Top 12 Cryptocurrencies – #8 Legal Analysis of Bitcoin Cash (BCH)

This article is a continuation of our article series on the top 12 cryptocurrencies as of January 2021 (as ranked by their market cap at Binance) and their legal framework within the European Union as well as the United States.

Though Binance’s listing of top cryptocurrencies has changed quite a lot from the beginning of this year, we will finish our article series as it was started in January 2021, and thus, this time our article concerns the legal analysis of Bitcoin Cash (BCH).

If you missed our previous article on Stellar Lumens (XLM), you find it behind this link.

Bitcoin Cash (BCH) in a Nutshell

BCH was created in August 2017 by certain miners and developers of the Bitcoin network as an alternative to bitcoin (BTC) to tackle BTC’s reputed scalability issues.  Thus, the rationale of BCH is to fulfil the original promise of BTC as a peer-to-peer electronic cash with low fees and reliable confirmations.

Though BCH is based on its own blockchain, it is quite similar to BTC, as BCH also has a maximum supply of 21 million tokens, and it is mined similarly to BTC.

U.S. Regulation of Bitcoin Cash (BCH)

As stated in our previous articles, there is no uniform regulation or regulatory authority for cryptocurrencies in the U.S. where each state has their own regulatory regime. The Financial Crimes Enforcement Network (FinCEN) has stated that based on their interpretation, the Bank Secrecy Act applies to cryptocurrencies. This also means that FinCEN has interpreted that its money services business regulations apply to cryptocurrency exchanges and administrators.

Different states have also applied their own regulations on money transmission to cryptocurrencies and created cryptocurrency specific regulations. For example, New York and Louisiana have their own cryptocurrency licences, which are a stricter way of regulating cryptocurrency exchange operations. These approaches to cryptocurrency regulation are also backed by the Office of the Comptroller of the Currency which has emphasized that banks and federal savings associations must be vigilant with anti-money laundering regulations and Know-Your-Customer procedures prescribed under the Banking Secrecy Act and other federal banking laws.

The Securities and Exchange Commission (SEC) has stated that both cryptocurrencies and utility tokens may be considered as securities. SEC mainly considers assets as securities if they fulfil the so-called Howey test, which determines whether a transaction represents an investment contract, whereby such transactions are also considered as securities subject to applicable securities regulation. This securities aspect is still fully without compelling legal judgements and the SEC’s case against Ripple Labs Inc. is followed with high interest. The SEC has also stated that it wants to regulate cryptocurrencies to prevent market manipulation and protect investors.

The most recent development in cryptocurrency regulation is the requirement to report to the IRS any crypto asset transfers worth 10 000 dollars or more. Cryptocurrency has unfortunately also been used in connection to ransomware attacks in the U.S. which has led to experts calling for more regulation especially in tracking cryptocurrencies. This might lead to increased demands on Know-Your-Customer procedures and stricter rules on cryptocurrency licensing.

EU Regulation of Bitcoin Cash (BCH)

Cryptocurrency regulation in the EU is somewhat simpler to comprehend and more coherent. Cryptocurrencies are defined in the Fifth Money Laundering Directive (5AMLD, EU 2018/843) and are defined as a digital representation of value i) that is not issued or guaranteed by a central bank or a public authority, ii) is not necessarily attached to a legally established currency and does not possess a legal status of currency or money but is accepted by natural or legal persons as a means of exchange and iii) which can be transferred, stored, and traded electronically. Thus, the EU’s anti money laundering regulations including customer due diligence, risk assessments, fitness and properness test for managers and other regulations apply to cryptocurrency exchange operators and custodian wallet providers.

Based on the 5AMLD some Member States have established a stricter license system for cryptocurrencies, whereas other Member States just require entities to follow general money laundering regulations. The state of cryptocurrency regulation is liable to change significantly when the EU’s preliminary proposed cryptocurrency regulation is passed. The regulation will change the definition cryptocurrency, implement stricter regulations to cryptocurrency operators and introduce measures to prevent cryptocurrency market manipulation, which may have an impact on a wide range of cryptocurrencies. More information of the planned regulations can be found here.

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