John Reed Stark, former head of the SEC’s Internet Enforcement team says that new rules from the Internal Revenue Service (IRS) and FinCEN (part of the US Department of Treasury) create hurdles for using crypto so high that businesses will decide to avoid transacting in Bitcoin, etc at all. Stark says the requirements are now simply unmanageable due to expanded reporting demands:
“For businesses that accept cryptocurrency or are planning to do so, these new IRS and FinCEN cryptocurrency reporting requirements create enormous challenges and exponential risks; impose all sorts of technological and logistical burdens; and generate significant additional costs and management drag. In stark contrast, for businesses who opt out of accepting cryptocurrency, there will be little if any impact on their profits while avoiding the warehousing, volatility and many other financial risks associated with using cryptocurrency. This reality comes as no surprise.”
Stark points to legislation signed into law in 2021, championed by the Biden Administration, as not only targeting crooks but impacting all crypto users. When the legislation was proposed, blockchain industry advocates challenged the language – but in the end, lost out in making amendments to the portion that affected crypto.
“… on November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act (the “Infrastructure Law”), which, in addition to launching a myriad of infrastructure-related projects, also quietly created mammoth and unprecedented reporting obligations for U.S. persons and businesses transacting in cryptocurrency. These requirements are now on the books, and will apply to any IRS filings made after December 31, 2023.”
Additionally, FinCEN will inevitably extend the Bank Secrecy Act (BSA) to virtual currency says Stark. The BSA mandates reporting requirements for banks including transactions that are $10,000+. BSA is designed to make it difficult for money laundering or other nefarious acts to take place within the US financial system as banks must forward Currency Transaction Reports to the Feds.
The Infrastructure Act “heightens IRS reporting requirements” to include any larger transactions that “create enormous challenges” and “generate significant cost” that will compel businesses to skip crypto altogether.
“… the use of cryptocurrency solves no U.S. problem or predicament. There already exist dozens of ways to tender payments virtually, which are cheaper, safer, easier, faster, simpler, more effective, more efficient, more workable and clearly superior to using cryptocurrency. It’s no wonder that, in the U.S., most people use cryptocurrency to bet on movements in the cryptocurrency market, not to purchase items, especially since cryptocurrency transactions are much more expensive, cumbersome and risky than just about any other form of payment.”
Not mincing any words, Stark adds that crypto doe not create a “single US Social benefit.”
Of course, new legislation could counter these regulatory requirements or minimize the impact but changes in regulation are not a foregone conclusion.
Simultaneously, technological solutions could emerge and mitigate some of these challenges – but again – not a certainty.
Stark says that crypto should not be conflated with blockchain technology while labeling crypto a “menacing cancer malignancy growing within.”
Crypto believer or not, this is an interesting read.