The crypto industry has expressed its concerns and objections to the U.S. Treasury’s proposed regulations, which aim to align crypto reporting standards with those of traditional financial instruments. The industry claims that the regulations are too broad, vague, and unconstitutional.
The U.S. Treasury’s plan to impose stricter reporting standards on crypto brokers has faced strong opposition from the crypto industry, which argues that the regulations could harm innovation and privacy.
In conjunction with the Internal Revenue Service (IRS), the Treasury proposed regulations in August to treat crypto brokers similarly to traditional brokers.
The proposal aims to close the tax gap and enhance transparency in the crypto sector, which has grown rapidly in recent years.
The proposal defines a crypto broker as any person who transfers digital assets on behalf of another person or who provides services that facilitate such transfers.
It also requires crypto brokers to report information on their customers and transactions to the IRS and provide customers with annual statements.
Crypto Industry’s Response
Since the proposal was announced, the response has been overwhelming. Over 124,000 letters, many from key industry players, have poured in, voicing concerns and objections.
The sheer volume of responses, including 2,000 in just the past two days, highlights the depth of the industry’s apprehension.
During a recent IRS hearing, Marisa Copel, senior counsel for the Blockchain Association, articulated the industry’s stance. She stressed that the proposal’s broad scope, particularly towards decentralized finance (DeFi), is problematic.
According to Copel, DeFi protocol developers and non-custodial wallet creators cannot feasibly comply with these rules, as their platforms facilitate direct user-to-user connections without acting as transaction intermediaries.
Compliance, in this case, would necessitate abandoning the decentralized technology that defines their uniqueness. Copel warned that this could either drive U.S. based decentralized projects abroad or force them to cease operations altogether.
Further complicating the situation are constitutional concerns raised by the proposal, including vague definitions and privacy issues.
Copel urged a more phased approach, starting with centralized trading platforms before engaging DeFi participants to find workable solutions.
A Need for Balance and Dialogue
While the crypto sector largely opposes the proposed regulations, some voices within the industry acknowledge the need for oversight.
During the hearing, Ryan Leverett, a tax preparer at a small firm, emphasized the prevalence of bad actors within the crypto space.
Leverett highlighted infamous examples like FTX, where reduced regulations allowed for significant customer and investor exploitation.
He argued that the proposed regulation is a step towards reining in the “Wild West” of digital assets.
The Defi Education Fund, in its letter, criticized the proposal for stretching the broker definition beyond constitutional limits, potentially treating every blockchain participant as a broker.
CEO Miller Whitehouse-Levine described the proposal as “confusing, self-refuting, and misguided,” suggesting it undermines Congressional intent and Constitutional protections.
Individual respondents also weighed in, with some advocating for a balance between transparency and privacy.
The consensus among these voices is the need for regulations that respect personal information while ensuring the integrity and safety of digital asset transactions.
The Treasury’s proposed regulations have ignited a crucial debate on the future of cryptocurrency regulation. The crypto industry hopes to engage in a constructive dialogue with the regulators to find a common ground that fosters innovation and compliance.
