Crypto advocates celebrate wins, the Treasury and SEC seek to introduce crypto-unfriendly rules, and governments rush to levy digital asset taxes.
Every global event or major political crisis these days can trigger a digital asset-related conversation. As China welcomes the world’s top athletes to the Beijing 2022 Winter Olympics, showing off ultra-high-tech facilities and sports infrastructure, some United States politicians have raised concerns over the Games’ potential to act as a booster to the digital yuan’s adoption. In neighboring Myanmar, the military government that had overthrown the nation’s elected leadership a year ago is now looking into launching its own digital currency, not to project economic influence but to improve the domestic payments system and the struggling economy more broadly.
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The many good things
Last week brought several favorable developments on the U.S. regulatory front. In a major win for the crypto industry, the House of Representatives passed the version of the America COMPETES Act without a provision that could have allowed the Treasury to suppress and surveil certain financial transactions without due process. The provision and its potential to endow the government with unchecked power to censor transactions have come to light thanks to crypto advocacy group Coin Center and other allies.
Another setback for the IRS came from the courtroom. The agency offered a Tezos block validator who had sued the IRS over staking rewards taxation a settlement that included a refund of the taxes paid. The plaintiff, however, took a principled stand and turned down the offer, realizing that the entire proof-of-stake industry could benefit from a court ruling in this case.
Threats old and new
It wasn’t all rosy, though. As the Treasury’s semi-annual regulatory agenda revealed, the notorious “unhosted wallet” rule could be back on the table. First proposed in late 2020, the rule would require crypto exchanges to collect and report transaction data and personal information of anyone who transacts with self-custodied crypto wallets — i.e., those not maintained by an intermediary. The rule would be triggered if, for example, a user of a regulated exchange withdrew upward of $3,000 to their private wallet.
Another source of potential regulatory pressure is a recent proposal by the Securities and Exchange Commission that seeks to extend the definition of an exchange to include “communicational protocol systems.” This would likely encompass DeFi protocols that facilitate the trading of digital assets that the SEC deems to be securities — i.e., most crypto assets.
If you can’t beat them, tax them
Judging from last week’s news, a good number of nations that have been flirting with the idea of a blanket ban on digital assets might be having second thoughts upon appreciating how much tax revenue is there waiting to be extracted. The Russian government has come up with an eye-popping estimate of its citizens’ (potentially taxable) aggregate crypto holdings, which can reportedly weigh on the scales of the ongoing debate between the nation’s central bank and finance ministry on whether to ban or regulate crypto. Over in India, the finance ministry has announced that a CBDC is to launch later this year or the next, along with a 30% crypto tax. Rising adoption has also inspired Colombia’s tax authority to announce a crackdown on crypto tax evasion, while in Venezuela, the government is looking to impose a new 20% tax on certain crypto transactions.