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

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

Leo S. F. Lin (The University of Southern Mississippi, USA)
DOI: 10.4018/978-1-7998-9117-8.ch005
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This chapter examines how COVID-19 has impacted cryptocurrency enforcement at the state level. This author employs a qualitative single case study method and investigates the cryptocurrency enforcement actions of the United States Securities and Exchange Commission (SEC) in 2020. The data were collected from SEC cryptocurrency press releases and public statements. The US Securities and Exchange Commission (SEC) has brought 28 enforcement actions against companies and individuals in the crypto industry in 2020 regarding the three types of cryptocurrency enforcement actions and trading suspensions (trading suspension, litigation, and administrative proceeding). Among them, litigation is the most common type of cryptocurrency enforcement action taken by the SEC. This author concludes that the law enforcement agencies in the United States faced several challenges before and during the pandemic. Finally, the author suggests some measures that law enforcement agencies can take to address the above challenges.
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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):

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

  • It has a unidirectional flow.

  • 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.

Key Terms in this Chapter

Virtual Currency: A digital currency, issued and controlled by a private issuer, functions as a medium of exchange.

Cryptocurrency Enforcement: Law enforcement’s activities in tracing, investigation, and recovering digital assets against unlawful transactions in cryptocurrency done by businesses and individuals.

Cryptocurrency: A type of digital currency in which transactions are done in a decentralized system using encrypted data and technology.

Cybercrime: The use of a computer, internet, or information technology as a means to further illegal ends.

Money Laundering: A financial transaction process for illegally obtained money to avoid government regulations and investigations.

Fraud: A deliberate act or criminal activity aiming to result in financial gains by using deception, false suggestions, or other unethical means, which are trusted by others.

Information Age: A period where information has become a commodity and human civilization features a wider use, access, and control of information technology.

Digital Asset: Any content that exists in a digital format and is uniquely identifiable with the right to use.

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