The federal regulation of cryptocurrency and other crypto-assets is an issue of major significance. Slowly but surely, the federal government and its many agencies have taken note of the growth of cryptocurrency and have attempted to exercise control and authority. We’ve discussed, for instance, the IRS’ public statements on the taxation of bitcoin and other cryptocurrencies when we examined Notice 2014-21 and IR-2019-167. Now, the federal government has made another stride toward the regulation and control of crypto-assets with its new bill: The Crypto-Currency Act of 2020. This bill was proposed in late 2019 in Congress and is currently being debated. Congressman Paul Gosar from Arizona is credited as the principal architect behind the bill.
In this post, we will go over the primary contributions of this important bill. The Crypto-Currency Act of 2020 will make two main contributions if it is adopted by Congress: (1) the law will provide formal definitions for three different types of crypto-assets, and (2) the law will assign specific agencies to regulate each of these different types of crypto-assets. Let’s go over these two proposed contributions in detail.
Formal Definitions for Three Types of Crypto-Assets
The new bill divides crypto-assets into three distinct categories with distinct definitions. The three categories are as follows: (1) crypto-commodities, (2) crypto-currencies, and (3) crypto-securities. A crypto-commodity is defined by the bill to be an economic good or service which is totally or partially fungible. What’s more, the bill adds that crypto-commodities are treated by the market independently without regard for whichever entity produces them. This definition is meant to mirror the definition for standard, non-crypto commodities. The bill defines crypto-currencies to be representations of U.S. currency or synthetic derivatives which exist on either a blockchain or other decentralized cryptographic record. Lastly, the bill defines crypto-securities to be debt, equity or derivative financial instruments which, like crypto-currencies, exist on a blockchain or other decentralized cryptographic record. These are shortened versions of the definitions provided by the bill, but they cover the essentials well.
Assignment of Agencies to Types of Crypto-Assets
The other important contribution of the Crypto-Currency Act of 2020 is the assignment of government regulatory agencies to regulate and manage these three types of crypto-assets. The assignments are fairly intuitive. The agency assigned to regulate crypto-commodities would be the Commodity Futures Trading Commission (CFTC). The agency assigned to regulate crypto-securities would be the Securities and Exchange Commission (SEC). And the agency assigned to regulate crypto-currencies would be the Financial Crimes Enforcement Network (FinCEN). Each of these agencies would be referred to as an official Federal Crypto Regulator under the language of the bill.
One of the main tasks of all three of these regulators would be to increase the tracing of crypto-asset transactions. Another goal would be to increase transparency of the persons engaging in crypto transactions. And the reason for this is simple: more tracing means more potential to catch crypto transactions used for illegal purposes. Unfortunately, crypto-assets are still heavily used in the criminal underworld, and the primary reason for this is the anonymity provided by crypto transactions. If these regulators can increase tracing and transparency, they will make a big step toward cracking down on crypto-based criminal activity.
Contact Boxelder Consulting Today for More Information
The law and taxation of cryptocurrency are still emerging fields. We will continue to circle back and discuss how these fields evolve and change in the future. The taxation of cryptocurrency is an important topic not just for those who have cryptocurrency holdings or who are likely to have holdings at some point. Cryptocurrency taxation is important because it shows how existing tax principles can be used to encompass an entirely new type of property. This is something which could happen again in the future. If you’d like to learn more, or you’ve got crypto holdings and need to confront an existing tax debt, give Boxelder Consulting a call today. Call us at 303-317-6111 and we can give you all the information you need.