Despite last-ditch efforts by lobbyists for the crypto community, controversial new cryptocurrency tax requirements buried in the massive bipartisan infrastructure bill that passed the US Senate in early August will likely remain unaltered by the House which has committed to vote on the $1 trillion dollar bill by September 27, 2021. The new reporting rules are sending ripples of concern through the cryptocurrency industry and even have some national-security officials worried that their breadth and overreach will only succeed in pushing illicit activities and actors further underground. Overly aggressive regulations risk forcing illegal activity “deeper into anonymizing methods and corners of the internet that would make it more difficult for law enforcement,” according to Jeremy Sheridan, assistant director of the U.S. Secret Service’s investigations office. Moreover, overregulation could also have a chilling effect on domestic innovation and result in the U.S. falling behind other countries that adopt laws and regulations that are more favorable to new technologies. “The U.S. has to make a decision if it wants to be a center of. . . transformational technology that can bring more people into the financial ecosystem. . . [or] get left behind,” said Sigal Mandelker, a former undersecretary for terrorism and financial intelligence in the Treasury Department. Mandelker is now with a private venture capital firm which invests in the crypto markets.
Cryptocurrencies have often been associated with illegal activities due to the fact that they allow users to remain relatively anonymous. This anonymity is possible because, when transacting with Bitcoin and other cryptocurrencies, you can see where funds are being sent but not who sent or received them. However, there are signs that the use of crypto for unlawful purposes may be falling with illicit activity accounting for just 0.34% of all crypto transactions last year – down from roughly 2% a year earlier. Despite this improvement, cryptocurrency regulation appears to remain a top priority for federal lawmakers. One such example of this is the proposal of an anti-money laundering rule which would require people who hold their cryptocurrency in a private digital wallet to undergo identity checks if they make transactions of $3,000 or more. But Congress does not appear to be stopping there. As cryptocurrencies surged in value in recent days, lawmakers jumped to introduce two new bills aimed at advancing regulation of these precarious digital assets.