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Cryptocurrency exchanges avoiding the US due to confusing regulation

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Lack of clarity and a stringent legal framework are deterring issuers

Stringent yet confusing US regulations are putting off cryptocurrency exchanges from operating in the country. Recent developments show that this regulatory framework is only going to strengthen.

Earlier this month the Financial Crimes Enforcement Network (Fincen) published a letter that was sent to Senator Ron Wyden, explaining that an exchange would need to register as a money transmitter and comply with money laundering and know your customer (KYC) rules. The letter does not carry any legal authority but could be a clue as to what will happen next. Previously, it was assumed that only an exchange selling securities would need to register with Fincen as a money transmitter.

In the letter, Fincen also explained that initial coin offering (ICO) arrangements vary and token sales structured as a security would be regulated by the US Securities and Exchange Commission, and derivatives regulated under the Commodities Futures Trading Commission. In a further confusing development, earlier this month a US district court confirmed that cryptocurrencies could be regulated as a commodity and therefore could come under the jurisdiction of the CFTC. The IRS also has authority to regulate.

This confusing landscape and the fact that exchanges are being forced to act as securities platforms could be deterring many potential market participants away from the US

“It appears to me to be happening with greater frequency that certain token sales are trying to avoid selling tokens to US persons”, said Joshua Ashley Klayman, chair of the Legal Working Group of the Wall Street Blockchain Alliance.

Projects based in the US are generally making clear that their offering is a security and they will comply with SEC laws by doing a mini-initial public offering, or only offering securities to accredited investors. ICOs outside the US...