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- Politicians and regulators are working to create a regulatory framework for digital assets.
- The IRS levies capital gains taxes on assets held for less than a year.
- The cryptocurrency community is suing OFAC for overstepping its authority.
President Biden’s executive order on cryptocurrency regulation is currently in effect in the US. It focuses on six main goals: protection of consumers and investors, financial stability, combating illicit finance, maintaining US economic leadership and competitiveness, financial inclusion, and responsible innovation.
Complications abound in US cryptocurrency rules. On the one hand, a number of regulators are in charge of policing cryptocurrency businesses. Yet, it’s unclear how their respective roles differ from one another.
Several federal regulations could potentially have some bearing on cryptocurrency services. Yet, a different law may be applicable depending on the type of asset. Additionally, each state can enact its rules governing digital asset use.
Politicians and regulators are working hard to create a thorough regulatory framework for digital assets. We’ve referenced the current crypto legislation in the US to ensure your business remains compliant with the laws in every state.
Key Aspects Of The Regulations
The U.S. Treasury Department declared in early 2020 that it would adopt a more aggressive approach to dealing with cryptocurrencies. Reducing financial crime and increasing transparency in an otherwise complex asset class has always been crucial.
Conversely, the SEC sees cryptocurrencies as an investment on par with any stock or exchange-traded fund (ETF).
Additionally, because the IRS views cryptocurrency as property, it levies capital gains taxes. When investors hold the asset for less than a year, short-term capital gains are assessed, equal to the ordinary tax rate. Investors who retain the asset for less than a year are assessed short-term capital gains equal to the standard tax rate.
The IRS uses the more lenient long-term capital gains taxes for assets held for more than a year. Investors may also want to consider how utilizing cryptocurrency for gifts, donations, or payments may affect their taxes.
Owners of cryptocurrencies must also keep track of their holdings for tax purposes. This covers all acquisitions, sales, trade-ins, and other dispositions with the fair market value of the transaction.
While FinCEN does not view cryptocurrencies as legal cash, they started acknowledging digital assets as money in 2012. That categorizes them with conventional money transmitters, who exchange a store of value for a currency controlled by another person. The Bank Secrecy Act (BSA) has typically governed money transmitters.
Cryptocurrencies can trade on open derivatives markets since they are classified as a commodity by the Commodities Futures Trading Commission (CFTC). The CFTC has acted against unregistered Bitcoin futures exchanges, implemented regulations banning wash trading and planned trades, and addressed a Ponzi Scheme since making this claim.
The CFTC thinks that strong enforcement, market intelligence, consumer education, and cross-government cooperation are necessary components of an effective response to digital assets.
Regulators In The U.S. Different From The Rest?
Although digital assets might be governed by several
regulatory bodies depending on their nature, American regulations are very diverse from those in the rest of the globe.
Entities that the BSA classifies as “financial institutions” are subject to AML/CFT responsibilities. This comprises, among other things: The money service industry, Introducing brokers for commodities, futures commission merchants, securities brokers/dealers, and mutual funds.
FinCEN released guidance in 2019 that considered how the Bank Secrecy Act (BSA) could be applied to typical business models, including the transmission of digital assets (convertible virtual currencies in terms of FinCEN).
Conclusion
Five cryptocurrency businesses, including FTX US, received a cease and desist letter from the FDIC recently requesting they stop deceiving people using their name and logo. The FDIC declared that it neither covers cryptocurrencies nor provides insurance to bitcoin exchanges. It only covers losses brought on by the demise of insured institutions and only ensures deposits held in FDIC-covered banks.
The US Treasury’s Office of Foreign Assets Control (OFAC) published a virtual currency guideline to encourage knowledge of and adherence to due diligence standards and sanctions obligations. However, the cryptocurrency community has criticized OFAC for forbidding Tornado Cash and is suing it for overstepping its authority.
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
