Bitcoin & other cryptocurrencies are not new to the market. Their decentralized nature has attracted wrongdoers over their period of existence. As a result, many countries are strengthening their laws regarding cryptocurrency. Let us check how Cryptocurrency Regulation in the USA has been incorporated into their judicial system.
Current Regulations for Digital Tokens in the USA
Initially, in the USA cryptocurrency was not a legal trade. As the regulations vary by state, there is no consistent legal approach for cryptocurrency in the USA. Depending on the federal and state regulations, the laws vary in the USA , there is a mixed type of treatment for cryptocurrency by state and federal governments.
So, what’s happening in the US cryptocurrency regulations? Below is the timeline of a series of events and announcements taken towards the crypto industry. Let us find out more!!
Crypto Regulations in 2024
04/30/2024 : The Commodity Futures Trading Commission approved final rules amending reporting regulations for futures and options, mandating position information reporting by futures commission merchants, clearing members, foreign brokers, and certain reporting markets.
02/06/2024: The SEC introduced new regulations requiring a wider range of market participants to register with the SEC, adhere to securities laws and regulations, and align with a self-regulatory organization.
01/24/2024: The SEC Adopts Rules to Enhance Investor Protections concerning SPACs, shell companies, and financial projections.
01/10/2024 : SEC approves bitcoin ETFs, expanding market access for ordinary investors.
Crypto views are divided among the states
Other than these agencies, the US states have their own legal and regulatory regimes which are also considered. There have been two different approaches to regulations among the states. Some of the states have a friendly jurisdiction for cryptocurrencies.
Wyoming state has exempted cryptos from the property tax whereas Colorado promotes the use of blockchain for government records. States like Georgia and Arizona have pledged to accept Bitcoin as a payment option for taxes. But the state of Ohio has become the first state to adopt it.
On the other hand authorities in 10 states including California and New Mexico, issued warnings about investing in cryptocurrencies. New York has passed very rigid laws which resulted in the exit of the companies in the market.
FinCEN Regulations
FinCEN is known as the Financial Crimes Enforcement Network is a bureau of the US Treasury Department that collects and analyses the financial transactions in order to track any illegal activities. In 2015, FinCEN released a document stating that virtual currencies exchanges are subjected to regulations under the BANK SECRECY ACT(BSA) and must be registered as a Money Service Business(MSB). However, it does not consider virtual currencies as ‘legal tenders’.
Regulation on Sales
The sales of the cryptocurrency are regulated only if the sale is carried out under the state or federal laws and when the sale is done with the money involved in it is subjected to the state laws and FinCEN regulations. The sale of the cryptos is also regulated by the CFTC under the Commodity Exchange Act.
Laws under Money transmission and Anti Money Laundering
The Money Service Banks(MSB) is regulated by FinCEN under BSA. On 18 March 2013, FinCEN issued guidance about the two key points it would consider to be recognized as MSB. One is, it should be a virtual currency exchange, and the other it constitutes an administrator of a centralized repository of virtual currency having authority to both issues and redeem the virtual currency.
The guidance also states that an exchanger who transmits and accepts a convertible virtual currency or buys/sells convertible virtual currency for any reason is a money transmitter under FinCEN’s regulations.
Under FinCEN regulations, the MSBs are required to develop, implement and maintain a written program to prevent money laundering and the financing of terrorist activities. The anonymity of the virtual currencies makes the government a tough job to track money laundering.
Taxation and Mining
Taxation
In the United States, the Internal Revenue System (IRS) looks after the enforcement of tax laws and collects taxes. The IRS treats cryptocurrencies as an asset or an intangible property but not a currency. The IRS has made it mandatory for all the US taxpayers to declare all transactions done with cryptocurrencies, no matter how small the amount is.
Cryptocurrencies, when used for simple transactions like buying domestic goods, will be subjected to Capital Gains Tax. Crypto capital gains occur when you sell cryptocurrency for more than its purchase price, resulting in a profit. Apart from this, the other transactions with cryptos subjected to tax are,
- Selling of cryptos which are incurred by mining personally.
- Selling of cryptos bought from someone else.
- Using cryptos mined by self to buy goods or services.
- Using cryptos bought from elsewhere to buy goods and services.
In US cryptocurrency taxation, short-term capital gains apply to crypto held for less than a year before selling or trading, and are taxed as ordinary income according to your tax bracket (10%-37%).
For the 2024 tax year, the Federal Income Tax rates are:
Source : IRS
Long-term capital gains apply to crypto held for more than a year, taxed at lower rates (0%, 15%, or 20%) depending on your income. The distinction affects how much tax you owe on profits from your cryptocurrency investments.
Mining
In the case of Crypto Mining, IRS considers mined cryptocurrencies as taxable income which has to be included in the gross income. Also, the taxes vary if you mine cryptocurrencies as a hobby or carry out business. In such a case, hobbyists mining will be subjected to tax mentioned above. And if you own a crypto mining business, then the income will be subjected to self-employment tax.
After having a brief discussion about the cryptocurrencies in the US, now let’s see what all events happened in the past.
