictions, including Turkey and South Korea.

Suffice it to say that as we enter a new year and a new bull market, regulators around the world are trying to ensure they are better able to tell cryptocurrencies how to stay consistent. But my most confident prediction is that the campaign by central banks and standard setters to convince the public that central bank digital currencies (CBDCs) are better suited for payments than private cryptocurrencies will continue into next year.

Jesse Hamilton (USA): From a Washington, D.C. perspective, my predictions for cryptocurrencies in 2024 will completely fail to satisfy those eagerly awaiting developments.

The best the industry can hope for is some kind of resolution in its court conflict with the Securities and Exchange Commission (SEC), although the agency may crack down on the industry with targeted new policies. With the House of Representatives passing some digital asset regulatory measures, we are also very likely to see a surge in cryptocurrency legislation reaching new highs in 2024.

Please be cautious with my predictions for this year, however, because last year I said that 2023 would be the final year of cryptocurrency’s success as a broad, commonly traded asset in the United States. In fact, no decision has been made, except for federal judges in multiple cases noting that the SEC isn't always right.

Despite my prediction that it might take months for Congress to “find common ground” on cryptocurrency, the Senate has never found that common ground. The prediction for 2023 might best be put like this: Expect policy confusion, legal conflicts, large-scale enforcement actions and a modicum of legislative progress.

While outgoing House Financial Services Committee Chairman Patrick McHenry may find a way to lay the groundwork for his crypto legacy by winning the House of Representatives to pass crypto stablecoin regulation, the Senate has been reluctant to take action on cryptocurrencies. The field promotes the digital assets bill. If anyone can peer into the mind of Sen. Sherrod Brown (D-Ohio), chairman of the Senate Banking Committee, and read his cryptocurrency intentions, please let me know.

While debates such as central bank digital currency (CBDC) continue, the U.S. government’s most impactful policy initiative may be the one finalized by the U.S. Securities and Exchange Commission and the Internal Revenue Service that will have truly significant consequences. Rules, which will, for the first time, specifically regulate all aspects of the industry. If these initiatives are implemented as planned, more than one of them will cause a devastating blow to decentralized finance (DeFi).

As 2024 approaches, the industry is finding it all the more enjoyable to focus on the possibility of SEC approval for a spot Bitcoin ETF. But in line with its agenda, the SEC in April enacted a number of loose crypto rules, one of which would expand the definition of an exchange to include crypto platforms and another that would order investment advisers to hand over clients’ crypto assets. Leave it to a "qualified custodian". SEC Chairman Gary Gensler said this is not within the scope of current industry exchanges. (Though these rules, like all others, may ultimately be challenged in court.)

The bottom line is that if you liked 2023, you'll probably like 2024 a lot.

Amitoj Singh (India): India will hold elections next year. According to current state election trends and opinion polls, Modi will once again serve as Prime Minister of India by June 2024, starting his first term. Three terms. The same policies that his party, the Bharatiya Janata Party, stands for may then be retained. This means that India’s controversial and rigid cryptocurrency tax policy may not change in 2024. A study by a think tank supports tax cuts – a 30% tax on cryptocurrency profits and a 1% tax deducted at source (TDS) on all transactions. The crypto industry is also advocating for change. But the Modi government has shown no sign of changing this policy. As for the legislative bill for cryptocurrencies or Web3, Jayant Sinha, one of the senior legislators overseeing the country’s financial development, has said that this will not happen anytime soon, perhaps not until mid-2025. So, by 2024, India’s cryptocurrency enthusiasts may not have much hope for reduced tax policies, but they will be eyeing piecemeal measures to bring the Web3 and blockchain industry into the country’s digital future further. The Modi government has taken encouraging steps in this area while maintaining a separate strict policy on crypto assets. Two separate budget reports from the Indian Parliament, one before the elections and the other after the elections, will need to be closely watched to understand India’s priorities as chair of the Group of 20 (G20) in setting a cryptocurrency framework for the world. whether it will become a priority for its domestic legislation. As in 2022, I followed the Modi government's 2023 budget presentation and its work at the G20 closely. I am also concerned about whether the Reserve Bank of India’s hopes of launching a comprehensive central bank digital currency (CBDC) will be realized. Of course it didn't happen. However, wholesale and retail pilots have produced promising results and progress, including concerns over privacy, which may be a focus in 2024.

Camomile Shumba (UK): Last year I said that the UK government needed to be clearer about how to regulate cryptocurrencies. Now a year later, I can say that the government’s vision for this emerging industry has become clearer.

A lot of legislation has been passed, which means that the UK is moving forward with its plans to become a cryptocurrency hub - according to the British government, this desire and regulation go hand in hand and complement each other.

The Financial Services and Markets Act (FSMA) gives regulators greater powers over the cryptocurrency industry, and a crime bill was passed in June that will help law enforcement agencies seize cryptocurrencies.

The FCA has enforced cryptocurrency promotion rules, which means overseas companies cannot access UK customers without FCA approval, which could lead to cryptocurrency companies leaving the country.

The UK will continue to struggle to manage its cryptocurrency hub ambitions as the FCA leans towards tight regulation. Additionally, the UK is taking a phased approach, dealing with one aspect of cryptocurrencies at a time, meaning that different aspects of the cryptocurrency market will be left in limbo until regulations are introduced.

With an election likely to be held next year and Labor being the popular candidate, another question on everyone's lips is what would Labor change if they took over?

Elizabeth Napolitano (US): The cryptocurrency industry is about to have a busy (and seemingly brighter) year ahead. The approval of a spot Bitcoin ETF (spot Bitcoin ETF has been approved - translator's note) may prompt institutional investors to invest large sums of money into the digital asset field. News of the approval could also stoke public interest in virtual tokens, pushing them further from the financial fringes to center stage.

Across the Atlantic, 2024 is shaping up to be an exciting year for cryptocurrencies as well. In late 2024, we will finally see MiCA, the EU’s cryptocurrency regulatory framework, come into effect. The legislation effectively bans algorithmic stablecoins (think: DAI), which are commonly used as collateral for lending on decentralized exchanges (DEX) such as Curve Finance and Uniswap. This aspect of the framework could have long-term consequences for the development of decentralized finance (DeFi) across the 27-member EU, discouraging Europeans from participating in the lucrative but dangerous sector of the cryptocurrency industry.