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Decentralized investment will ultimately be regulated. There can be nothing decentralized. The governments would use all the nuance to force the crypto space to comply with regulators and taxes.
Jeff Stein expressed: “It is really remarkable that of all the provisions in a $1 trillion infrastructure bill crucial to the nation’s water systems; electric grid; trains; highways/bridges/ports, etc., the issue generating the most heat at the goal line is cryptocurrencies.”
Crypto has a substantial hedge fund and VC lobby. That’s a constituency too. More intrusive bills will come in the future. The language is so broad that it could be used to kill the US crypto industry. Many don’t even know what is happening.
But whatever happens Saturday, remember that Bitcoin will remain anti-fragile and worldwide. Like China, the US gov’t may do their worst and only strengthen it in the end. The bill is clearly misguided.
There are very few people who understand the implications of the current bill. The bill in the senate now has details about Cryptocurrency and tax reporting. In addition, there are specifically designed information reporting requirements for brokers. It is important to note that 1099 information reporting has been around in the equities and TradFi space for quite a long time.
The focus of 1099 information reporting is to make report non-employment-related income to both the IRS and taxpayers. The 1099’s report income which one will earn outside of W2 income like the capital gains from your stock investments. This is not a bad thing—the 1099-B’s report the cost basis, proceeds, and associated gains/losses on trades.
From the perspective of tax-reporting, crypto and stocks are treated similarly, and therefore, it makes sense why politicians are looking to pass 1099 reporting requirements for “crypto brokers.”
However, Cryptocurrency is different than stocks (equities) from a technological perspective. They are designed to be transferable, peer-to-peer using blockchains that will not need 3rd parties.
Since the investor can buy crypto from one exchange and trade it across different exchanges, the ability to track tax basis and the cost basis is lost. The details of the original USD value that has been spent to acquire the asset are required.
The cost basis of 1 BTC will not be clear to the reporting exchanges as the value flows from cold wallet. Mining pool, and through processes that is not owned by the investor. The exchange, therefore, will not have all of the info to report gains and losses accurately. It doesn’t have the ABILITY to give a 1099-B accurately.
When the DeFi happens, then things become all the more complicated. Old rules are forced into a new technology that will not work.
Individuals should track how much money they made in capital gains; they need to track transaction history across all places where they have transacted using crypto. It takes 100% crypto surveillance to make this possible, and in the end, the idea of anonymous and privacy is dead. And decentralized lost!