Historic Events
2023
09/28/2023: SEC Delays Bitcoin ETF Decision for BlackRock, Invesco, Bitwise & Valkyrie
09/20/2023 :The CBDC Anti-Surveillance State Act, opposing a central bank digital currency without congressional approval, advances after House committee approval.
09/17/2023: The US House Financial Services Committee is progressing with legislation to restrict the issuance of a central bank digital currency (CBDC). The bills aim to prevent the Federal Reserve from conducting CBDC pilot programs without congressional approval.
09/12/2023: SEC Chair Gary Gensler confirms using AI for financial surveillance to detect fraud and manipulation in the market, requesting increased funding for technology.
09/08/2023:Senators unveil bipartisan blueprint for comprehensive AI regulation
09/07/2023: CFTC commissioner Caroline Pham suggests a pilot program for crypto regulation. It aims to test, gather data, and establish rules for emerging technologies and markets.
09/06/2023: The U.S. Financial Accounting Standards Board (FASB) has approved crypto fair value accounting rules, starting in 2025. This reduces impairment losses but increases volatility.
8/29/2023 – A federal court rules in favor of Grayscale Investments, marking the second notable setback for the SEC within two months. This ruling is poised to streamline the process of establishing a cryptocurrency ETF, potentially paving the way for smoother regulatory pathways in the future.
8/28/2023 – House Financial Services Chair Patrick McHenry authors a letter to the Federal Reserve questioning its role in overseeing stablecoins.
8/25/2023 – The Treasury Department releases proposed regulations governing crypto tax reporting requirements but notes that implementation will not occur until 2025.
8/8/2023 – In the continued absence of Congressional movement on stablecoins, the Fed released further guidance for banks; the expectations set by the Fed were low and notably did not apply to non-bank financial services stablecoin issuers.
7/26/2023 – The House Financial Services Committee, followed the next day by the House Agriculture Committee, approved holistic crypto legislation giving specific powers to the SEC. A companion bill on stablecoins was shelved.
7/13/2023 – A federal judge ruled that Ripple Lab’s cryptocurrency, XRP, represents a security when sold to institutional investors but not in other cases. This ruling represents a challenge not just to the SEC’s authority but also adds a new wrinkle to the securities vs. commodity debate.
6/2/2023 – House Republicans from the Financial Services and Agriculture Committees unveil the proposed text for a new crypto regulatory regime. Under the proposed text significant power would move from the SEC to the CFTC, as it would allow crypto companies an “off ramp” to apply for more lenient CFTC scrutiny.
4/19/2023 – The House Financial Services Committee subcommittee on digital assets holds a hearing on stablecoins and the need for stablecoin legislation. In advance of the hearing the Committee re-publishes draft stablecoin legislation from 2022 unchanged despite criticism it received at the time.
3/27/2023 – The SEC charges Binance, the world’s largest crypto exchange, and its CEO with violating derivatives trading and registration rules.
3/23/2023 – The SEC charges cryptocurrency entrepreneur Justin Sun with a range of violations including running a ring of celebrity endorsements featuring Lindsay Lohan among others.
3/23/2023 – The SEC charges cryptocurrency entrepreneur Justin Sun with a range of violations including running a ring of celebrity endorsements featuring Lindsay Lohan among others.
3/9/2023 – The House Financial Services crypto oversight subcommittee meets for the first time in a hearing entitled “Coincidence or Coordinated? The Administration’s Attack on the Digital Asset Ecosystem”.
3/9/2023 – New York Attorney General Tish James sues crypto exchange KuCoin for operating as an unlicensed broker; notably the suit alleges that Ether is a security, not a commodity, going against the current trend for federal policymakers.
3/1/2023 – The Treasury Department announces the creation of an inter-agency effort to explore the possibility of a digital dollar backed by the U.S. government.
2/17/2023 – Wyoming crypto firm Custodia sues the Fed Reserve after its Kansas branch rejects its application for a Fed master account and access to payment rails.
1/20/2023 – Crypto brokerage Genesis files for bankruptcy as the continued effects of the fall of FTX ripple through the industry.
1/19/2023 – Crypto lending platform Nexo ordered to pay $45m to settle securities law charges by the SEC.
1/18/2023 – The Justice Department filed money laundering charges against cryptocurrency exchange Bitzlato and its founder.
1/12/2023 – House Financial Services Chair Patrick McHenry unveils a new crypto oversight committee and names its chair, Rep. French Hill.
1/12/2023: SEC charges Genesis and Gemini for selling cryptocurrency asset securities.
1/9/2023:CFTC accuses Eisenberg of Mango Markets manipulation, theft of $110M in digital assets, with DOJ charges
1/5/2023: NY Attorney General sues former Celsius CEO, alleging billions in investor fraud.
1/4/2023 – Coinbase fined $50m by the State of New York for compliance failings.
1/3/2023: Federal agencies issue joint warning to banks on cryptocurrency asset risks
Concluding Point
The US is one of the superpowers in the world, and is also nearly active regarding the cryptocurrency markets. No doubt they do not consider Cryptos as legal tender, but they have not banned nor subjected to any harsh laws either. The formal taxation and money laundering laws are applicable which is quite justified. On the whole, The United States of America views the crypto market with a positive attitude when subjected to proper regulations
