The debate about cryptocurrency regulation in the United States is heating up, with three major themes emerging. What Do They Mean for Investors?
Cryptocurrency is often depicted as decentralized and uncontrolled, according to the original principles of the creators of the first blockchain-based digital currencies. These core principles, often embedded in the technology underlying cryptocurrencies, tend to conflict with nations’ monetary and fiscal control objectives, including those of the United States.Chairman Gary Gensler of the Security and Exchange Commission recently spoke about the SEC’s role in regulating cryptocurrencies at the Aspen Security Forum. Gensler dubbed the present crypto environment the ‘Wild West’.
In reality, cryptocurrency regulation has been a regular topic of concern for U.S. legislators and government agencies for several years now. The Senate recently adopted a $1 trillion infrastructure plan which included crypto-regulatory measures, despite the protests of American blockchain industry associations and of a few senators. Gensler is now more vocal about the SEC’s position on digital asset regulation and some leading topics stood out about future U.S. crypto-currency regulation: prevention of crypto-monetary crime and fiscal evasion, implementing stablecoin regulation, and regulating new crypto-based investment vehicles, such as the long-sought crypto ETFs.
The fact that some digital currencies aren’t backed by centralized organizations or explicitly under any government authority appeals to many crypto enthusiasts. However, some degree of regulation may help investors. It is undeniable that there are frauds associated with cryptocurrencies and regulators should find ways to protect investors albeit without slapping stringent rules on a young and growing industry which would end up hindering entrepreneurs’ efforts and eventually send many firms abroad.
Cryptocurrency regulation has been pushed within a bipartisan $1 trillion infrastructure plan whose original purpose had nothing to do with cryptocurrencies.
The clause aims to apply brokerage standard rules to all firms that facilitate digital asset trading, such as cryptocurrency exchanges. This is probably the most stringent type of rules and most crypto trading firms would have to make significant changes to their processes to comply with brokerage regulations. Solanews -The Debate on crypto regulation is heating up in the U.S with three themes emerging -Cryptocurrency regulation is hidden within a bipartisan $1 trillion infrastructure plan www.solanews.net Crime And Taxes A Man Named Gensler QUICK POINTS twitter @solanewsnet Understanding Crypto Regulations Sept 16,2021.
Tax evasion is another issue the crypo regulation wishes to tackle. For the IRS to detect crypto tax evasion, the IRS would need to implement clearer tax reporting guidelines. According to the Washington Post, several legislators and industry organizations complained that the draft’s language is too broad. Also, SEC Chairman Gensler has discussed the need for additional regulation to help avoid cyber-attacks like the one that shut down the Colonial Pipeline in May earlier this year. The pipeline incident was one of several high-profile bitcoin ransomware attacks perpetrated at the time. However, in this case this may well be using a well-publicized incident which has very little to do with cryptocurrencies.
The fact that bitcoin was used as the ransom currency should not make this a cryptocurrency-related fraud and several elements have indicated hackers were not really crypto savvy. While Gensler did not elaborate on the SEC’s plans to combat these hacks, he did emphasize that the agency will continue to use its full authority, with the support of other US agencies including the US Treasury.
Starting in the 2024 tax season, firms that facilitate crypto exchanges would be obliged to submit tax information to the IRS, much like brokers of traditional investments like stocks.
That implies the exchange would have to keep track of taxable events such as clients acquiring cryptocurrencies and selling it back for US dollars. However, it is already essential to keep records of crypto trading capital gains and losses for federal tax returns (and tax returns in countries enforcing capital gains taxation).
A Hidden Agenda
Cryptocurrency regulation is hidden within a bipartisan $1 trillion infrastructure plan, which includes crypto-regulatory measures. The plan is meant to prevent crypto-monetary crime and fiscal evasion, enable stablecoin regulation, and facilitate the creation of new crypto-based investment vehicles, such as crypto ETFs. It seems that the legislators have taken advantage of an emergency situation, an infrastructure plan meant to help the population during pandemic-induced economic hardships, to surreptitiously pass regulation they know should have been preceded by a healthy and potentially long debate. This demonstrates the legislators’ lack of understanding of the impact of blockchain technology and mindset of the blockchain and crypto entrepreneurs. These entrepreneurs want to follow the rules and operate in a regulated but competitive environment; an environment which protects traders and investors but does not provide a disproportionate advantage to non-US platforms who don’t comply with regulations. It is unfortunate that the US legislators have not chosen the path of listening to these entrepreneurs and have preferred to impose rules first and possibly discuss later, if not too late.