-The Debate on crypto regulation is heating up in the U.S with three themes
-Cryptocurrency regulation is hidden within a bipartisan $1 trillion infrastructure
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.
Crime And Taxes
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.
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 wellpublicized incident which has very little to do with cryptocurrencies. The fact that
bitcoin was used as the ransom currency should not make this a cryptocurrencyrelated 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
Impact On US Firms
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 cryptomonetary 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.
The content of this article, analysis, report or webpage is not investment advice and does
not constitute any offer or solicitation or recommendation of any investment product. This
content is for general purposes only and does not take into account your individual needs,
investment objectives and specific financial circumstances. The author may hold digital
assets mentioned in this report
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