A cryptocurrency is a digital asset that can be bought and sold via decentralized crypto exchanges. There are in excess of 4,000 cryptocurrencies, all of which are created by private individuals or enterprises and free from government interference. However, this may not always be the case.
Individuals can hold cryptocurrencies without releasing any personal information. While this has its benefits, it has also provided protection to online scammers and criminals. According to the research group Chainalysis, hacker gangs secured more than $350 million in combined crypto ransom payments in 2020. Earlier this year, The Wall Street Journal published an article titled “Why Crime Could Kill Crypto.”
The Securities and Exchange Commission (SEC) has taken note of this and, as a result, U.S. lawmakers introduced a provision to protect investors and halt crypto crime as part of the $1 trillion infrastructure bill proposed in August.
The crypto-focused provision in the $1 trillion infrastructure bill would broaden the scope of what it means to be a brokerage. More specifically, it would include cryptocurrency exchanges. This means these companies would be forced to report tax information regarding crypto transactions beginning in 2024. Consequently, it will make filing taxes easier for investors.
“The bill is generally investor-friendly because it makes crypto tax compliance easier for investors,” said Shehan Chandrasekera, CPA, head of tax strategy at CoinTracker.io, speaking to NextAdvisor. “This is because if the bill passes, exchanges will have to issue 1099-B tax forms with cost basis information to investors.”
Not all cryptocurrencies are completely independent of central authorities. Some, known as stablecoins, are associated with currency such as the U.S. dollar or the price of a commodity. These are generally less volatile than traditional cryptocurrencies while still offering instant processing.
SEC Chairman Gary Gensler noted that almost 75 percent of trading across cryptocurrency platforms in July involved a stablecoin. While there aren’t any concrete plans to address stablecoin regulation, Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen have both spoken on the record about the need to create a regulatory framework to protect investors and the financial system.
In addition to regulating crypto exchanges to reduce crimes associated with cryptocurrency, the SEC is exploring the possibility of approving cryptocurrency exchange-traded funds (ETFs). This would allow Americans to purchase crypto via traditional investment accounts offered via investment management companies like Vanguard and Fidelity.
Gensler noted that the SEC has authority to enact its federal securities laws in the crypto space as initial coin offerings essentially function as securities. He believes the majority of crypto tokens are unregistered securities.