As a founder of a cryptotax app, ZenLedger.io, I keep a close eye on what possible regulation is coming to blockchain and crypto in the US.
Blockchain is being discussed in the halls of Congress. I have no idea if that is a good thing. Currently there is an absence of laws and regulations in the United States to govern cryptocurrencies and blockchain companies. This void is creating a lot of uncertainty. It also presents an opportunity.
The United States, up to this point, has been vague and surprisingly laisse faire. As Switzerland and Malta have tried to provide regulatory clarity, the US has simply prosecuted a couple obvious scams and little else. There has been no incentive to act.
The only think US legislators have done is specifically prohibit cryptocurrency from being used in like kind, 1031 exchanges.
You could argue that the lack of legislation is also due to the fact that no one is lobbying for crypto either. But that seems to be changing.
Crypto industry leaders warn Congress: Figure out regulation, or watch innovation leave the US. Sept 25, 2018.
“More than 50 industry participants gathered on Capitol Hill for a roundtable discussion hosted by Rep. Warren Davidson, R-Ohio, Tuesday.” The companies complained that new laws were needed as the SEC and CFTC were governed by laws from the 1940’s.
So, lobbying is increasing in crypto. There has been no event like the 2007 meltdown or the 1929 Great Depression where people were in the streets calling for the heads of the banksters. So there is no public concern. This gives the Blockchain industry with a bit of a free hand.
Tech and Financial institutions like JP Morgan, Goldman, NASDAQ, CME, Facebook, IBM, Amazon, and Walmart are savvy enough to just jump on the crypto train rather than try to hold it back. The economic and political heft of these corporations and the lack of resistance to crypto legislation makes me believe that any new crypto laws will be favorable to crypto and also likely favorable to large companies rather than startups- a troubling trend. Certainly it’s a balancing act. Most 2017 ICO’s were likely fraudulent at inception, just pure money grabs. That’s poisoned the well for all the well intentioned ICO’s. I’m afraid for a future where something like Sarbanes Oxley is instituted in Crypto and it chokes out blockchain innovation just like it killed the IPO.
We find ourselves in a strange situation where Congress is telling the SEC, CFTC, and IRS to regulate blockchain with more clarity. The agencies retort that it is Congress’ job to pass laws defining the regulatory policy.
15 Lawmakers send letter to SEC Chairman Jay Clayton. Sept 28, 2018
Congress asks the IRS for more clear crypto taxation policy. May 17, 2017
IRS Advised to Provide Better Guidance on Cryptocurrency Transactions. Oct 26, 2018.
You can now see a number of legislators from the Congressional Blockchain Caucus attempting to introduce legislation.
Rep. Tom Emmer (R-MN) is the co-chair of the Blockchain Caucus and has put forth 3 bills.
Rep. Doris Matsui (D-CA) and Rep. Brett Guthrie (R-KY) has introduced the Blockchain Promotional Act of 2018.
California and Arizona both have actually use the same definition of blockchain as “distributed ledger technology that uses a distributed, decentralized, shared, and reciprocal ledger, that may be public or private, permissioned or permissionless, or driven by tokenized crypto economics or tokenless. The data on the ledger is protected with cryptography, is immutable, is auditable, and provides an uncensored truth.”
What we need to worry about is a patchwork of state regulations that cause a huge mess like what we have in insurance, banking, money transmission, and healthcare. There is a middle ground where smart regulation from the start can foster national and global innovation. We’ll know we are getting it right when quality startups from overseas seek to enter the US rather than when US based startups exclude Americans from their offerings.
America is going to be a player in blockchain. The US has 330 million people and $18.6T GDP - 4% of global population and 25% of global GDP. Not to mention the most potent military in the world (guns still matter). So, it’s really a matter of when there will be some regulatory clarity that allows for capital and talent to flow.
America has the need to compete for capital and remain the center of technological innovation as well as the financial capital of the world in a digital age. America is also burdened with a legislative and regulatory system that largely does not understand technology as well as the entrenched interests of the existing US financial system. America also has an ongoing political quagmire that may only get worse with the coming midterm elections. We live in interesting times.
ZenLedger.io helps individuals and CPAs with generate accounting and tax reports for their cryptocurrency investments. You will get a unified accounting ledger across all your exchanges and wallets as well as fill out your Schedule D and Form 8949.
About the Author: Pat Larsen was a former Navy helicopter pilot, investment banker, and Amazon business unit manager before co-founding ZenLedger.io