Crypto started as something the average person either didn’t care about or thought was just a scam but it seems to be coming full circle.
With increased attention from the SEC, plenty of signals indicate that there will soon be efforts to regulate crypto. Many crypto investors expected this because crypto’s value has reached the point where it can’t be ignored anymore.
The big question is now, how will these regulations impact your crypto investment, and should you be worried?
Regulation Adds Red Tape
In the past, one of the biggest draws to crypto as an investment vehicle has been the limited federal regulations. This has made dealing with crypto easy and profitable, leaving tax reporting in the investor’s hands.
It seems, however, that those days may be coming to an end, as brokerages are receiving a significant amount of attention in the 1.2 trillion dollar infrastructure bill. Essentially, there’s pressure for crypto brokerages and crypto exchanges to increase their reporting to the IRS to limit tax evasion on crypto assets.
Should you be worried?
Unless you were planning on evading taxes, then the answer is probably no. It might add some additional complexity for crypto exchanges and brokerages, but this other regulation shouldn’t impact your crypto investments in a significant way. The bill likely will create scenarios where exchanges are misreporting your activity but that’s a much broader and more complex issue to dissect later on.
So as long as you continue reporting your taxable crypto investments and discussing the right things with your accountant, you should be fine.
Regulation Adds Legitimacy
Many would prefer that crypto remains free of institutional regulation to keep true to its core principle of decentralization. Despite those preferences, it’s becoming increasingly unlikely that crypto continues to be unregulated.
This is, however, not necessarily a bad thing. It’s entirely possiblethat regulation might be missing for cryptocurrencies to take off and achieve mainstream adoption. Of course, the regulatory framework put in place must be sensible and balanced. Unfortunately, the current proposal embedded in the infrastructure bill lacks sensibility and will create more problems than solutions.
We’re still in the early days of crypto
In recent months, crypto has received more attention from big companies and regular people than ever before. Which for those of us deep into the crypto world, gives a sense that it will soon become mainstream.
In reality, crypto is still in its early days. There is still plenty of work that needs to get done so that it can see widespread use. And many experts believe that increased regulation is one of the necessary steps for crypto to become a more legitimate investment tool.
Staying away from illegal actors
It seems like a lifetime ago, but one of the first ways the mainstream public learned about cryptocurrencies was through their use by drug dealers and other illegal actors (i.e. Silk Road).
Crypto provided the perceived anonymity necessary for them to conduct their illicit dealings. (These nefarious characters aren’t simply buying and selling on Robinhood.) The mainstream media made it seem like the only reason to use crypto was to hide any illegal actions.
Today it seems like most people don’t remember those dark days. But in reality, crypto is still in the middle of money laundering, scams, and other types of fraud. And many of the regulations are aimed at preventing international criminal organizations from being able to conduct their operations. It is important to note that nefarious activity in the crypto space is only a tiny fraction of the total activity and even our traditional fiat financial system facilitates the exact same activities on a daily basis. This is not a problem unique to the crypto space.
Should You Be Concerned?
As stated earlier in this article, it’s essential to remember that these are still the early days of crypto. If you or your business have already started using crypto in any way, you are an early adopter. Sure, gone are the days when you could buy Bitcoin or Ethereum for a few dollars, but that doesn’t mean that crypto is mainstream.
An indicator of how these are still the early days is that it should still be considered a high-risk investment. Crypto remains a highly volatile investment, and those who have decided to invest in it now have to adapt to the next step, regulations.
As of right now, these regulations aren’t limiting or changing anything drastically. However, as someone invested in crypto, it now becomes necessary for you to remain informed and aware of any new tax responsibilities that may arise as a result of new regulations. If nothing else, it should signal that agencies like the IRS and SEC are increasing their scrutiny on the industry and its participants.
Work with a Crypto-Savvy Accounting Partner
When investing in cryptocurrency, the elements of volatility and regulations are always in play.
Over time, as crypto usage increases, staying on top of new legislation and regulation will remain one of the vital components of having a successful investment.
Suppose you find that you don’t have the time or bandwidth to stay on top of everything that’s going on in the crypto world.
Rely on Founder’s CPA to do this for you. We help bring clarity and certainty to your crypto investments to make sure that everything your assets remain profitable and you never have to come across a dangerous tax situation. At Founder’s, we’ve been working with crypto since its inception. Click here to set up a call with one of our expert CPAs to share in our extensive crypto accounting knowledge.