Cryptocurrency legislation in the United States is disconcertingly vague at best. Not only is the Fed anything but clear or consistent on its approach to the whole thing, but the fact that regulation differs from one state to the next adds further confusion.
Even among the Federal authorities operating in the United States, the actual definition of ‘cryptocurrency’ differs from one to the next. All of which can make it difficult for those who sell and buy Bitcoin (and other cryptocurrencies) to know where they stand.
According to official policy outlined by the Financial Crimes Enforcement Network (FinCEN), no form of cryptocurrency is considered a form of legal tender in the United States. This therefore means that when cryptocurrency is traded, it is interpreted by the IRS as a property – and is therefore liable for taxation in the same way as other conventional assets.
Repeatedly, the US Treasury has emphasized the importance of introducing sweeping crypto regulations to create a fair and secure landscape for traders, businesses and everyday consumers using cryptocurrency. Meanwhile, the Securities and Exchange Commission (SEC) said a couple of years ago that extensive and comprehensive securities laws for digital exchanges and wallets were under consideration.
Then you have the Commodities Futures Trading Commission (CFTC), which on numerous occasions has demonstrated a friendly attitude and approach to crypto trading, more or less supporting the unregulated system as it exists today.
To call the whole thing confusing would therefore be something of an understatement, given how the authorities themselves don’t seem to be able to agree on a great deal. But confusion as to the whole crypto regulation landscape is far from exclusive to the United States.
It is more or less the exact same situation across much of the world, illustrated in the following two examples – Canada and the United Kingdom.
Cryptocurrency Regulation in Canada
Under official Canadian policy, cryptocurrency use and trading in Canada are both legal. The official word on digital currencies from the Financial Consumer Agency of Canada states that:
“You can use digital currencies to buy goods and services on the Internet and in stores that accept digital currencies. You may also buy and sell digital currency on open exchanges, called digital currency or cryptocurrency exchanges.”
But just as is the case in the United States, Bitcoin (and all other cryptocurrency) is not acknowledged as a form of legal tender. All gains in relation to crypto currency trading are subject to income tax at the appropriate level in Canada, where all forms of cryptocurrency are defined as a commodity under the terms of the Income Tax Act.
In more specific detail:
“Where digital currency is used to pay for goods or services, the rules for barter transactions apply. A barter transaction occurs when any two persons agree to exchange goods or services and carry out that exchange without using legal currency. For example, paying for movies with digital currency is a barter transaction. The value of the movies purchased using digital currency must be included in the seller’s income for tax purposes. The amount to be included would be the value of the movies in Canadian dollars.”
Cryptocurrency Regulation in the United Kingdom
Another major cryptocurrency trading market, no specific law or legislation exists in the UK for the regulation of buying or selling crypto coins. However, the Bank of England has released numerous statements over recent years indicating its support for cryptocurrency regulation, supposedly for the greater good:
“A better path would be to regulate elements of the crypto-asset ecosystem to combat illicit activities, promote market integrity, and protect the safety and soundness of the financial system.”
In terms of taxation, things are particularly complex in the UK. HMRC acknowledges that “cryptocurrencies have a unique identity and cannot therefore be directly compared to any other form of investment activity or payment mechanism.” As a result, tax liability varies significantly in accordance with the “activities and parties involved” in the transaction.
Understandably, it is a policy that often results in confusion and uncertainty regarding tax obligations – particularly for investors with broad and diverse trading portfolios.
If in Doubt, Seek Expert Advice…
Uncertainty in relation to legislation and taxation can pave the way for an unfortunate outcome. If in doubt as to crypto-related tax liabilities in your jurisdiction, it is better to seek expert advice than to bury your head in the sand.
Hitesh Malviya is the Founder of ItsBlockchain. He is one of the most early adopters of blockchain & cryptocurrency enthusiast in India. After being into space for a few years, he started IBC in 2016 to help other early adopters learn about the technology.
Before IBC, Hitesh has founded 4 companies in the cyber security & IT space.
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