Starting a Cryptocurrency Business? Read This Bitcoin Compliance Checklist First

March 20, 2018
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Are you setting out to start your own business in the cryptocurrency space? If so, it is important to know and avoid these 7 costly mistakes when entering the industry.

Compliance is a big part of running any cryptocurrency business, and many in the industry have gone to great lengths to help those new to the crypto space with issues of compliance. Part of this is due to simply help legitimize the industry that continues to be viewed with heightened skepticism by certain regulators.

But others have written about compliance issues as well, simply for the sake of helping newcomers with running practical, ethical, and compliant businesses within the cryptocurrency industry.

If we have learned anything from previous years, 2018 will continue to show significant risks, threats, and new opportunities for blockchain currency businesses as decentralized cryptos begin to emerge on the global market.

Here’s your Bitcoin Compliance Checklist…

1. The United States and HR1585

House Bill HR1585 has already been reported to the House of Representatives with amendments. Here’s what is stated:

Fair Investment Opportunities for Professional Experts Act

(Sec. 2) This bill amends the Securities Act of 1933 to modify the definition of “accredited investor” for purposes of participating in private offerings to include:

  • an individual whose net worth or joint net worth with their spouse exceeds $1 million (adjusted for inflation), excluding from the calculation of their net worth their primary residence and a mortgage secured by that residence in certain circumstances;
  • an individual whose income over the last two years exceeded $200,000 (adjusted for inflation) or joint spousal income exceeded $300,000 (adjusted for inflation) and who has a reasonable expectation of reaching the same income level in the current year;
  • an individual who is licensed as a broker or investment advisor by certain entities; and
  • an individual determined by the Securities and Exchange Commission (SEC) to have qualifying education or experience.

(Certain unregistered securities may only be offered to accredited investors.)

So, what does this mean for those in the cryptocurrency space?

According to Bitcoinist, HR1585 essentially allows for a new classification or status, called “Technical Investor,” that would allow someone with “domain expertise to invest at their discretion in any project where their expertise was deemed relevant.”

Someone with “Technical Investor” status in file distribution protocols, blockchain technologies, or even bitcode could, in theory, be considered eligible to invest, whether or not they meet the normal accredited requirements.

Depending on how this unfolds, this is likely to be a great step forward for blockchain investors and those in cryptocurrency spaces in general.

2. The United States and S1241

While HR1585 seems to make some progress for investors within the cryptocurrency industry, S1241 has been viewed as rather regressive. This bill will ultimately affect an individual or company in the United States with up to 5 years in federal prison and very high fines for offending party’s project that transacts over $1 million USD – which includes nearly every successful ICO to date.

The bill which has yet to reach final approval would affect token issuers, cryptocurrency investors who have not declared digital currency holdings when traveling or filing taxes, and really anyone who is in breach of these new, broad regulations. Offending parties under investigation for violations are subject to wiretaps and other forms of surveillance by a host of law enforcement agencies.

3. The United States and the SEC

In the United States, the SEC has already begun taking a number of broad enforcement operations against many in the cryptocurrency industry. The SEC is involved with everything from assembly-line law enforcement to operating a Cyber Unit that retains a mandate to target violations with blockchain technology and initial coin offerings (ICO).

The Commodity Futures Trading Commission (CFTC) are also involved in issuing sanctions against those in the industry and announced there are more to come.

4. Europe and Global Data Protection

New European Union rules about the acquisition and storage of personal information will come into effect on May, 25 2018. This will affect companies that accept and store customer data for their own business operations, whether or not the customer has agreed to give up their information or if that information has been purchased from a third-party source.

The new legislation is called the Global Data Protection Regulation (GDPR) and will lay down a hefty $20 million Euro fine for improperly accepting or acquiring or storing any personal data of any citizen of the European Union. This will have large impacts on exchanges, wallet issuers, ICO issuers, and other advisory firms operating in the EU.

5. G7 Central Banks

In 2018, GE central banks will begin buying cryptocurrencies to bolster their foreign reserves.

According to “A turning point for G7 central banks will be when the bitcoin market capitalization exceeds the value of all SDR (special drawing rights). It is an international reserve asset created by the International Monetary Fund (IMF) to supplement its member countries’ official reserves. Bitcoin capitalization, for example, has already exceeded the value of the SDR (approximately $291 billion).”

This shows that both governments and regulators do see the value (and this case, endorse and participate) in cryptocurrencies in general, but organization around how these technologies are regulated is still murky.

6. Global ICO Regulation

2018 will continue to see regulations surrounding ICO regulation. While countries like China banned ICO held within their territories, countries like the United States, Canada, Japan, Singapore, Switzerland, and the United Arab Emirates issued a variety of regulations that permit ICOs contingent that those ICOs are subject to a host of fiscal regulations.

Governments around the world will likely follow the example of the United States and attempt to exercise increased control over token sales (in the United States, certain tokens are seen as securities and regulated under existing laws and some of the aforementioned).

7. Bitcoin?

Bitcoin transactions are likely to stay banned in Bolivia, Ecuador, India, Bangladesh, Iceland, Kyrgyzstan, Morocco, Nepal, Malaysia, Indonesia, and Taiwan. China and Russia may introduce some regulation for Bitcoin and other cryptocurrency trading in 2018. In the United States, Bitcoin investors must report gains to the Internal Revenue Service (IRS) and pay taxes on earnings.

Still have questions or want to understand the latest regulation? Contact us today for a free consultation!

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