This February, the U.S.’ Senate Banking Committee held several Bitcoin hearings in an attempt to keep the cryptocurrency industry in check. The sharp fluctuations that Bitcoin experienced in recent times worried lawmakers and banks, prompting the government to take action.
If successful, the regulatory oversight of cryptocurrencies by the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) can be used as the basis for governing cryptocurrency Exchange Traded Funds (ETFs). Government laws on cryptocurrency ETFs will be able to provide a safety net on assets.
While the financial industry predicts that it’s only a matter of time until the government cracks down on cryptocurrency exchanges, proponents argue that over regulation would be similar to hampering the popularity of Internet use.
At the hearing, the CFTC and SEC were both represented by their chairmen, Christopher Giancarlo and Jay Clayton respectively. Both officials have the responsibility to protect U.S. investors, as well as ensure that new markets are viable for trading. Both are qualified to present data on the dangers of cryptocurrencies, which include fraud and vulnerability to theft.
Nadex reported that the overall investor sentiment for the hearing was positive. Bitcoin prices rose post-hearing since no discussions of banning cryptocurrencies were raised. Regulation was the main topic at the hearing and not the closure of several exchanges. Giancarlo discussed Bitcoin’s value, as well as the process of mining it. He also praised the addition of Bitcoin as a new derivative for some exchanges.
“The CFTC can now obtain trading data and analyse it for fraud and manipulation…with Bitcoin futures we’re now having visibility into underlying markets and spot markets that we would not otherwise have,” said Giancarlo.
The U.S. government had long aspired to bring the cryptocurrency trade out of the shadows. Back in 2016, IRS issued summons for data on millions of Bitcoin exchanges in an effort to put a spotlight on cryptocurrency activities.
In the summons, the IRS asserted that all of Coinbase — one of the biggest Bitcoin exchanges — users have not complied with the U.S. internal revenue laws.
Cryptocurrencies are digital funds that can be exchanged for goods and services. Their popularity have grown over the years due to Bitcoin’s success, which almost reached $20,000 at the end of 2017. Unlike other assets, cryptocurrencies are unregulated, making it vulnerable to illegal activities and fraud.
Apart from its unregulated clause, Bitcoin is also known for giving users a level of confidentiality, which caused massive headaches for the U.S. government. Digital currencies are currently classified as an asset like oil, with capital gains tax due when their value appreciates. However, Bitcoin’s unregulated nature makes it extremely difficult to know which Bitcoin users with tax liabilities have been declaring their assets.
In the documentation that the IRS wrote to support its petition, the agency referred to three anonymous taxpayers who used virtual currencies to evade tax. Two of the anonymous users were corporations with declared annual revenues of several million dollars. By using a Bitcoin exchange wallet, the companies were able to hide Bitcoin transactions as technology expenses on their tax returns.