The US Treasury has thrown a major obstacle at cryptocurrencies like Bitcoin by demanding that all transactions of $US10,000 and above have to be reported to the US tax department, the IRS.
The edict came as prices for cryptos edged higher on Thursday after Wednesday’s big sell off.
Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the Treasury said its statement.
“This is why the President’s proposal includes additional resources for the IRS to address the growth of crypto assets,” the department added.
“Within the context of the new financial account reporting regime, cryptocurrencies and crypto asset exchange accounts and payment service accounts that accept cryptocurrencies would be covered.
“Further, as with cash transactions, businesses that receive crypto assets with a fair market value of more than $10,000 would also be reported on.”
The Treasury edict came as the cryptocurrency market steadied on Thursday, with bitcoin climbing back above $US40,000 after the rattling delivered by Chinese authorities (led by the country’s central bank) on Wednesday which made it clear that China will control crypto currencies in that country.
This is a big deal because China is home to more crypto mining than anywhere else and the Chinese government and the Communist Party want a home-grown coin so they can not only control its creation and circulation, but also access and control the data it will generate.
The US Treasury move won’t be the last government body to take a similar stance on reporting and money laundering – crypto has already been linked in numerous reports to illegal acts such as ransomware, kidnapping and the facilitating the production and payment for drugs of all types.
Before the Treasury statement bitcoin had risen 9% in early trading from Wednesday’s slide but slumped after the statement’s release and was trading just 1.9% higher late in the session.
Even so, the world’s largest digital currency has lost more than 30% in market capitalisation in the past couple of weeks.
In fact, since May 12 the global cryptocurrency sector has lost more than 30% of its market value, according to CNN.
By Thursday morning, the world crypto market value had fallen to nearly $US1.8 trillion, down from more than $US2.5 trillion just last week.
The Treasury move shouldn’t come as too much of a surprise as more ta more people on Wall Street and the crypto world have been warning of some sort of Federal government involvement simply because the dollar values of the sector was getting too big to ignore.
Some enthusiasts will argue that the Treasury move doesn’t matter – bitcoin and others have existed in the netherworld now for several years and support there is strong and will continue that way.
But that’s exactly why the Fed are interested and why promoters for the growing list of companies (such as Coinbase) with an interest in crypto as an asset class, don’t want the nether world’s support (in the so-called dark web) to again dominate debate and dealings.
It has always intrigued me and others that the only way the cryptos can value the various coins is in old fashioned currencies – the very thing they purport to want to replace. It is an irony lost on those early adopters who mostly do not like government or are criminals that they value and demand fiat currencies for their crypto.
The mining and creation of bitcoins and others chews up enormous amounts of electricity and that is suddenly becoming the single biggest negative for the class.
In the eyes of more and more environmentally conscious investors, analysts and others, crypto mining is up there with coal mining and power stations, cows and flying as endangering the planet. and the move to zero emissions.
In the meantime, crypto currencies are in for some rough handling by US regulators (and others who will follow).
US market analysts and traders point to the new Chairman of the powerful US Securities and Exchange Commission, former head of the US body overseeing the futures market and long-time cryptocurrency expert Gary Gensler.
Analysts say it is only a matter of time before the US Congress grants the SEC broader jurisdiction over cryptos.
Gensler has already made that clear in testimony to Congress earlier this month when he told them that allowing the SEC to regulate cryptocurrency exchanges will help ensure investors are protected and prevent market manipulation.
“Chairman Gensler is viewed as a potential ally for cryptocurrencies as a former professor on the topic; however, these statements are likely to revisit debates regarding the regulatory risk to cryptocurrencies and exchanges,” Raymond James analyst Ed Mills wrote earlier in May (as reported by CNBC).
But there is a big positive from the Treasury move (and future moves by the SEC) that many of the on the edge crypto fans ignore.
It’s a recognition that crypto currencies are, in the eyes of the IRS and Treasury, another increasingly legit asset class. It’s a form of respectability which should be a good thing for the expansion of the market – but the growing environmental opposition will not go away and will eventually force change on crypto creation or help marginalise it.