There seems to be a way to tax cryptocurrencies.
The cryptocurrency space has been on the grayer side of the financial space since its inception. But with bitcoin and the broader traditional financial and crypto sector becoming more intertwined, the government now seems to have found a way to tax cryptocurrencies.
The past year has been difficult for cryptocurrencies. Collapses of big industry players like Three Arrows Capital, Celsius, and recently FTX, had a strong effect on the amount of government attention now given to the cryptocurrency industry.
Bitcoin: Clear and Specific Regulation Required
Although cryptocurrency is already taxed through capital gains tax, there is no specific regulation that taxes cryptocurrencies directly, only profits made on transactions. At the beginning of the middle of 2022, the Department of the Treasury published the “Green Book” or its tax policy proposal.
A section of the proposal is entirely dedicated to bitcoin and cryptocurrency brokers, as well as how digital assets should be taxed. In a nutshell, the Treasury proposal was as follows:
“Require certain financial institutions to report the account balance (including, in the case of a cash value insurance contract or an annuity contract, the cash value or surrender value) for all financial accounts maintained at a U.S. office and held by foreign persons.”
This is due to FATCA (the Foreign Account Tax Compliance Act) which basically monitors potential illegal financial movements by US legal entities. The proposal, if signed into law, not only will give the US access to information about assets held by Americans but also will allow the country to share financial information on non-US accounts with partner jurisdictions.
However, there is still no evidence that the proposal has been modified or not, as the Treasury has been quiet ever since.
How Will the Superpower Nation Do It?
Cryptocurrencies regulation is not new. Just this week, Italy passed a law that requires merchants to pay capital gains taxes, just like in the United States. Regulation on emerging markets has been getting stronger, which leaves the question of what Uncle Sam would do.
With wounds still healing from last year’s devastating bear market, the US Federal Reserve may be holding off on a major announcement. This could be due to the current Fear, Uncertainty, and Doubt (FUD) surrounding the cryptocurrency market at the moment.
An announcement that Bitcoin would be directly taxed now could put downward pressure on the crypto market. That being said, such a regulation strikes against the basic principle of cryptography, which is decentralization.
Nevertheless, if the US government can clarify policy, it could spark new interest in bitcoin and the cryptocurrency industry as a whole, and help it grow.
However, it remains to be seen what politicians will do to make the country competitive in the crypto market.
By Audy Castaneda
