Cryptocurrency’s popularity exploded in 2017, with the value of certain coins going up a few thousand percent over the course of the year. This meteoric rise has been accompanied by scrutiny from government bodies, and 2018 has been heralded as the year of regulations. Here at CryptoGrinders, we firmly believe that cryptocurrency is here to stay; it is important to keep up to date with how cryptocurrency is being managed in your country.
*Disclaimer: The contents of this article are meant to provide helpful insights into the regulation going on. It is by no means meant to be taken as legal advice. For legal advice, do contact a certified attorney. The writer is not responsible for any consequences to any person reading this post. Readers should be aware that cryptocurrency regulations undergo constant change, and the relevance for the post will change.
United States of America
The Securities and Exchange Commission (SEC) has maintained its stance that cryptocurrency will be treated as securities, and that they have not registered any ICO as of date.
Chairman of the SEC, Jay Clayton, has asserted that many of the products from cryptocurrencies fall under the jurisdiction of the SEC, and that digital currencies will be having an elevated priority in the SEC’s agenda.
One of the concerns he raised was the light regulation of cryptocurrency exchanges. As no exchange has been registered with the SEC yet, they do not fall under the regulations that other exchanges are bound to adhere to. These views arise from the fact that regular investors are getting increasingly involved in cryptocurrency investments, and that without proper investor safety, they could stand to lose hard-earned savings.
SEC is also the reason that many ICOs do not cater to investors from the USA. Due to SEC regulations that ICOs count as securities, investors need to be accredited before they are able to participate, something that is not easily checked for by ICOs. A simpler solution would be to ban US citizens from participating to avoid being under the mercy of the SEC. One example would be AriseBank, who had their assets frozen after raising $600 million from their ICO.
This is a contrasting view to Christopher Giancarlo, the chairman of the Commodity Futures Trading Commission (CFTC). The CFTC is another main regulator in the cryptocurrency space, and has been more supportive of cryptocurrency. The CFTC has indicated that cryptocurrency should be treated as a legitimate commodity to protect the interest of investors, and that sound regulatory frameworks would help to reduce risk via the crack-down on bad actors.
The CFTC has allowed the Chicago Mercantile Exchange (CME), the CBOE Futures Exchange and the Cantor Exchange to implement futures contracts on Bitcoin as a way to garner more information and insight into the largely unregulated markets where cryptocurrencies are traded.
Cryptocurrency remains taxable, and gains and losses have to be reported on the federal income tax returns. Individuals have a responsibility to report such earnings to the Internal Revenue Services (IRS).
The duration of holding cryptocurrency is also a factor in taxing: cryptocurrencies bought and sold within a year are considered short-term capital gains, while those that are held for longer than a year are considered long-term capital gains when they are sold. Simply holding them does not trigger a long-term gain tax.
Like-kind exchanges are also taxable, whereby cryptocurrency is used to purchase a good or service. Using cryptocurrency for transactions is considered a capital gains tax, and will be treated as such.
The governor of the Bank of Canada, Stephen Poloz, has issued a statement on 25 January 2018 that ‘Bitcoin is like gambling’, and that he would not call them assets, and regards them as technically being securities.
The Canada Revenue Agency (CRA) has deemed that cryptocurrencies are a commodity, not a currency. Under that definition, the use of cryptocurrency as payment for goods or services will be viewed as a barter transaction: goods or services are exchanged without the use of legal tender currency. These have to be included in the seller’s income statement for taxation. Goods and Service Tax (GST) and Harmonized Sales Tax (HST) are also applicable for these sales.
As cryptocurrencies are considered commodities, they are subject to the barter rules of the Income Tax Act, and failure to report revenue from cryptocurrency trading (even from one cryptocurrency to another) is considered a breach of rules.
That being said, Canada is increasingly becoming the new hub for cryptocurrency mining. With the clampdown occurring in China, Canada is fast becoming the new favorite due to the its low temperature (better for running electronics) as well as its relatively cheap electricity (hydro-electric dams).
One key example of this would be Hut8, the subsidiary of BitFury, that will be soon listed on the Toronto Stock Exchange (TSX). BitFury is focused on designing and building semiconductors for the mining data centers, and access to the cheap hydroelectricity in Canada positions BitFury well against Bitmain Technologies Ltd, the current dominant company in the chip manufacturing industry for Bitcoin. Unlike BitFury, Bitmain is based in Beijing, China, which is undergoing severe clampdowns on cryptocurrency. This puts Bitmain at a disadvantage in the near future, while BitFury’s Hut8 is able to raise public funds via the TSX to rapidly grow its hashing power in the network.
As a nation which has experienced issues with its own fiat currency, the bolivar, Venezuela has come up with Petro, the first government-issued cryptocurrency. Backed by oil, each Petro is currently fixed at $60 (the price of a barrel of oil). It is capped at 100 million Petro (PTR).
PTR has three facets.
1. Means of Exchange
It is used for the purchase of goods and services, and can be redeemed for fiat or other digital currencies via exchanges.
2. Digital Platform
It functions as a digital representation of goods and raw materials, and can be used for the creation of other digital instruments for international as well as domestic trade.
3. Savings and Investments
PTR will be listed for free exchange on various exchanges around the world. It will also be able to be carry out atomic swaps, within the legal framework of the Bolivarian Republic of Venezuela.
Venezuela is also becoming a hotbed for cryptocurrency mining, as electricity has been heavily subsidized by the government. In 2017, mining was considered illegal, and miners were arrested under various charges. Even household mining operations were clamped down on, with equipment confiscated and miners experiencing jail time. In December 2017, President Nicolas Maduro announced Petro, and elaborated on the benefits of cryptocurrency mining. Despite this, arrests were still carried out.
However, this has changed in 2018. The Venezuelan government has opened an online registration for people interested in mining cryptocurrency legally. While Petro is the main focus, Communications Minister Jorge Rodriguez has stated that those who sign up will be allowed to mine other cryptocurrencies, ‘provided they are approved by the state’. At time of writing, Carlos Vargas, the state’s cryptocurrency superintendent, has stated that citizens mining Bitcoin and other cryptocurrencies were doing so legally without breaking the law.
In this article, we have touched on the basic regulations that are happening in Americas. Stay tuned for the next article, which touches on regulations in Europe!