In 2021, the legal landscape began to shift as the global pandemic brought new challenges like navigating “return to work” mandates and crypto-related SEC and Congressional actions. Our legal analysts provide data-rich, actionable perspectives on these key issues and help you navigate the latest regulatory developments involving cryptocurrency.
Bitcoin isn’t a legal tender in the U.S. It’s not backed by the government or a central bank, and it’s highly volatile. However, the federal government has taken some steps to regulate crypto exchanges, which may affect your ability to buy and sell cryptocurrencies in the United States.
The IRS claims that cryptocurrencies are property, and you must pay taxes on any earnings you earn from crypto transactions. The IRS also says that if you receive crypto as a gift, or if you buy crypto at a lower price and then sell it at a higher one, you must pay taxes on the difference.
Cryptocurrencies are also subject to taxation in many countries around the world, and some countries have even banned them. Those who operate a crypto-related business or service in a country where they are illegal must register with that country’s regulators.
While some countries have been more open than others to regulating cryptocurrencies, there are still a number of concerns that need to be addressed. These include criminal activities related to cryptocurrencies, such as drug trafficking and narcotics distribution, money laundering, fraud and theft, and data privacy.
These risks are exacerbated by the decentralized nature of cryptocurrencies, which make it difficult for authorities to establish a clear and comprehensive framework to protect users’ personal information and financial interests. In addition, the promise of anonymity and freedom from regulations can entice users who are involved in criminal activity to use cryptocurrencies for their financial transactions.
There are few legal ways to dispute a crypto transaction or get your money back if it’s stolen from you. The same is true for credit cards and debit cards, which have protections if you aren’t satisfied with a purchase.
The lack of a central authority makes it difficult to settle disputes relating to cryptocurrencies, which could be costly for consumers. In a traditional financial transaction, an intermediary such as a bank can mediate and resolve the dispute between two parties.
Similarly, if an individual or company loses access to their account credentials and has their funds stolen from a digital wallet, there’s no authority to resolve the matter, making it difficult for them to seek compensation.
While there are some exceptions to this, such as Chile and Mexico, the majority of countries have opted for a soft regulatory approach to cryptocurrency, focusing on consumer protections and investor education rather than strict legislation.
Some states have enacted laws that require exchanges to register as MSBs, which allows them to do business within their jurisdiction and provides some state-level consumer protections. In addition, some states have enacted crypto-specific rules that govern certain transactions, such as selling stablecoins to consumers.