The US is considered to be one of the largest markets for cryptocurrencies. This is because such digital assets have been popular in the country for a long time. However, crypto transactions within the country have been under immense scrutiny by the authorities in recent times. This is because of the fact that crypto traders in the country are not paying any taxes on crypto gains. This blog discusses the current state of crypto regulations in the US and predicts the future outlook.
Brief History
Over the years, the US has been leading the way in terms of finding new ways to pay. Although bitcoin was founded in 2008, its use was popularized by individuals based in the US. They made purchases using bitcoins as early as 2009. Silicon Valley has also played an extremely important role in making sure that crypto transactions become mainstream. Some of the companies based in the US also accept crypto payments on a large scale.
There was no crypto regulation in the US before 2014. It was during this year that the authorities realized the need for monitoring such transactions. Between the years 2014 and 2019, the Securities & Exchange Commission (SEC) drafted laws about crypto exchanges, the classification of tokens, as well as Initial Coin Offerings (ICOs). Since then, crypto regulations in the country have continued to evolve consistently.
Current Status
More than 30 states of the US have crypto legislation pending as of 2021. However, the degree of regulation varies across states. For example, Arizona has formed a committee to study cryptocurrency and the technology behind it. In contrast, Arkansas has already made an amendment regarding digital currency under the Uniform Money Services Act.
At a national level, the US government believes that crypto transactions pose a significant detection problem. This statement implies that it is difficult to check the transactions of cryptocurrency because there is no bank or other institutes involved. So in May 2021, the country drafted new regulations governing crypto transactions and the associated tax payments.
According to new regulations, cryptocurrency holders or exchangers need to provide detailed information related to the “gross inflows and outflows” of any kind of money (digital or paper) moving from the accounts which they own. Moreover, any business that is based or operates on cryptocurrency is obliged to provide a report of their transactions related to cryptocurrency that is greater than $10,000.
Regulations in the US have continued to be debated and considered over the summer of 2021, including the December 2020 proposal by FinCEN (the Financial Crimes Enforcement Network) to mitigate risk associated with unhosted wallets. More information is expected on this in the autumn. Various governmental agencies such as the SEC (Securities & Exchange Commission) and the Senate Banking Committee headed by Gary Gensler continue to hash out the best ways in which to regulate, tax, and mitigate risks when it comes to cryptocurrencies.
Future Outlook
The US will continue to refine its existing regulations covering cryptocurrencies and related transactions, but definitive decision-making may not be as quick as some people might like. As Gensler pointed out, there are several thousand novel projects to consider when it comes to evaluation. While the Biden administration is looking to find ways to help the country realize the true potential of digital assets, at the same time, the country will likely crackdown on profits made via cryptocurrencies, with a view of ensuring that no taxes are evaded.
Although the US has and is drafted regulations to strengthen the economy by reducing the tax gap, they could cause damage to the expansion and innovation of crypto technology and its market in the US if these issues are not addressed correctly. US regulators need to find the correct balance in terms of creating laws while also ensuring that the use of cryptocurrencies is not disrupted. Further, the US also needs to ensure that it does not let the system be misused.
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