Examining the Impact of COVID-19 on Cryptocurrency Enforcement in the United States

Introduction

The Information Age has created a new concept of money–virtual currencies existing solely in cyberspace in the form of intangible computer code (Bal, 2014). Decentralized virtual currencies are a new type of technology that can be used to transfer money, record data, and invest. They are also becoming household words (Hughes, 2017). According to different scholars, virtual currency has its importance and potential in the future economy. For example, virtual currency has the potential to revolutionize “how we transact on the same scale that email did with snail mail” (Brito and Castillo 2013). Virtual currency transactions have very little transactional cost compared to traditional currency transactions. In particular, virtual currencies offer advantages to developing economies and small businesses (Brito and Dourado 2014).

As a new financial technology, the public has a fast-growing interest in cryptocurrency. One continued debate is how heavily or lightly cryptocurrency should be regulated because virtual currency is based on the idea of exchanging value without the approval of an institution (Maftei, 2014). There are three types of schemes in virtual currency that can be identified (Parmar, 2014):

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  It is a closed virtual currency scheme, for instance, the type of currency used in an online game.

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  It has a unidirectional flow.

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  It has bidirectional flows where the virtual currency acts like any other convertible currency, with two exchange rates.

Concerns are raised about the extent to which enforcement actions should be taken to protect the public. Virtual currencies represent a type of unregulated digital money and they provide security risks such as money laundering, financing illegal activities online (Dibrova, 2016). Companies and even criminals are using the gray areas of virtual currencies as they do not always come to the table with clean hands. For example, law enforcement agencies have linked Bitcoin to the deep web black market known as the Silk Road, a notorious source of illegal drugs, firearms, and hitmen. The case of United States v. Ulbricht (2014) shows how virtual currencies have been used as a means of transaction to exchange illicit goods on the dark web site like Silk Road. The regulatory wild-west surrounding virtual currencies and the anonymous nature of the transactions create an environment rife with massive price fluctuations and fraud schemes (Johnson 2016, 637). Lack of legislation and supervision is very beneficial to money launders. Therefore, virtual currencies “doubles the possible negative influence by reducing any possible protection for the society” (Dibrova, 2016).

In this chapter, this author provides an overview of cryptocurrency enforcement in the United States and conducts a qualitative single case-study method to examine the US Securities and Exchange Commission enforcement action as a means to illustrate the importance and risks of cryptocurrency during the pandemic. Secondary data were collected from the US government official websites and other reputed sources.

An Overview Of The Development Of Cryptocurrency Enforcement In The United States

Even though it is important to define virtual currencies, the definition tends to vary depending on the context, as the digital currency does not comfortably fit any existing classification or legal definition (Dibrova, 2016). Virtual currency is not a foreign currency, a traditional commodity, or a simple payment network (Brito, 2013). Virtual currency is a digital representation of value. It is a medium of exchange that operates like a currency in some environments but does not have all the “real” currency attributes. Virtual currency can be used as a substitute for real currency.