America’s taxation officials are mimicking other US regulators, who seem to be focusing solely on policies that provide potential revenue streams through taxation of and lawsuits against crypto startups. Instead of creating a meaningful framework for American innovation, who are lagging behind other countries in the cryptocurrency industry, officials have found a way to juice up the coffers now while the getting is good.
In May of 2019, we were promised that formal guidance on handling crypto businesses would be delivered in the coming months. And we waited. Entrepreneurs, developers, traders and crypto enthusiasts alike anticipated the ruling. We were hoping some fresh guidelines would provide clarity. That way, the industry in America could move forward without getting sued for breaking rules that haven’t been made up yet.
Come to find out, five months is a long time to wait for something that still hasn’t materialized. Instead of a hopeful glimmer of pathways for creating businesses in the crypto realm, we’re handed another stern warning that taxation will occur if you so much as breathe bitcoin dust onto a US citizen. Once again, innovation within America, as well as and regions that want to serve the American market, must deal with regulatory constraints that make no sense.
What did the IRS Guidance say?
In the guidance, the IRS instructed taxpayers on how and when to ‘constructively receive’ airdropped tokens as gross income. That was it, nothing else. A way to tax American people even more; and regulatory silence on the issues that need clarification so innovation is possible.
What the guidance did not mention is that blockchain technology is open source. So conceivably, anyone could fork a blockchain and rain down coins in an airdrop to hordes of publicly available wallet addresses – even if those people do not want them or have lost access to their wallet. Yes, it seems that American taxpayers (and anyone else for that matter) are now able to create potentially enormous tax problems for their fellow citizens.
Overall, the guidance frustratingly brought up more questions than answers:
- China could, at any moment, announce their new state cryptocurrency to replace the Yuan (and Libra?).
- Japan-based Binance is like a combination of Google and Bloomberg only on crypto and steroids. (This week they opened up fiat currency onramps for Alipay and WeChat users.)
- There is a small percentage of humans that now understand that open, public, immutable and censorship-resistance blockchains turn money into information that is cryptographically secured. And all this enables people anywhere in the world to transact with each other privately without 3rd parties. Once we reach the tipping point and the, turning back would be like returning to the days without Internet.
- America’s dominance and control is based on the USD staying the world reserve currency. With bitcoin on the scene, we have an unassuming new competitor. But unlike with Libra, who would regulators have to subpoena since bitcoin runs itself?
- CFTC Chairman Heath Tarbert just kind of declared cryptocurreny’s 2nd biggest player, Ether, a commodity. This could pave the way for Ethereum Futures.
- Regulators seemed focused on how much money can be made from unregistered ICO projects. At the same time, Wall Street is slowly but surely packing up and moving into DeFi. Because that’s where financial innovation is happening.
- One bitcoin is priced at about $8500 as of this writing. In fact, over the past ten years, BTC has outperformed USD, RMD, S&P 500, Apple, and every other asset.
US Regulator’s actions on crypto regulations
With all this and much more happening in the growing crypto economy, what are American policymakers up to this week?
- Trying to remove the capacity for a company like Facebook to issue their own cryptocurrency.
- Attempting to force big tech companies to allow backdoors so our messages are more accessible. Not just to government officials, but to hackers as well.
- Publishing 112 pages of nonsense about bitcoin not being “designed to prevent fraudulent and manipulative acts and practices.” (SEC)
- Demanding that Pavel Durov bring the TON/GRAM ICO under SEC regulations as a security.
- Mailing letters to potential Libra partners such as Stripe and threatening them to back out of Facebook’s global cryptocurrency project.
Is this the end of American innovation in the blockchain industry?
In the US, with a gray regulatory aura firmly in place, regulators seem to have settled into a nice “tax you now, sue you later” strategy. A full circle policy to milk crypto innovators instead of helping to build a new industry. With crypto-friendly countries supporting blockchain innovation (like Malta, Singapore and El Salvador), and with US dominance waning, American innovation in blockchain may just walk out the door.