Cryptocurrency has been on the outskirts of the financial realm since its emergence. But with Bitcoin and the traditional financial sector becoming intertwined, the government has found a way to tax digital assets.
The 2020 year has been hard on the cryptocurrency industry. Major players like Capital, Celsius, and FTX underwent collapses that had a wide-reaching impact on the attention paid to crypto by the authorities.
It is Necessary to Have Clear and Specific Rules
While capital gains tax already applies to cryptocurrency, there is no tax law that targets digital assets directly. Profits from transactions are the only thing subject to taxation. In the initial months of 2022, the Treasury Department published the “Green Book”, which is its tax policy plan.
The publication contains an entire section on Bitcoin and crypto brokerage, as well as what must be done to tax digital resources. In a nutshell, the Treasury suggests:
“Require certain financial institutions to report the account balance (including, in the case of a cash value insurance contract or an annuity contract, the cash value or surrender value) for all financial accounts held in a US office and held by foreign persons.”
Image: The Military Wallet
The Foreign Account Tax Compliance Act (FATCA) and similar regulations monitor illegal activity carried out by US entities. If the proposal is adopted, it will give the US access to documents and information about foreign accounts. The country would be able to share financial information from non-US accounts and with other countries.
However, there is still no information as to whether the Treasury has made any changes to the document since its release.
What Will the Superpower Do?
The regulation of cryptocurrency is not a new concept. This week, the Italian government passed a law that requires merchants to pay capital gains tax, similar to the US. The regulation of emerging markets is becoming harder, leaving one to wonder “What next?” for Uncle Sam.
The US bear market of last year, which caused a market-wide crash, is still causing significant issues. It is possible that the Federal Reserve is waiting for the right time to make a major announcement. This could be because of the current Fear, Uncertainty, and Doubt (FUD) that the crypto industry is facing.
BTC total market capital at $331 Billion on the weekend chart| Chart: TradingView.com
The potential for the crypto markets to be affected by direct taxation now could lead to a downward trend. That said, regulation of this kind is necessary in order to protect the core principle of cryptocurrency — decentralization.
The US government needs to clarify its stance to encourage more interest in crypto and the industry as a whole. This could help the industry to grow. Nevertheless, it remains to be seen what the politicians will do to make their country more competitive in the crypto market.
At the time of writing, Bitcoin is trading at $17211, up 3.6% in the past seven days, according to Coingecko data.
-Featured Image: BioEnergy Consult
