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One of the unique features of cryptocurrency is its decentralized and unregulated nature. However, many governments worldwide, including the American authorities, do not worry about this particular trait.
Recently, cryptocurrency regulation has been a hot topic in different parts of the world. We count here China’s crackdown on Bitcoin in September 2021 to El Salvador’s Bitcoin Law endorsing Bitcoin as a legal tender. Simply put, cryptocurrency is increasingly prevalent in the economies of various governments.
Despite the varying levels of crypto acceptance, some factors are clear on the subject of U.S. cryptocurrency regulation. In this article, we look closer at how U.S. cryptocurrency regulations affect crypto assets and CBDCs.
Bitcoin and Other Cryptocurrency ETFs
Cryptocurrency ETFs have not been available in the U.S. so far. However, in mid-October 2021, the Securities and Exchange Commission (SEC) approved the future-based Bitcoin exchange-traded funds (ETFs).
Behind the project are Invesco and ProShares, two Bitcoin ETFs that will keep tabs on future contracts. However, it is not a direct Bitcoin investment. It simply lowers the barriers of entry to those unable or unwilling to purchase the king coin directly. In return, these future-based ETFs provide crypto investors with more ways to enter the crypto market.
The approval of Bitcoin ETFs is a significant triumph for the cryptocurrency ecosystem. Also, SEC’s approval provides the industry with irrefutable legitimacy and a certain level of comfort. Furthermore, it creates a potential window into future SEC legislation to generate multiple use-cases for crypto assets.
In the long run, this breakthrough may result in the positioning of crypto assets alongside mainstream financial services. As a result, both industries could benefit substantially.
Cryptocurrency Crime and Tax Evasion
The $1 trillion bipartisan infrastructure bill that is moving through congress contains cryptocurrency regulations. For instance, the bill seeks to broaden the brokerage definition to encompass digital asset trading platforms, like cryptocurrency exchanges. Also, this would translate to more responsibility to report taxes and aid IRS to keep track of crypto tax evasion.
Additionally, U.S. SEC Chairman Gary Gensler spoke about the need to increase regulation to prevent ransomware attacks. Such rules will help in preventing attacks like that which crashed the Colonial Pipeline in May 2021. Likewise, several high-profile attacks where hackers were seeking Bitcoin ransoms.
The proposed bill is investor-friendly as it makes it easier for investors to comply with their tax requirements. If the bill passes, crypto exchanges must issue 1099-B tax forms with cost basis information. This practice is similar to how traditional investments like stocks usually do.
Furthermore, this means that the exchange has to furnish the IRS with a record of taxable events. This way, it should reduce the crypto tax filing burden. It’s worth noting that investors should always keep a record of their capital losses and gains on crypto trades. Also, they should report it on their federal tax returns.
In a bid to reduce cryptocurrency crime, Genser and Federal Reserve Chairman Jerome Powell also spoke about increased stablecoin regulation. They stated that bypassing the involvement of the U.S. Dollar in direct crypto-to-crypto exchanges enables tax evasion and money laundering. Also, Powell noted that if stablecoins are part of the payment system, an appropriate regulatory framework should exist.
Generally, stablecoins are a popular cryptocurrency attached to an existing crypto-asset, like Tether (USDT). The price of one Tether is always $1 since it is pegged to the cost of the U.S Dollar.
Almost three-quarters of trading in all crypto exchanges took place between a stablecoin and other digital assets by July 2021. This is because crypto-to-crypto trade is more cost-effective than purchasing crypto using the U.S. Dollar.
It is unclear what a regulatory action on stablecoins might look like. However, any regulation will impact stablecoin investors in one way or another. At the moment, we anticipate stablecoin guidance from the U.S. Government. So, make sure to choose a crypto exchange that complies with evolving state and federal regulators.
Cryptocurrency appearance in the 2022 Bank Supervision Operating Plan
In mid-October 2021, the Comptroller of the Currency (OCC) office revealed its 2022 Bank Supervision Operating Plan. According to the plan, cryptocurrency-related activities will become the top supervisor priorities.
When it comes to the financial industry, the OCC has a vast reach. For instance, it is responsible for maintaining the integrity of the federal banking system. This includes the supervision and regulation of over 1,200 federal saving associations and national banks.
Its inclusion of cryptocurrency in the 2022 Business Plan supports crypto-asset inclusion into the American financial system. In turn, this further encourages cautious regulators to support the growth in the crypto-asset ecosystem.
Further guiding sanctions by the Treasury Department
The Department of Treasury’s Office of Foreign Asset Control’s (OFAC) brochure included additionally conducting sanctions within the crypto-asset space. To this end, this shows the government’s resolution to implement a more efficient process for handling crypto-assets.
The brochure did not contain any new information. Regardless, it shows the government’s intent to streamline and regulate crypto-assets in line with other traditional financial service operators.
The Treasury’s guidance provided that governments employ systems that capture the geolocation of VPN usage and IP addresses. In turn, this aids in addressing any potential and illegal use of digital assets.
With Bitcoin ETFs already in place, there is the support of crypto-assets and their ecosystem by the U.S Government. Furthermore, SEC and OCC have shown positive trends to support the future of the crypto space. They should do so by framing crypto-assets and their impact through traditional investment channels, like ETFs. Also, they will handle cryptocurrency trading platforms like their traditional counterparts.
We anticipate seeing how CBDC proposals interrelate with virtual currencies with these new regulations in the long run. All in all, it seems the government has a goal of financial inclusion for all. So, it aims to establish a more compliant and consistent integration of traditional banking systems and crypto-assets for economic growth.