SARAH VALENTI—The regulation of cryptocurrencies has been the subject of several high profile hearings over the past few months. Despite all the attention, have we moved any closer to establishing regulations on this emerging market? Likely not, based on the IRS’s failure to put out comprehensive guidelines for investors and Congress’ failure to competently hold hearings on the topic.
Those who trade cryptocurrencies are largely without official guidance about the consequences of those trades. For instance, while it is now widely understood that cryptocurrency transactions are subject to taxation to the extent that a given sale results in a gain, it is unclear when taxable events occur in the digital asset market. Cryptocurrencies are often traded online in specialized exchanges and many believe that each action on an exchange is taxable. But this view is not supported by any IRS guidance and most cryptocurrency exchanges are located outside of the United States and do not report activity to the IRS. Thus, the onus is on each investor to track every single exchange they make, and dutifully report these transactions to the IRS. Not only is this process tedious, but there is no enforcement or reporting mechanism in place to ensure that this procedure is actually followed. Compare this to traditional investment markets like stocks and bonds, where the IRS is automatically informed of trades, making reporting both a necessity and an easy procedure.
Like the IRS, Congress has not provided any substantive guidance as it pertains to cryptocurrencies. The latest hearing on Initial Coin Offerings (“ICOs”) devolved into an arguably shameful showing of just how uninformed some on Capitol Hill are when it comes to cryptocurrencies. A prime example is Rep. Brad Sherman (D-CA), who complained that cryptocurrencies “allow a few dozen men in my district to sit in their pajamas all day and tell their wives they’re going to be millionaires.” Rep. Sherman went on to state that “[c]ryptocurrencies are a crock,” and warn that cryptocurrencies like Bitcoin have the ability to help terrorists, criminals, and tax evaders, all of whom have no problems using traditional currencies for the exact same function. Moreover, one would be remiss to fail to point out that Allied Wallet, an online payment processor, is Mr. Sherman’s If cryptocurrency rises in popularity, the business of traditional payment processors, like Allied Wallet, would be threatened.
In truth, the latest hearings have revealed that t the March 14th Congressional hearing, Rep. Carolyn Maloney (D-N.Y.) revealed that she is in fact drafting legislation aimed at regulating cryptocurrencies and the ICOs that precede their release. Hopefully more informed representatives like Ms. Maloney will take the lead on this initiative; otherwise, we may be stuck listening to those who do not understand block-chain technology or who rely upon traditional payment processors for reelection funds.