The rise of cryptocurrency as a mainstream investment has brought with it one persistent question: what are the rules? Although regulators have disagreed on how to categorize cryptocurrencies, the Commodities and Futures Trading Commission (CFTC) stated that cryptocurrencies are commodities, which are therefore subject to the Commodity Exchange Act. However, beyond these rather wide guardrails to the speeding highway we call cryptocurrency, there has been a lack of effective rules of the road.
The lack of harmonized regulations leaves retail investors in vulnerable positions. A primary concern for regulators is that cryptocurrencies are subject to artificial inflation. Specifically, the widely used cryptocurrency exchange Bitfinex, which is thought to have the highest trading volume of any cryptocurrency exchange in the world, has been subpoenaed by the CFTC for pumping up the price of cryptocurrencies whenever there was an overall market drop. Although Bitfinex issues its own virtual currency called Tether, which has a value equivalent to the US dollar creating a sense of financial security, the company’s practices are suspected to be market manipulation. The “Tether were used on the Bitfinex exchange to make big purchases of Bitcoin and other tokens, helping push their prices back up… It could mean that a lot of the rally over December and January might not have been real.”
A strong federal regulatory structure for cryptocurrencies would require congressional action or wide-reaching coordination amongst multiple antagonistic agencies. The CFTC and the Securities and Exchange Commission are in the process of creating and implementing such regulations to protect the market and investors, but more work needs to be done on the state level. How has New York State set out to regulate cryptocurrencies? In 2015 New York pioneered cryptocurrency regulation by introducing the BitLicense, a permit needed to operate a cryptocurrency-based business in the state. BitLicenses require their holders to share in-depth information about their own operation with the New York State Department of Financial Services, thereby serving as a guard against the internal malfeasance rumored to have occurred at Bitfinex. In fact, Bitfinex actually left New York when the BitLicense was introduced.  Moreover, the license also requires ongoing Know Your Customer (KYC) requirements which are designed to prevent money laundering, a widespread problem with current cryptocurrency ventures.  Beyond this foundation, multiple new bills have been introduced in the state legislature that would further address cryptocurrency regulation. One bill would, for the first time, codify the terms “blockchain technology” and “smart contract”, a necessary step for effective future regulations. Another would create a “digital currency taskforce” to ameliorate the impact of cryptocurrencies on New York’s legacy financial markets.
 Popper, Nathaniel. (Jan. 31, 2018) “Worries Grow That the Price of Bitcoin Is Being Propped Up.” The New York Times. Available at: https://www.nytimes.com/2018/01/31/technology/bitfinex-bitcoin-price.html?dlbk=&emc=edit_dk_20180201&nl=dealbook&nlid=63294261&te=1. Accessed on: Feb. 2, 2018.
 Del Castillo, Michael. (Aug. 12, 2015) “The ‘Great Bitcoin Exodus’ has totally changed New York’s bitcoin ecosystem.” New York Business Journal. Available at: https://www.bizjournals.com/newyork/news/2015/08/12/the-great-bitcoin-exodus-has-totally-changed-new.html. Accessed on Feb. 2, 2018.
 De, Nikhilesh. (Dec. 4, 2017) “4 Blockchain Bills Introduced in New York Legislature.” CoinDesk. Available at: https://www.coindesk.com/4-blockchain-bills-introduced-new-york-legislature. Accessed on: Feb. 2, 2018.