Anticipated Cryptoasset Regulations in the U.S. for 2023

Navigating the Path Ahead: Key Insights into Upcoming Cryptoasset Regulations in the United States

The regulatory landscape surrounding digital currencies has attracted much attention lately, especially as the cryptoasset community awaits the final verdict in the high-profile case of SEC v. Ripple. This article discusses three upcoming cryptoasset regulations in the United States, the "wash sale rule", the new accounting and disclosure requirements, and FinCEN’s proposed change to the Banking Secrecy Act. 

Upcoming Cryptoasset Regulations in the US for 2023

Wash Sale Rule

Under the current tax regime in the US, the Wash Sale Rule applies to stocks, mutual funds, and other securities. This rule disallows the deduction of losses from selling a security/stock at a loss and repurchasing it at a lower price in the same year for tax purposes.

The IRS considers digital currency property, not investments. Therefore, the wash sale rule does not apply to cryptoassets. If an investor sells a digital currency at a loss, they can claim that loss on their taxes, even if they immediately repurchase it at a lower price. Many policymakers are seeking to pass legislation to address this issue.

The Build Back Better Act 2021 includes language that could make the wash sale rule applicable to digital currencies.

However, the Act still needs to pass the US Senate, so the loophole remains. Whether new cryptoasset regulations in the US will address this rule in 2023 remains to be seen.

New Accounting and Disclosure Requirements

On December 14th, 2022, the Financial Accounting Standards Board (FASB) discussed new accounting requirements for entities holding cryptoassets in line with digital currency regulations in the US. During the discussion, the board decided on the placement of information, voting to mandate that entities include gains and losses on cryptoassets in their net income and report them separately from the carrying amount of other intangible assets.

This approach would provide investors with clear and transparent information regarding the fair value of cryptoassets in the financial statements.

While the details and stringency of these disclosure requirements for digital currency transactions are yet to be determined, the rules are expected to be released in 2023.

Entities Affected by Cryptoasset Regulations in the US

Cryptoasset regulations in the US differ from other countries due to oversight by various regulatory authorities. Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) obligations apply to "financial institutions" under the Bank Secrecy Act (BSA), including money services businesses, securities brokers/dealers, and more.

Specific business models like P2P exchangers and wallet providers may fall under US cryptoasset regulations. The Anti-Money Laundering Act (AMLA) expanded the definition of "financial institutions" to add "value that substitutes for currency," encompassing currency exchange businesses and individuals transmitting value. Any activity involving digital assets falling within these definitions is subject to regulatory oversight as a regulated activity.

Furthermore, the Financial Crimes Enforcement Network (FinCEN) had previously proposed a rule to change the definition of monetary instruments according to the Bank Secrecy Act. This proposed rule sought to include cryptoassets within its scope and impose a requirement on banks and money services businesses to report any digital currency transactions valued at $10,000 or above. However, it is essential to note that this rule has not been implemented and is not currently in effect.

Learn More About Cryptoasset Regulations

The regulatory landscape surrounding digital currencies in the United States has been characterised by a gradual development, with the implementation of comprehensive regulations still unfolding. While progress is underway, the specifics of how these regulations will shape and impact the cryptoasset industry are yet to be determined.

If you are keen to learn more about cryptoasset regulations in the US or discover other cryptoasset-friendly jurisdictions, contact us to arrange a meeting.