It's time for the feds to define digital products

Europe will leave the United States behind unless lawmakers act to provide clear regulatory definitions for cryptocurrencies.

This month, the European Union (EU) agreed on the text of a unified licensing regime for cryptocurrency exchanges to operate across the bloc of the EU under its Crypto Asset Markets (MiCA) regulations. The United States – despite being a traditional world leader in legal frameworks for technological innovation – has not provided the same regulatory clarity.

Domestic cryptocurrency exchanges in the United States are regulated at the state level by a patchwork of money transmission laws that overburden businesses while under-protecting consumers. In our view, many digital tokens are properly characterized as digital commodities rather than securities. Yet, there is no unified federal regime for cryptocurrency exchanges listing digital products.

To create one, Congress must pass legislation that clearly defines “digital commodities” and gives jurisdiction to the Commodities Futures Trading Commission (CFTC) to oversee national digital commodity exchanges. Recent bipartisan bills dealing with the subject suggest that this achievement may be within reach.

Individual states, rather than the federal government, are the primary regulators of cryptocurrency exchanges and other online payment providers under the rubric of money transmitters — a category of businesses that traditionally consider money transfer providers with physical locations in the state.

These laws are intended to ensure that money transmitters do not lose, steal, or misappropriate a customer's money and impose penalties on those who do.

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Because cryptocurrency exchanges have customers...