The Future of Cryptocurrency and the US Tax Code

Emergence of cryptocurrency poses a difficult dilemma for governments: either ignore, outlaw or regulate it. With four out of five Americans surveyed – Democrats and Republicans alike – believing there should be clearer regulation for cryptocurrency, regulation is becoming an increasingly popular approach. A recent poll demonstrated this trend: four in five favored clearer regulation.

As a result, established finance brands and fintech disruptors are moving into the crypto space, helping new investors feel safer while providing education and resources for intenders.

The Future of Cryptocurrency in the U.S.

What began as a fringe movement among tech evangelists has since evolved into a trillion-dollar industry with the potential to transform global financial dynamics. Cryptocurrencies are now widely held as investments and used for purchasing various goods such as software, digital real estate and even illegal drugs – although their high degree of volatility (up to 85% in just the past year alone!) makes them hard to use as functional currencies.

Attracting mainstream financial institutions’ attention, cryptocurrency has attracted mainstream financial institutions’ scrutiny in recent months and years. Experts project that the cryptocurrency market will experience exponential growth over the coming decade as more consumers invest in digital assets. But opportunities present themselves alongside challenges, including protecting digital assets while adapting to regulatory shifts both domestically and abroad.

U.S. consumers still have much to learn about crypto, but those familiar with its workings can take advantage of growing investment opportunities and adapt their businesses with changing financial requirements. Staying abreast of key developments, for instance, can help companies understand how best to utilize blockchain – the decentralized technology which supports cryptocurrency transactions – for optimal use.

Organizations may benefit from considering how offering cryptocurrency payment options might contribute to their business, including by lowering transaction costs or encouraging customers to spend more. By doing this, they could become leaders in an ever-expanding marketplace.

Some have described cryptocurrency as an innovative technology; others view it as just another fad that will soon disappear. Either way, both parties agree that its development should be carefully observed.

As noted above, an overwhelming majority (79%) of those surveyed believe cryptocurrencies should be subject to stronger oversight regulations; both Democrats and Republicans support increased oversight oversight. With midterm elections just around the corner, now is an excellent time to familiarize yourself with this emerging market and consider its implications on your business. By following trends you can position yourself for future success as the cryptocurrency world progresses over time.

How Will Cryptocurrencies Be Used in the U.S.?

As we head toward midterm elections in 2022, many Americans are focused on economic issues that could sway their voting choices. According to a new survey conducted by NerdWallet, one topic has quickly emerged at the forefront of voters’ minds: cryptocurrency.

A recent poll conducted by CBS shows that 55% of US adults –including 59% of Democrats and 51% of Republicans–believe cryptocurrencies to be the future of finance, with almost 20% owning some form of crypto asset; younger generations and Black/Hispanic adults being particularly likely to own crypto assets. A majority of American adults believe innovations like cryptocurrencies may contribute to creating a fairer economy.

Although cryptocurrencies are growing increasingly popular, there remain substantial obstacles that must be cleared away before mass adoption can take place. One of the key issues is regulation: regulators must decide whether cryptocurrencies belong in either the commodities or securities categories, as this classification impacts which agencies will oversee these emerging financial instruments.

Investors must also have confidence that they can safely exchange and use cryptocurrencies. Security for cryptocurrency investors is of critical importance, since hacking or any other malicious activities could destabilize its entirety. Thankfully, cryptocurrency systems are built upon open-source foundations, meaning many computer scientists and cryptographers can study its strength – ensuring investors receive safe exchange and usage experiences with these systems.

Cryptocurrency offers many other advantages that make it a suitable alternative to traditional financial tools, including lower transaction fees than credit cards and easy accessibility from any device via digital wallets. Furthermore, cryptocurrencies serve as global asset classes which can be traded across borders and currencies.

As the cryptocurrency industry expands, it is crucial that both federal and state lawmakers establish clear regulations to support its development. While some states have passed laws supporting cryptocurrency technology, others have taken more cautious approaches; exempting cryptocurrency from securities or money transmission laws for instance can help foster innovation while strengthening local economies.

How Will Cryptocurrencies Be Taxed in the U.S.?

Cryptocurrency may be digital, but its perception by tax authorities differs significantly from cash. This creates a unique challenge for traders and investors who add this asset class to their portfolios – many are now turning to professional advice regarding how best to handle them.

Cryptocurrencies are considered property in the US and subject to capital gains taxes when sold, although specific details vary by state. For instance, Kansas and Kentucky treat cryptocurrencies as cash equivalents that must be charged sales/use tax on purchases made using them while others like New Jersey and Minnesota consider them regular income tax liabilities when sold or exchanged for other assets.

Individuals looking to sell or trade cryptocurrency have multiple techniques at their disposal to reduce taxable gains when selling or trading. You could employ the “highest cost basis first” (HIFO) method when identifying your sales; this will lead to lower capital gains than using average cost basis or weighted average cost basis methods. Another alternative may be “hold-and-sell”, which allows them to keep the cryptocurrency longer before selling immediately for tax savings.

Investors and traders of cryptocurrency may also take advantage of tax incentives to encourage them to hold onto their cryptocurrency holdings for longer. Some states, like Florida, provide state-wide deferral programs which allow investors to postpone paying capital gains taxes for up to two years.

Cryptocurrency investments offer many opportunities, yet it’s essential that you conduct thorough research before making any major decisions. While the market can be unpredictable, cryptocurrency could be an invaluable addition to your portfolio. Work with an accountant who understands how these investments are taxed as well as any changes in regulations to maximize opportunities while mitigating risks.

How Will Cryptocurrencies Be Regulated in the U.S.?

As cryptocurrency becomes a mainstream investment available through many modern brokerages, its regulatory scrutiny has intensified. Government agencies still struggle with how best to regulate this new asset class due to their unique characteristics – particularly digital currency’s unpredictable price movements – leading regulators into confusion about how best to approach this emerging market and leading to numerous disputes regarding how such assets should be classified and regulated.

The most contentious debate has surrounded digital assets’ classification as securities or commodities. While the SEC regards cryptocurrency assets as securities regulated by them, while CFTC views them more like commodities. No matter which side wins out in this debate, Congress is likely to pass legislation clarifying their status.

One major issue still to be decided upon in regards to cryptocurrency derivatives is how they should be handled. For example, the SEC believes stablecoins constitute derivatives and should therefore fall under the purview of the Commodity Futures Trading Commission (CFTC). Likewise, many exchanges offer crypto-backed securities tied to cryptocurrency price movements; therefore it’s crucial that regulators fully comprehend how these underlying contracts work before effectively regulating such products.

At least, progress has been made on this front. In 2021, several crypto provisions were added to the Infrastructure Investment and Jobs Act; among these was an outline for digital assets as being “any digital representation of value recorded on a cryptographically secure distributed ledger”.

Additionally, the Commodity Futures Trading Commission (CFTC) has determined that cryptocurrency exchanges fall under its regulation as money services businesses. Furthermore, both Treasury and IRS issued joint statements cautioning investors to tread carefully with cryptocurrency investments due to potential tax repercussions.

But most discussions about cryptocurrency regulation in the United States have taken place at a state level. Some states have passed laws exempting cryptocurrency from securities and money transmission statutes; other states take a more cautious approach by mandating exchanges verify user identities before operating, and others even pass bills that create virtual currency clearinghouses within each state.