The future of cryptocurrency tax regulation could be shaped by the disastrous end of 2022, according to Roger Brown, the Head of Global Tax at Chainalysis. Brown made this observation during a Chainalysis “Know Your Crypto Compliance” Episode, which was recently uploaded on YouTube.
Brown noted that the impact of the events that occurred in the crypto industry leading up to the final months of 2022 made it challenging to implement the current tax regulation. He explained that a single user could hold cryptocurrencies that qualify for capital losses and income simultaneously, depending on the circumstances surrounding the assets.
Despite the evolving nature of the crypto industry, Brown believes that the tax regime has remained the same for the past year, which he classifies as unsurprising. Tax laws are made deliberately and often take years to catch up with market development, he said. He also noted that there was no reference to digital acts or crypto anywhere in the tax code before the Infrastructure Act, which means that specific or general rules are relied upon when treating crypto.
Brown compared the current crypto market conditions to those of 2021 when there was a high-profit ratio. However, he observed a different scenario with many people nursing losses from the crypto market. This makes it more complicated as various issues test unrelated aspects of the tax code.
Brown elaborated on some of the issues that arose due to the disastrous activities that occurred toward the end of 2022 and the contagion that followed. He explained the chaotic impact of such events as they affected the resolution of capital losses and income and their calculations in enforcing the tax code. He acknowledged that those events would play a role in determining how the crypto tax regulation would evolve.
The cryptocurrency market has been subject to significant fluctuations over the past year, with the price of Bitcoin and other cryptocurrencies reaching record highs before experiencing sharp declines. These fluctuations have raised questions about the stability of the market and the role of cryptocurrencies in the wider economy.
The current tax regime for cryptocurrencies has been a topic of discussion for some time, with many experts calling for greater clarity and guidance on how to treat crypto assets for tax purposes. The introduction of the Infrastructure Act marked a significant milestone in this regard, but there is still much work to be done to ensure that the tax regime is fit for purpose.
As the crypto industry continues to evolve, it is likely that the tax regime will need to be updated to reflect these changes. However, as Brown noted, this is likely to be a slow process, with tax laws often taking years to catch up with market developments. In the meantime, it is essential for individuals and businesses involved in the crypto market to seek professional advice on how to comply with the current tax regime.
In conclusion, the future of cryptocurrency tax regulation remains uncertain, with many factors at play. The disastrous end of 2022 is likely to have a significant impact on how the tax regime evolves, and it is essential for stakeholders to stay informed and engaged with the ongoing developments in this area.
