Can the Fed Kill Bitcoin? Navigating the Chokepoints of Tax Law and KYC
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Taxes. The one word that can kill any buzz in seconds flat. Whether you’re a libertarian ranting about how taxation is theft or one of those fabled creatures who is actually happy to file them as their so-called civic duty, one fact remains: those who don’t give the government a bite — or make mistakes in attempting to do so — can get chomped, and hard. Ominous tax laws and ever-increasing state requirements for exchanges have some wondering if these maladies could stall the Bitcoin revolution.
Crypto Enthusiasts Anxious About Taxes
It’s often scary enough filing basic fiat returns, but crypto taxes are proving to be a whole new animal. First, the IRS seems almost intentionally vague on policy. This in combination with ever-constricting KYC and AML regulations on crypto exchanges, and one begins to wonder what bitcoin is even useful for. The whole P2P trustless money thing kind of flies out the window when you’ve got do anything and everything up to sending nudes and a DNA sample just to begin trading. The nightmare is real. Just ask this guy who wound up owing $400,000 even after losing most of his gains in 2018.
All this begs the question: by making the use of crypto such a tremendous pain in the ass for the average user, and a threat to their safety and that of their loved ones if they botch or “misreport” their taxes, can the Fed effectively kill Bitcoin?
On a recent episode of CNBC’s Squawk Box the question was posed: “You’re the central banker for the United States — what do you do to kill Bitcoin?” To this Brian Kelly replied:
In terms of killing it, it’s very difficult. It’s very much like the internet. But the kind of, choke points and, at least where the AML/KYC, are the fiat on ramps … So where people are taking their U.S. dollars … and putting it into bitcoin, those are the points.
Of course this goes without saying. Most people know that Bitcoin’s not really something someone can “kill.” It’s not a centralized database. They’d have to take down the whole internet, and even then some interesting options might still exist.
There certainly does seem to be a case for an overarching, grand government conspiracy in all this mess. Edward Snowden’s famous NSA leaks revealed long before the crypto boom of 2017 that the state was tracking users via fake anonymization services such as the codenamed MONKEYROCKET. It’s also been well-established that as far as money laundering, trafficking and drug deals go, the USD reigns king. What emerges, then, is the truth that this probably isn’t about suppression of terrorism or crime at all, but monetary control.
Experts: You Buy a Coffee, They’ll Tax Your Sats
Even with recent confirmations that every last crypto transaction is a taxable event — from buying a donut at the corner store to a coffee at Starbucks — people are confused. Many in the U.S. continue to falsely believe that capital gains tax is the only tax which legally applies to crypto. EA (Enrolled Agent) and crypto tax expert Clinton Donnelly of donnellytaxlaw.com clarified to news.Bitcoin.com, however, that where virtually any crypto transaction has occurred, “it’s always been taxable.” Donnelly maintains:
I feel that crypto traders are low-hanging fruit for the IRS.
In Donnelly’s view, the IRS already knows who you are, referencing the discovery of NSA collection of metadata on virtually all email exchanges in the U.S. In other words, if you’ve ever signed up for a crypto exchange, you’re likely on a list somewhere. Clinton says he is passionate about helping traders and expats navigate the daunting and foggy maze of regulations, because so few CPAs currently know how to handle crypto taxes.
When asked about the recent warning letters from the IRS, he noted that the U.S. government is “bumping up the debt ceiling. The only person who can fix this is the IRS.” As such, Donnelly maintains they may be legitimately crunching the numbers for those that haven’t reported or, simply, “If they scare enough people they can get the same result.”
One CPA on Twitter also specializing in crypto reminds her followers in a pinned tweet:
While expert guidance navigating the sea of violence-backed red tape can be truly helpful, trying to calculate how much that .00001 of crypto profited you, every time you buy a stick of gum, still sucks the wind right out of most enthusiastic bitcoiners’ sails.
Right up there with the tax turn-off is Know Your Customer (KYC) and Anti-Money Laundering (AML) policies. Laws continue to stiffen worldwide, arguably bottlenecking merchant adopters and would-be traders alike. Under new global guidelines, for example, if a small business so much as holds a little crypto, technically they’re a VASP (virtual asset service provider) and are subject to special licensing requirements, fees and regulations.
Privacy-minded traders also suffer, some of whom could potentially improve their financial situations drastically with cryptocurrencies, if allowed to use the tech freely, as is. This is a real shame, when such easy, secure and quick means of building value are now available to the world. Some platforms, however, are bucking the invasive KYC trend, and standing strong for user privacy, such as the recently launched local.bitcoin.com, a marketplace where independent users can make exchanges in BCH and fiat privately, via end-to-end encrypted trade.
Clear the Way
Bitcoin’s heart is still beating, regardless of all these difficulties and any supposed murder attempts from the U.S. government. If the Fed does try to “kill it” they’d only be shooting themselves in the foot anyway, given how large and interconnected the market has grown. By demanding to know everything about everyone, and trying to control the movement of a money that was never designed to have a leader, the state (much like the highway cop that scares everyone shitless on the road) just causes more unnecessary congestion. Permissionless is a beautiful word.
Whatever one’s path for navigating these realities may be, that’s a decision for each individual alone to make. But, for the love of God, Fed, as John Galt so illustriously stated, and now so many crypto innovators are feeling:
Get the hell out of my way!
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George Brown is a main editor in Bitgraph Network Team.