Cryptocurrencies in America are not considered legal tender. However, Cryptocurrency exchanges are legal and the regulations vary by state. In this article, we will be discussing the entire regulation and taxation situation in the US, along with state laws that pertain to Cryptocurrency and blockchain technology. Let’s get started!
It is quite overwhelming to find a reliable lawful approach to Cryptocurrencies in the US. Every law that is governing centralized crypto exchanges varies by state. Moreover, federal authorities differ in their definition of the term – Cryptocurrency. The FinCEN (Financial Crimes Enforcement Network) doesn’t consider Cryptocurrencies to be a legal tender. However, FinCEN has been considering exchanges as money transmitters since 2013, based on the fact the tokens are other value that substitutes for currency. On the contrary, the IRS considers Cryptocurrencies as property and has issued tax regulation for that reason.
Regulatory laws for Cryptocurrency exchange in the US are also in an indecisive lawful territory. Many of the federal regulators allege jurisdiction. The Securities and Exchange Commission has indicated that it considers Cryptocurrencies as securities. In March 2018, SEC stated that it was seeking to apply securities laws comprehensively for exchanges and digital wallets. On the contrary, the Commodities Futures Trading Commission has adopted a friendly and do-no-harm approach, explaining Bitcoin as a commodity and permitting Cryptocurrency derivatives to buy and sell openly.
The Justice Department is working with the CFTC and SEC over future Cryptocurrency regulations to make sure that the customers are effectively protected and regulatory oversight is more streamlined. Treasury of the US has emphasized an urgent need for crypto regulation to combat domestic and global criminal activities. In January 2018, Steve Mnuchin and Treasury Secretary declared a new FSOC working group to look at the progressively more crowded Cryptocurrency marketplace.
In June 2015, New York managed to become the first state of the US to regulate virtual currency companies via state agency rulemaking. In 2019, there were 32 states of the US that introduced legislation accepting or encourage the utilization of Bitcoin and blockchain distributed ledger technology (DLT). A few states passed them into law. However, some of them established task forces to revise the further use of technology. In 2017, the FTC gave LedgerX – Crypto trading platform operator in the US, permission to become the first federally regulated digital currency options exchange and clearinghouse.
Crypto Regulatory Sandbox – In 2015, New York released the “BitLicense” that is needed by any virtual currency company serving New York business owners or residents. The New York State Department of Financial Services (NYDFS) established the BitLicense to provide guardrails that safeguard customers and root out illegal doings without stifling advantageous improvement. According to the legislation, any individual or company who is involved in any of the following activities in New York should obtain a BitLicense:
Trading Ban – No
Banking Ban – No
Tax Haven Region – No
Is it best Place for License – Yes, BitLicense can be acquired by following simple instructions in New York
Crypto Regulatory Sandbox – In December 2014, the DFI in Washington State formed the Emerging Payments Task Force during the annual conference of State Bank Supervision (CSBS). In September 2015, the annual conference of State Bank Supervision released a model regulatory platform for virtual currencies.
According to the Washington State’s government, virtual currencies are considered as a digital currency or Cryptocurrency. Virtual currencies are the medium of exchange not adopted by a government. In December 2014, Bitcoin was added to the definition of Money Transmission. Every virtual currency in the state of Washington is subject to the UMSA – Uniform Money Services Act.
Trading Ban – No
Banking Ban – No
Tax Haven Region – Yes
Is it best Place for License – Yes, Washington has generated a multi-state licensing program to make it easy for companies to comply with crypto regulations.
Crypto Regulatory Sandbox – The legislature of California is working on a new set of regulations specifically designed for virtual currencies and inspired by the New York BitLicense. In February 2017, the Virtual Currency Act was a bill proposed to the California Legislature. The Assembly Bill was released by the Legislature in August 2016. Just like the New York BitLicense, already established banks would not be needed to apply for the California Virtual Currency License if they want to involve themselves in the activities of the Cryptocurrency business. Nonetheless, the bill will be needed for any new businesses that lack a bank charter.
This bill would prohibit an individual from involving in any virtual currency business, as defined, in California unless the individual is licensed by the Commissioner of Business Oversight or is exempt from the licensure prerequisite, as provided. This bill will also need applicants for licensure, including an applicant for licensure and approval to get control of a licensee, in order to pay the commissioner a nonrefundable application fee and finish an application form, amongst other things, prior virtual currency services offered by the applicant, detail of the applicant, a sample form of receipt for transactions concerning the virtual currency business, and specified financial statements.
Trading Ban – No
Banking Ban – No
Tax Haven Region – No
Is it best Place for License – No, it’s too early to create a license on Bitcoin and other virtual currencies since they are still in the earliest stages of development.
According to the National Constitution of this country, the only authority that is able to issue legal currency is the Central Bank. Bitcoins are not lawful currency strictly speaking, as they are not issued by the monetary authorities of the government and are not a legal tender.
Hence, they can be considered money but not legal currency. They are not an essential means of cancelling debts or obligations.
Even though Bitcoins are not certainly regulated, they are increasingly being used in this country that has strict controls over foreign currencies. According to some professionals, a bitcoin can be considered a good or a thing under the civil code, and transactions related to Bitcoins can be governed by the rules of the sale of products under the civil code. The latest amendment to the Income Tax Law provides that the gain derived from the sale of digital currency will be considered income and taxed as such.
Trading Ban –No
Banking Ban – No
Tax Haven Region – No
Is it best place for License – No
Crypto Regulatory Sandbox – currently, there are no such crypto sandboxes that are designed to promote investment and research in Cryptocurrency in Argentine. Except for the taxation and anti-money laundering regulations, the regulatory authorities have adopted a wait-and-see tactic in regarding to cryptocurrencies. However, the Central Bank has created several research groups – amongst which there are a few groups dedicated to cryptocurrencies and Blockchain technologies.
In October 2019, the US Internal Revenue Service (IRS) issued new guidelines on the tax treatment of virtual currency willing to assist taxpayers to understand tax and reporting obligations for transactions including virtual currency, along with tax treatment of “hard fork” transactions.
In the same year, the IRS also released a draft of Schedule 1 to Form 1040. That draft would need taxpayers to answer whether they had any virtual currency-related transactions during the tax year.
The guidelines issued by IRS and the proposed amendment of Schedule 1 Form part of the Virtual Currency Compliance Campaign of the IRS that was initiated in July 2018 and emphasizes that the tax outcomes of Cryptocurrency or virtual currency transactions are a focal point for the IRS.
The new guidelines also mention that the income tax treatment of certain transactions that are unique to Cryptocurrency, for example, airdrops and hard forks.
According to the new guidance issued by the IRS:
Before you get started with centralized exchange development or white label crypto exchange software development in America, you must know about the crypto regulatory and taxation outcome of that region. As a crypto owner, you must stay updated with the compliance of the Commodity Futures Trading Commission and the US Securities Exchange Commission and then think of making your Cryptocurrency decision!