The US is proposing to change the taxation rules for cryptocurrencies. How will they affect the coin market?
US President Joe Biden presented his budget proposal for the 2023 fiscal year this week, along with clarifications from the Treasury Department on taxes. The president’s administration estimates that the US could collect around $11 billion in tax revenues as budget revenue over ten years through new regulations. However, almost $5 billion is planned for next year alone. This will come from “modernizing the rules” to apply certain financial accounting and reporting methods to digital assets. We tell you more about what’s going on.
As a reminder, the desire of authorities in various countries to control what is happening in the digital asset niche has recently become very apparent. In particular, yesterday we learned about an initiative by the European Parliament that could create problems for users of non-custodial wallets, i.e. wallets outside of centralised platforms like exchanges. Read more about this - along with possible solutions to the inconvenience - in a separate article.
How cryptocurrency taxes are paid
The Biden administration predicts $6.6 billion in tax revenue between tax years 2023 and 2032 from applying so-called mark-to-market rules to “actively traded” cryptocurrencies. According to Decrypt’s sources, mark-to-market is a way of valuing assets based on current market conditions. That is, it does not just look at the purchase price of an asset, which may be higher or lower than its fair market value.
In simpler terms, the US is about to create a mechanism for taxing unrealised gains. Here’s how it works: imagine that in one year the value of your investment portfolio, which is 100 per cent ETH, went up because of the rise in the price of Ether itself. Even if you don’t sell the coins by the end of the year, you’ll still owe tax.
Prior to this, cryptos only paid taxes on fixed profits
In addition, citizens will be required to report any assets offshore with a value exceeding the $50,000 threshold. This measure alone is expected to raise nearly $2.2 billion over the coming decade. Also, the presidential administration notes the large role of digital assets in the ability to hide financial transactions from the state. Here’s a rejoinder from agency officials as they describe the innovation
The global nature of the digital asset marketplace opens the door for US taxpayers to conceal assets and taxable income by using offshore digital asset exchanges and cryptocurrency wallet providers.
Given the idea, we can assume that US investors will now have less of a reason to sell cryptocurrency, which allowed for simpler tax reporting. Apparently, if the amendments are adopted, the coins will have to be reported even if they are inactive. This means that investors will have an additional reason to hold crypto and conduct as few transactions as possible to simplify the recording of transactions and financial results of interactions with crypto.
The aforementioned measures are still under discussion in Congress. This news has had little impact on the price of Bitcoin, which has shown impressive growth over the past week. The cryptocurrency managed to break above the $47,000 level, which gave optimism to many market participants. Naturally, the rise had its own reasons.
Bitcoin exchange rate over the past two weeks
One of them was a positive statement about crypto from Janet Yellen, US Treasury Secretary. Recall that she had previously stated that cryptocurrencies have the potential to integrate innovation into the existing financial system. Moreover, Yellen has changed her stance, as she previously had a negative view of Bitcoin.
The second reason is the gradual subsiding of panic in the markets caused by geopolitical instability in Eastern Europe. Because of Russia's aggressive actions, Bitcoin's value has dropped significantly, so some traders have begun to forecast that it will fall below $30,000. However, trading put everything in its place: at such prices, the main cryptocurrency seemed too oversold for most traders.
Despite the positive trend, Covalent’s head of marketing Pratik Gandhi believes it’s too early to celebrate the exit from the downtrend until Bitcoin’s price holds new ground for at least a week. Here’s his point of view.
Much of the recent price momentum has been largely driven by the general mood of the macro market and equities.
Selling and buying Bitcoin
We believe that such innovations will not bring additional convenience to US users of digital assets. Most likely, if they are adopted, coin holders will be interested in minimising activity with the cryptocurrency, which will allow for greater reporting. Well, in theory, this could reduce sellers' pressure on the market and create additional conditions for it to grow.
What do you think about this? Share your opinion in our Millionaire Crypto Chat. There we will discuss other important developments related to the world of decentralisation.
Related posts
