Is the US Treasury cracking down on Bitcoin companies?
Bitcoin dropped below $40,000 for the first time in two months. One of the reasons was the news of the United States Treasury Department’s notice to cryptocurrency exchanges and their customers. In this blog, we explain what the notice was and what it means for such businesses.
The Treasury wants crypto-regulation
Last week, the US Treasury released a document on tax compliance. This includes taxes on “crypto assets.” According to the Treasury, as part of the “Increased Information Reporting” standards, citizens will have to provide information on opaque income streams. These income streams cover, “over foreign financial institutions and crypto asset exchanges and custodians.”
The Treasury said crypto assets form a “relatively small portion of business income today.” However, they are likely to “rise in importance in the next decade.” Hence, cryptocurrencies will be covered under the “new financial account reporting regime.” Companies receiving cryptocurrencies greater than $10,000 have to report their transactions.
Bitcoin exchanges and tighter regulation
Tighter regulation for cryptocurrency companies is not a bad thing. And it isn’t something that cryptocurrency companies are shying away from either. Coinbase, the largest American crypto exchange in March 2021 became a publicly traded company. This means it has to file all documents publicly with the Securities and Exchange Commission. This only makes it difficult for Coinbase to avoid regulation.
Gemini, the exchange founded by Cameron and Tyler Winklevoss, is also pro-regulation. During the critical announcement of Facebook’s Libra coin, the Winklevoss twins who famously were ousted from Facebook by Mark Zukerberg advised the latter to work with and not against regulators. Tyler said,
“Work with regulators… we definitely went through the front door, and we tried to educate the regulators and shape the regulation in a thoughtful manner because if you get the regulation wrong it can stifle innovation, but the right regulation allows for innovation to flourish.”
Even investment banks, who are famously slated as being ‘anti Bitcoin’ have said that the Treasury’s announcement will not damage the crypto markets. An analyst from Raymond James said,
“In the short-term, this could cause headline risk. However, in the medium-to-long term, regulation would add further legitimacy to the asset class and could provide a regulatory moat around existing cryptocurrency exchanges.”
Regulation of cryptocurrency exchanges is not a bad thing. It is the evolution of any financial system. Cryptocurrencies and decentralized finance are unique financial systems that should work with the existing government and banking framework.