Cryptocurrency and blockchain have gained widespread acceptance in recent years, serving as payment options for people and as a means of saving time and money for a broad range of business applications.
Digital currencies such as Bitcoin, Litecoin, Ethereum, and a slew of others have helped create the alternative financial services sector. Additionally, even established financial services companies, such as Goldman Sachs and JPMorgan, and technological behemoths such as Facebook, have started creating their cryptocurrencies to compete with bitcoin.
The cryptocurrency industry is now home to more than 2,500 prominent cryptocurrencies, with a combined market capitalization of more than $252.5 trillion. Bitcoin’s value varies between a quarter to hundreds of dollars each day, depending on the market conditions.
Because of Blockchain technology’s decentralized character, business executives, financial organizations, and governments worldwide are paying attention to it. Even though cryptocurrency and blockchain are no longer in their infancy, the regulatory landscape is still a little rough.
Financial authorities worldwide are attempting to regulate the cryptocurrency banking sector to protect the interests of participants and make the industry more secure. One of the most talked-about laws in recent memory is the $1 trillion dollar United States Senate Infrastructure Bill, which aims to collect $28 billion dollars from the cryptocurrency industry.
This article aims to examine the history of cryptocurrency laws and how the Infrastructure Bill will impact the cryptocurrency banking sector.
The History of Crypto Regulations in the U.S.
In the past, we have seen crypto-regulation implemented in the United States. The laws and regulations governing cryptocurrency in the United States of America differ from state to state (USA). State authorities define cryptocurrency as decentralized virtual money to be traded and, under some conditions, classify it as commodities by the Securities Exchange Commission (SEC).
Although Canada and the U.S. have yet to legalize their usage in business life completely yet they both strive to become global leaders in this technology, and have taken measures to legalize cryptocurrencies.
Thirty-one states have cryptocurrencies related bills pending in the 2021 legislative session. A newly-formed blockchain and cryptocurrency research group was set up in Arizona. Under the UCC and the Uniform Money Services Act, Arkansas clarified control of virtual money and modified the statute to incorporate virtual currency. The state of Hawaii issued a resolution calling on the department of commerce and consumer affairs to revisit its decision on virtual currency company asset reserve requirements and match such standards with those in other jurisdictions.
To conduct additional research on the feasibility and appropriateness of regulating special purpose depository institutions and other organizations engaged in virtual currency business operations, legislative management should consider conducting additional research on the feasibility and appropriateness of regulating such entities. In addition to making findings and suggestions, legislative management is required to select any legislation necessary to put those findings and recommendations into effect. In order to comply with the 68th legislative assembly’s requirements, they must provide this information to them. As part of its crypto-related initiatives, Wyoming has created a staking program and advisory council, as well as a matching fund program and a new kind of decentralized autonomous entities for carbon collecting, usage, and storage.
The state of regulations and effort towards accepting crypto banking as a new financial industry within the U.S. is making progress. As more and more states and local governments are pushing for their legalization to comply with local tax and regulatory environment.
The Infrastructure Bill
Over the past weekend, deliberations in the United States Senate centered on a $1 trillion infrastructure package, with particular attention paid to how it might impact crypto banking. Apart from funding road, bridge, and transportation system construction, the infrastructure bill, HR 3684, would also support renewable energy projects and other initiatives. There is a clause in this law that states that income from cryptocurrency transactions (which will affect crypto banks) would generate roughly $28 billion for the $1 trillion packages, among other things.
When it came to paying for the law, legislators added a plan to limit the effect of cryptocurrency banking on tax evasion and bitcoin transactions as part of the $550 billion packages. Exchanges, crypto banks, and others in the sector would be subject to the same information and reporting standards as conventional securities brokerages, and the transaction is expected to generate about $28 billion in total.
