The Biden administration is reportedly weighing its options with respect to a potential crackdown on the booming cryptocurrency industry. Earlier this week, government officials met with the Biden administration to discuss the potential risks associated with an unregulated cryptocurrency realm that is growing at an unprecedented rate (due in large part to increased investment from amateur investors seeking to ride the wave of financial gains). With the President longing for an Internal Revenue Service (IRS) boasting expanded powers, the U.S. Treasury Department has sought to implement new requirements to allow for improved oversight of how digital currencies are being handled and traded. White House officials met with members of the Treasury Department’s Consumer Financial Protection Bureau (CFPB) and the Office of the Comptroller of the Currency (OCC), though several top officials including current Treasury Secretary Janet Yellen were absent. This has led to public speculation as to just how serious these meetings were, though Biden administration officials are reportedly looking for weaknesses in the crypto market that could be exploited by bad actors to allow for the proliferation of illegal activities.
On May 20th the Treasury Department released a new report that indicates the current cryptocurrency landscape could be encouraging to tax evasion and terrorism financing, which the Treasury has placed great onus on of late. The report, titled The American Families Plan Tax Compliance Agenda, notes that the Treasury believes that crypto will become a significant economical presence over the next decade, making reform all the more necessary to prevent illicit financial activity. PYMNTS writes that President Biden is “reportedly looking into how to change things and make things into a ‘more equitable’ tax regime, with a series of proposals looking to boost resources for pursuing noncompliant taxpayers, leverage information to use against those misreporting income ‘derived from opaque categories,’ improving the outdated IRS tech and regulating paid tax preparers and increasing penalties for those who commit malfeasance on purpose.1 As such, the Treasury announced that it will begin requiring any transfer worth more than $10,000 in crypto-assets to be reported to the IRS with the end-goal being for the body to crack down on crypto so that there are fewer funds being lost to tax evasion and more subsequently collected by the federal regulator. The move would also bring cryptocurrencies up to the same standard of reporting as those for cash-based transactions in the United States.
While increased regulation sounds like a positive development, many are wary that increased regulation will hurt the market and hinder its long-term development and stifle potential innovation across the industry. One of the main questions that persists with respect to the continued growth and development of cybercurrencies as assets with staying potential is determining their true value – with this being called into question in recent weeks given significant market turbulence. Many believe the aforementioned meeting may also have come in direct response to the extreme volatility currently surrounding the market of late, as this month alone saw one of the largest downswings in the history of cyber-currencies to date, wiping out a reported $1 trillion in market value in less than a 7-day trading period. During this same period, Bitcoin – the headliner of all digital assets that accounts for over 40% of the global crypto market – went into a freefall in which it lost 30% of its total value. What’s arguably more striking than the degree of the losses themselves is the contributing factors that led to the mass sell-offs. The market has fluctuated significantly based off of a combination of recent actions and possible market restrictions rumored to be in the works in China and other international jurisdictions, along with some cryptic messages and backhanded criticisms by billionaire entrepreneur Elon Musk. Bitcoin recently plunged nearly 12% in the hours after Musk tweeted that his brainchild – renowned electric vehicle firm Tesla – suspended plans to accept the cryptocoin as payment for their electric vehicles due to the “high environmental impact” associated with Bitcoin mining. This announcement was quite puzzling, given that it came just weeks after the company announced in an SEC filing that it had in fact purchased $1.5 billion worth of Bitcoin.
Nevertheless, it remains to be seen to what extent these regulations will unfold. In many cases with regulatory reform, less is more. We will simply have to wait to see the impact that these developments will have on the crypto-realm in the months to come.
1. “Treasury Looks Into Regulating Crypto.” PYMNTS.com, 20 May 2021.