On March 9, 2022, President Biden signed an executive order outlining the administration’s policy objectives with respect to cryptocurrencies and directs U.S. regulatory agencies to prepare various reports regarding cryptocurrency regulation, although it does not specify any regulatory action to be taken. The order describes six primary policy objectives regarding regulation of cryptocurrencies: protecting consumers, investors and businesses; mitigating systemic financial risk; mitigating national security risks; reinforcing U.S. financial leadership; promoting safe and affordable financial services; and supporting technological advances. The executive order also states that the Biden administration “places the highest urgency on research and development efforts into the potential design and deployment options of a United States CBDC.” CBDC stands for Central Bank Digital Currency, which is defined as a form of digital money that is a direct liability of the central bank.
Congress has also attempted to address cryptocurrency taxation. Summarized below are the Infrastructure Investment and Jobs Act, which has been enacted, and two proposed bills, each of which addresses cryptocurrency taxation.
Infrastructure Investment and Jobs Act (H.R. 3684)
This bill, which was enacted on November 15, 2021, would require Form 1099 reporting with respect to cryptocurrency by expanding the definition of broker such that it could encompass cryptocurrency miners, validators, and software and hardware developers depending on the regulations issued by Treasury. The bill also caused digital assets to be treated as cash for purposes of the currency transaction reporting requirement, which applies to transactions exceeding $10,000.
Digital Asset Market Structure and Investor Protection Act (H.R. 4741)
This bill, introduced June 6, 2021, would provide several agencies with explicit regulatory authority over cryptocurrency. Treasury would be given the power to regulate and veto the creation of stablecoins (i.e., cryptocurrencies intended to maintain a value approximating a fiat currency, generally the U.S. dollar). The SEC would have regulatory authority over cryptocurrencies treated as securities (including those providing the holder with rights to the equity or debt of the issuer, profits, interest, or dividends, voting rights, or liquidation rights), and the remaining cryptocurrencies would be treated as commodities subject to CFTC regulation. FinCEN would be given regulatory powers over services used for anonymizing cryptocurrency ownership. Digital service providers that service U.S. residents would be required to report with the SEC and CFTC.
Token Taxonomy Act (H.R. 2144)
By contrast, this bill, introduced April 9, 2019, would provide cryptocurrency holders with several tax benefits. Cryptocurrencies would be eligible for tax-free like-kind exchange treatment, could be held in IRAs, and related gains of $600 or less would not be taxable. The bill would also provide that ICO (Initial Coin Offering) tokens are not treated as securities and preempt state blue-sky laws.
