Crypto Regulation Around The World: USA

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In recent years, cryptocurrency regulation has been a hot topic. The world has evolved from countries disregarding the existence of cryptocurrencies and not regulating their usage to countries actively developing crypto legislation.

Different countries regularly issue regulations governing the use of cryptocurrencies, crypto mining, and associated activities. There are regulations in the United States that govern the use of cryptocurrency, taxation, advertising, crypto mining, establishing a crypto-related business, and much more.

According to estimates, 8.3 percent of Americans, or 27 million people, use cryptocurrency. This has drawn the attention of the United States government and agencies to the usage of cryptocurrencies within the country.

The Biden administration has indicated an interest in the concept of cryptocurrencies, especially with the signing of the executive order in 2022.

This article comprehensively analyzes the legality of cryptocurrency and its activities in the United States.

Is cryptocurrency legal in the United States?

The regulations governing the use of cryptocurrencies in each state differ. Some states offer more flexibility than others. The United States does not consider cryptocurrencies to be legal tender, which means that they do not enjoy the same benefits as the US Dollar. Cryptocurrency use is not prohibited in the United States.

Though crypto is not legal tender, it has monetary value and is therefore taxable by the US Internal Revenue Service (IRS). Cryptocurrency owners in the United States must understand the tax laws. They can accomplish this by contacting the relevant authorities or professionals.

Crypto exchanges must obtain the necessary licenses and approvals before they can operate in the United States, which is why only a few exchanges, such as Binance.US, Kraken, and Gemini are available to US residents.

Is there a US Central Bank Digital Currency in existence?

Though there may be stable coins denominated in US dollars and valued according to the currency, the US government does not consider them legal tender.

The government has not provided a definitive statement regarding the development of a US Central Bank Digital Currency.

The Federal Reserve has researched central bank digital currencies (CBDCs) and published a paper on the subject, but there have been no concrete plans to create a CBDC that will be issued by the government and accepted as legal tender in the United States.

This may change in the future, but as of the time of writing, the US government has not stated whether it has started developing a workable CBDC system.

Is cryptocurrency taxed in the United States?

Though cryptocurrency is neither legal tender nor legally recognized in the United States, it is taxed by the IRS because it serves as a store of value.

US residents who engaged in crypto transactions in 2021 have been mandated to file a tax return from January 24 to April 18. Cryptocurrencies, as a property, have the same tax effects as stocks, which means they are subject to capital gains tax.

When engaging in the following activities, US residents are obligated to pay a capital gains tax:

When they make purchases using cryptocurrency, regardless of the amount spent, or if it was a dollar purchase, the transaction must be filed.
Crypto traders are expected to pay capital gains tax when they sell their crypto for fiat currency, regardless of whether it is the USD or another currency.
When a crypto trader uses a crypto asset to buy another one, the transaction must be filed.
If a gift is sent as cryptocurrency and exceeds $15,000 annually, then it should be filed.

Another tax imposed on crypto users is the income tax. A crypto user is subject to cryptocurrency income tax if any of the following events occurs:

Residents who receive cryptocurrencies from airdrop events are subject to income tax.
Residents who participate in DeFi lending and earn crypto interest are subject to income tax.
Residents who earn profits from mining or validating transactions are subject to income tax.
Crypto users in the United States who participate in blockchain activities, such as bug bounties, and earn rewards are subject to income tax.
Cryptocurrency earned from liquidity pools is also subject to income tax.
Cryptocurrencies deposited in interest-bearing accounts are subject to income tax.

For the time being, the law does not specify whether or not crypto staking activity is subject to taxation. As always, seek advice from the relevant professionals regarding your crypto tax matters. The information provided above is solely for educational purposes and should not be regarded as a tax, legal, or financial advice.

An Overview of Biden’s Executive Order on Cryptocurrencies

President Biden’s administration has indicated an interest in the concept of cryptocurrencies, particularly because they have an impact on the traditional financial system. On March 9, 2022, President Biden signed an Executive Order instructing relevant agencies such as the US Treasury Secretary and the head of the Federal Reserve Board to conduct a comprehensive study of cryptocurrencies and other digital assets in a bid to better understand their implications for monetary policy and financial stability. This order had a significant impact on different sectors of the economy.

Critics of crypto assets believe that government regulation will stop the volatile crypto space from operating without oversight. Crypto enthusiasts, on the other hand, see the Executive Order as an indication that government officials are giving digital assets a chance.

In response to the executive order, relevant government agencies were directed to investigate crypto usage and related activities and create policies to protect residents and businesses.

Furthermore, the order was intended to prevent cryptocurrencies from being used for illicit purposes such as money laundering, sanctions evasion, and terrorism financing.

Another rationale behind Biden’s executive order is to ensure that the United States remains a leader in the use of digital assets, far ahead of other countries. This event has transformed the country’s and government agencies’ typical skepticism into a fascination with the concept of digital assets such as cryptocurrencies and Non-Fungible Tokens (NFTs).

Is Crypto Regulation under the purview of the United States Securities and Exchange Commission (SEC)?

In recent times, the U.S. SEC has been actively involved in the crypto space. This governmental agency regulates securities and financial instruments.

Before anyone, be it an individual or an organization, can issue and sell securities, they must first obtain the necessary authorization from the U.S. Securities and Exchange Commission.

Grayscale, for example, had to undergo the appropriate SEC verification process and wait patiently for clearance, even when the final decision date was postponed.

The U.S. SEC actively reviews the proposals of different crypto products to determine their impact on users and the economy. In some cases, the proposals are rejected. This means crypto products regarded as securities in the United States must be approved by the SEC before they can be issued or sold. Failure to adhere to this policy attracts sanctions. BlockFi, for example, was penalized in February 2022 for flouting this regulation.

“The U.S. Securities and Exchange Commission (SEC) charged Blockfi, a cryptocurrency lending platform, with fraud in court, and the latter agreed to pay $100 million in fines. The crypto lending platform will also get the necessary registration. “

This is one of several instances in which the U.S. SEC has sanctioned organizations and individuals for issuing cryptocurrencies that are regarded as securities in the U.S. without the necessary approval. The Howey Test is used by the US Securities and Exchange Commission to determine whether a cryptocurrency is a security and thus falls under its purview.

The Howey Test is used by the US Securities and Exchange Commission to determine whether a cryptocurrency is a security and thus falls under its jurisdiction.

The Howey Test is an investment contract that was developed in response to a 1946 court case, SEC v. W.J. Howey Co.

A cryptocurrency is regarded as a security if it involves a user investing money in a shared enterprise with an intent to earn profits or returns from the activities of an independent entity or third party.

In Conclusion,

The use of cryptocurrency is not prohibited in the United States.
The US Securities and Exchange Commission must duly authorize an exchange before it can operate or issue cryptocurrencies that are considered securities.
US residents are expected to pay income tax and capital gains tax on cryptocurrencies.
Governmental agencies are actively involved in investigating and developing policies to protect individuals and businesses operating in the United States.
In the United States, the laws governing cryptocurrency usage vary from state to state.
A crypto gift worth more than $15,000 is subject to capital gains tax.
It’s a good idea to consult an expert about your crypto tax to ensure that no laws or regulations are broken.

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