To say the last month in the crypto world has been nothing short of a wild ride would be an understatement. With approximately $475 billion exiting the market in a blink of an eye, many new to the market are likely getting their first taste of reality in the crypto space. At a time when regulatory bodies have explicitly warned of the danger and volatility this market poses, 2018's first “correction” is providing regulators with potential ammunition that could be used in efforts to stymie or control the growth of cryptocurrencies in the marketplace.

One only has to look at recent developments in China and South Korea to see the significant impact each of their respective governments have had in their adoption of a hands-on approach in regulating cryptocurrencies. Lack of transparency and cooperation among parties participating in the crypto market has created contention and uncertainty within crypto-related businesses, investors, and the governments and regulatory bodies in their respective countries. To make matters worse, rather than collaborate with crypto-related businesses and develop thoughtful and beneficial regulations that foster growth and maturation, these governments and regulatory bodies have instead attempted to regulate cryptocurrency into submission. Just look at China, which is poised to increase regulations banning initial coin offerings (ICOs) and cryptocurrency exchanges in an effort to end all types of cryptocurrency in China entirely. Many of these countries, which have taken oppressive action such as this, have justified their behavior by claiming it is in the interest of consumer and market protection.

Prior to the hearing before the Senate Banking Committee, in which Securities and Exchange Commission (SEC) Chairman Jay Clayton, and Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo were to discuss blockchain, virtual currencies, and ICOs, I feared these regulators would echo the sentiment currently being displayed by China and South Korea. Begrudgingly, and in all fairness, they would have had every right to. With approximately 20 percent of retail investors taking on some form of debt to purchase cryptocurrencies (second mortgages, personal loans, and maxed out credit cards), plunging and volatile crypto prices, and an endless stream of bad news, it would be no surprise if these regulators had decided to follow in the steps of China and South Korea. Yet, U.S. regulators did not panic and lament how cryptocurrencies would lead to a financial apocalypse or demise of the economy. In fact, some could argue that the testimony provided by Clayton and Giancarlo struck a cautiously optimistic tone when speaking about the emerging cryptocurrency market and its future. As Chairman Giancarlo stated, “It strikes me that we owe it to this generation to respect their enthusiasm about virtual currencies with a thoughtful and balanced response, not a dismissive one.”

Recognizing the need for a robust regulatory framework that can both foster growth and prevent occurrences of fraud, particularly with respect to ICOs and the custodial exchanges, each of the chairmen expressed their concerns, and provided a broader outlook on the long term future of cryptocurrency and blockchain technology.

As it stands now, there is still a plethora of uncertainty surrounding the creation and implementation of a crypto or blockchain-related business in the United States. There is no federal law or regulation that can be applied uniformly to individuals or businesses looking to operate in the cryptocurrency/blockchain space within the United States. Instead, each state has its own set of laws and regulations that must be followed if one chooses to operate within that state's borders. But in a time where technology has all but eviscerated barriers to entry, like physical borders and the ability to conduct business across state lines, the laws and regulations are becoming burdensome and stifling innovation and business creation. This is due to some state legislatures and regulators trying to apply existing law and definitions to a technology that is novel and nascent, and may not fit cleanly under any of the existing definitions or laws and regulations. As a result, a lot of uncertainty may exist for any crypto or blockchain-related company or individual seeking to be compliant with the law.

The good news is that it seems Clayton and Giancarlo have a better understanding of the technology than the majority of policy and lawmakers in the United States and around the globe. They have refrained from making uneducated and inflammatory comments to the media. Instead, they seem to be approaching cryptocurrency and blockchain similar to the development of the early Internet. They recognize the need to review and revisit some of the frameworks that are currently enacted to ensure they are “effective and efficient for the digital era.” Furthermore, it has been encouraging to see some states attempt to tackle the issues involving regulation of crypto and blockchain-related businesses by modifying existing law or enacting new legislation and regulation altogether in an effort to provide clarity to those who may be looking into starting a business related to crypto or blockchain.

It is hard to argue against the implementation of regulation and law as it relates to cryptocurrencies and blockchain, especially with the rise in scams and exchange thefts, but the current approach employed by U.S. regulators should be commended. They have stepped in when needed and come down hard on those who are found to be engaged in fraudulent activities as it relates to the crypto market. U.S. regulators and legislatures should continue to allow crypto and blockchain to grow and mature, similar to the way the Internet was allowed. Moreover, the United States should take the lead in crafting thoughtful, fair and secure regulation, which can provide a framework for the rest of the world to follow. Although there is still a lot of regulatory uncertainty surrounding cryptocurrencies and blockchain in the United States, the recent comments issued by the SEC and CFTC may allay the fears of many for the time being and excite those for what the future holds for the technology.

Jesse Fulton is an associate at Krupnick Campbell Malone Buser Slama Hancock Liberman in Fort Lauderdale. Contact him at [email protected]. ​