When the plan was revealed, businesses and trade associations reacted with alarm, claiming that the new regulations were poorly drafted and that some businesses would be unable to comply. After their lobbyists successfully had portions of the language removed from the bill over the weekend, the Senate Finance Committee chair from Oregon and Republican Pat Toomey of Pennsylvania have begun rewriting the wording. Toomey believes that Congress should not go forward with a hurriedly constructed tax reporting system for cryptocurrencies until it fully understands the implications of doing so.
Even if this result is reached, bitcoiners, ethereum enthusiasts, and doge coiners in the United States may be compelled to pay their taxes for the first time. Despite this, the last-minute involvement of prominent Democrats and Republicans demonstrates that cryptocurrency has some legislative influence in the capital.
To ensure that Americans who purchase and sell cryptocurrency do not pay taxes on their gains, the Internal Revenue Service relied on a box at the top of Form 1040, which asked if you exchanged any virtual currencies this year. Unfortunately, this does not occur very frequently since the whole crypto industry, including exchanges, crypto banks, and wallets, is exempt from compliance with the kind of reporting requirements prevalent in the financial sector.
If you sell a large number of stocks, such as on Robinhood or E-Trade, you must file a 1099-B form to the IRS to report your capital gains. Although they do it on occasion, cryptocurrency exchanges such as Coinbase and Binance are examples of those who don’t often provide paper certificates. Since then, every IRS request for information on cryptocurrency accounts has been challenged in court.
People who engage in crypto banking but are obliged to pay taxes may find it challenging to figure out how much they have earned since they must manually examine complex transaction histories (or use a third-party app to do so).
In the infrastructure bill, two methods are suggested for addressing the issue of underreporting construction costs. For starters, it compels any companies that accept bitcoin payments worth more than $10,000 to disclose them to the Internal Revenue Service (IRS), which is currently the case for cash transactions, and no one seems to have an issue with this. Part two, which is much more contentious, would classify cryptocurrency exchanges as brokerages and compel them to submit 1099-B tax forms as of January 1, 2019. Although the change might have been previously imposed via the judicial system, making the change through legislation makes it less susceptible to legal challenge and generates more money.
Because the new rule is too broad, the cryptocurrency industry in general and crypto bankers are outraged. They’re concerned that the new regulation would have a chilling effect on exchanges such as Coinbase and miners and programmers who don’t have access to the kinds of personal information needed to report on people doing transactions.
According to several critics, the cryptocurrency sector has overreacted in its response to recent events. After the law passes, the Treasury Department will be required to select rules defining who is subject to the new reporting obligations. It seems doubtful that such regulations would try to drive the whole sector out of business by imposing unreasonably high standards.
Because the Biden administration wants to tax crypto, not to suffocate the business, there are various regulatory levers it might use to achieve its goal of crippling the cryptocurrency economy. Exemptions for specific players and technology from reporting requirements would merely create additional loopholes that cryptocurrency users may use in the future to avoid paying taxes on their transactions.
Whatever legislation emerges from this process will have the effect of taming some of the more extreme aspects of cryptocurrency banking. However, it is possible that it will not be as severe or generate as much money as those on the pro-regulation side would have hoped for.
The financial sector, policymakers, and consumers will undoubtedly face both possibilities and difficulties due to the introduction of new forms of money. Cryptocurrencies have the potential to make international payments more efficient, convenient, and secure while also removing the time-consuming operational and security processes associated with the movement of conventional money, thereby improving the overall economic efficiency and efficiency of the economy.
Crypto Banks powered by blockchain technology are encouraging people all around the globe to think about money and economic concepts in new ways, resulting in much-needed innovation in the financial markets. Once the scalability problems with blockchain are resolved and technical solutions are developed to minimize the danger of fraud, Crypto Banks have the potential to provide a good experience for people all over the globe.
These regulations and legislations like the infrastructure bill might seem excessive at present but they hold the key to ensure making the crypto banking industry more transparent and formalize so that the industry can grow much further and expand to newer geographies and financial industries.