Crypto Regulation Takes A Much-Needed Step

As I told you back in October, one of the best ways to make sure that blockchain and cryptocurrency continue to mature as assets is for moderate and sensible regulation to take place. And I stand by what I said back then:

"Right now, it's still the Wild West when it comes to crypto regulation. Rules are uncertain, murky, and poorly constructed. And while that lack of regulation may appeal to the egalitarian spirit of crypto, it scares investors. And when they're scared, they'll likely put their money in other asset classes. And that's bad for the whole sector."

But I wasn't alone in my call for regulation. Later that same month, I talked about the nitty-gritty behind the bombshell crypto report from financial behemoth Bank of America. And if you dig into the report, you can see that they feel like regulation is a good thing as well:

"Regulatory uncertainty is the largest near-term risk in our view, but regulation may drive increased investor participation over the long term once the 'rules of the road' for digital assets are established."

While there has been lots of talk about doing something from a regulatory standpoint, it looks like regulators are finally putting their money where their mouths are.

Here's what I mean.

Law Simplifies Taxes On BTC

Right now, the IRS considers cryptocurrencies to be property. And while that may sound intuitive, that designation means that if you sell crypto for fiat money, trade it for other cryptocurrencies, or use it to buy a good or service; you're triggering a taxable event.

In other words, cryptocurrency is not treated like cash from a tax perspective.

Think of it this way: Let's say you owned stock and no cash. When you go to the grocery store, they want to be paid in cash. So, to buy your groceries, you must do two things. First, you need to convert your stock to cash, which triggers a taxable event. And second, you need to take that cash and pay for your groceries.

In our example, just substitute crypto for stock, and you get a picture of how crypto is potentially taxed right now.

Now, if you're doing a minimum amount of trading and investing in crypto, the above scenario is manageable. In fact, if you're an occasional stock trader or a long-term stock investor, accounting for crypto is like what you do for your stocks right now.

But I don’t have to tell you that some cryptos, including Bitcoin (BTC), are trying to set themselves up as mediums of exchange. That means they want to be viewed as a substitute for cash. And the fact is just about everywhere you turn, the crypto space in general and crypto exchanges, in particular, make it seem super-easy to conduct business using crypto.

As you can see, right now, if you use crypto like fiat money, every time you make even the smallest transaction, it's like selling a stock. If you do that a lot, you'd be making a ton of capital transactions. The record-keeping alone would be a nightmare.

Buying a soda triggers a taxable event? Sounds crazy, but true.

That's why I am pleasantly surprised that a bipartisan group of lawmakers has reintroduced a bill that would make accounting for small virtual currency transactions, like Bitcoin, less of a headache.

In fact, the legislation, called the Virtual Currency Tax Fairness Act, would exempt virtual currency transactions of $200 or less exempt from tax obligations that may be associated with capital gains.

That means that provided you spend $200 or less on a transaction, you won't have to worry about capital gains and the associated record-keeping. In addition, the legislation would amend the Internal Revenue Code of 1986.

According to Rep. Suzan DelBene, co-author of the bill.

"Antiquated regulations around virtual currency do not take into account its potential for use in our daily lives, instead treating it more like a stock or ETF," said DelBene. "However, virtual currency has evolved rapidly in the past few years with more opportunities to use it in our everyday lives. The U.S. must stay on top of these changes and ensure that our tax code evolves with our use of virtual currency. This commonsense bill cuts the red tape and opens the door to further innovations, ultimately growing our digital economy." (Source)

Is this legislation a good thing?

Without a doubt.

This bill would mean that relatively small transactions using virtual currencies like Bitcoin wouldn't be hassled by the IRS. And without that capital gain feature, we would be able to do business with Bitcoin, and other virtual currencies, without having to do a mountain of paperwork for the government.

In addition, the regulation would incentivize consumers to transact business using virtual currencies. And that means consumers would be more comfortable using their favorite cryptocurrency over fiat money. That would make interacting with Bitcoin, and cryptocurrency in general, more user-friendly and not so intimidating.

And finally, if you get used to using virtual currencies like Bitcoin to buy everyday items like groceries, you're going to be more prone to think of it as a stable medium of exchange. After all, when you buy your groceries in dollars, most of us don't think about whether the dollar is up or down today in currency markets.

Wayne Burritt
INO.com Contributor

Disclosure: This contributor may own cryptocurrencies mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.