Treasury announced Thursday that it is taking steps to crack down on cryptocurrency markets and transactions and that a transfer of $ 10,000 or more must be reported to the Internal Revenue Service.
“Cryptocurrency already poses a significant identification problem as it makes illegal activities by and large, including tax evasion, easier,” the finance department said in a press release.
“Because of this, the president’s proposal includes additional resources for the IRS to address the growth of cryptoassets,” the department added. “The new financial account reporting system would cover cryptocurrencies and cryptoasset exchange accounts, as well as payment service accounts that accept cryptocurrencies. As with cash transactions, companies receiving cryptoassets with a fair market value of more than $ 10,000 would also be reported.”
Bitcoin reversed course shortly after the Treasury Department’s announcement and was last traded 1.6% according to Coin Metrics. Before that, it was up more than 9% in the session.
A growing number of Wall Street analysts raised the alarm last month that regulators from the Treasury Department and the Securities and Exchange Commission could soon play a more active role in regulating cryptocurrency.
The Treasury Department’s release came as part of a broader announcement of the Biden government’s efforts to fight tax evasion and promote better compliance. Among the proposals officials are considering include strengthening IRS funding and technology, as well as stricter penalties for those who evade their commitments.
The Treasury Department estimates the difference between taxes owed by the U.S. government and taxes actually paid was nearly $ 600 billion in 2019.
Tighter regulation is likely to anger some cryptocurrency investors, who have seen Bitcoin drop around 25% in the last month and talk about surrender creeping in online forums.
With longtime cryptocurrency expert Gary Gensler at the helm of the SEC, Raymond James expects it will only be a matter of time before Congress gives the regulator broader jurisdiction.
He told lawmakers earlier this month that allowing the SEC to regulate the exchange of cryptocurrencies will help keep investors safe and prevent market manipulation.
“Chairman Gensler is seen as a potential ally for cryptocurrencies as a former professor on the subject, but these statements are likely to reopen the debates over regulatory risk for cryptocurrencies and exchanges,” Raymond James analyst Ed Mills wrote in early May.
“In the short term, this could create a headline risk,” he added. “In the medium to long term, however, regulation of the asset class would give the asset class further legitimacy and could form a regulatory ditch around existing cryptocurrency exchanges.”
Treasury Secretary Janet Yellen speaks during the daily press conference on May 7, 2021 in the Brady Briefing Room of the White House in Washington, DC.
Saul Loeb | AFP | Getty Images
While the Treasury and SEC involvement can ultimately be a boon for cryptocurrency investors, short-term regulatory hurdles for investors in Bitcoin, Dogecoin, and the like are likely to present another problem.
These assessments were confirmed by Miller Tabak last month when the company told its customers that “the cryptocurrency markets do not adequately account for legal risk.”
“Gary Gensler’s confirmation as SEC chairman and the volatility of the cryptocurrency over the weekend following rumors of stricter regulation underscore the regulatory risks this industry is facing,” wrote strategic economist Paul Shea in April.
“The difference in regulatory risk and advancement as a means of payment raises an important question: Are the recent successes of other coins a result of good news, or piggybacking them on the positive sentiment around Bitcoin?” he added.
Democrats and Republicans have made regulating cryptocurrency a top priority in 2021 as the price hike for Bitcoin and other digital assets over the past year sparked concerns of market manipulation and uninformed retail investment.
– CNBC’s Michael Bloom contributed to the coverage.
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