Indeed, regulation already has commenced. In 2017, a federal judge in San Francisco ruled that Coinbase must supply the IRS with identifying information on users who had more than $20,000 in annual transactions on its platform between 2013 and 2015. Coinbase did succeed in limiting the government’s initial request for information on all Coinbase users who made transactions from 2013 to 2015 to a smaller subset of high-value users.
In May of this year, the Chinese Government set out its intent to crack down on digital assets and the U.S. Treasury Department said it planned to enforce anti-money-laundering rules and request that crypto transactions of $10,000 be reported to the government.
China banned financial institutions and payment companies from providing services related to cryptocurrency transactions. It also warned investors against speculative crypto trading. The Chinese Government also appears to be prepared to crack down on Bitcoin mining. China is the world’s largest cryptocurrency mining location, accounting for 65 per cent of the Bitcoin hash rate, a unit of measure for the processing power used by the Bitcoin network to verify transactions and mine new tokens of the cryptocurrency, according to estimates by the Cambridge Bitcoin Electricity Consumption Index. The Chinese Government, which has banned financial transactions of Bitcoin and other tokens since 2019, had turned a blind eye towards the cryptocurrency mining farms in Inner Mongolia, Sichuan, Xinjiang and other mainland locations, until now.
According to a new report from the US Treasury Department (May 20, 2021), the US Government wants to put new requirements in place that would make it easier to see how money is moving around, including digital currencies. The report notes that cryptocurrencies pose a “significant detection problem” and are used regularly by top earners who wish to evade taxes.
The proposed changes would create new reporting requirements built on the framework of existing 1099-INT forms that taxpayers currently use to report interest earned. Cryptocurrency exchanges and custodians would be required to report more information on the “gross inflows and outflows” of money moving through their accounts. Businesses would also be required to report cryptocurrency transactions above $10,000 under the new reporting requirements.
Jay Hatfield, chief executive officer of Infrastructure Capital Advisors in New York has warned that “Investors are underestimating the regulatory risk of crypto as governments defend their lucrative monopolies over currency.” According to Hatfield, the possible imposition of transaction reporting requirements in the US could be the “tip of the iceberg” of potential Treasury rules on virtual currencies.
Three: Who Can You Trust?
Finally, there is the trust factor. Trust is critical for financial markets to operate, and for currencies to be accepted as a medium of exchange. The Fed was able to resort to a blank check policy starting in the fourth quarter of 2008 because of the confidence people have in the Fed, the US dollar and the US Government. People might not like the US Government or its policies, but they continue to demand and hold US dollars. For a long time, US $20 bills were the favorite currency of the drug cartels.
Can the same level of trust develop for Bitcoin or any other crypto-currency? Who are behind these currencies? Who is Satoshi Nakamoto? What assurances are there that the respective supplies of Bitcoin and other crypto-currencies will be limited, or that very few new such currencies will be introduced? Can the miners be trusted to maintain the integrity of the blockchain? Where there is money to be made, fraudsters have a way of showing up.
US currencies used to have the saying: “In God we trust.” Perhaps not, but at least people trusted in the Fed and the US Government. Will people trust unknown entities who have a God-like complex?
Bitcoin will not be used for transactions — the know your customer rule and anti-money laundering laws and exorbitant transactions costs will prevent this. Elon Musk did an about turn on accepting Bitcoins for the purchase of Teslas because he recognized the potential legal problems.