Crypto owners should treat their digital assets like other investments and follow tax reporting rules, a former special counsel for the US Internal Revenue Service has warned.
Roger Brown, now global head of strategy at Chainalysis, said measures taken by governments to increase compliance by holders of digital assets were a direct result of their poor track record in the past.
“I think that’s a reaction we’ve seen globally, I know from talking to a few dozen tax authorities there’s a belief that there’s an underpayment of tax on crypto assets,” he said.
“Statistics that we know, or have seen, in the United States – and there’s no reason to believe Australia is any different – in 2015, when bitcoin was the primary asset, 900 taxpayers said their crypto.
“In the same year, Coinbase (a US crypto exchange) alone reported over 2 million customers.”
Mr Brown said these figures continued to fuel government concerns that investors in digital assets were reporting income inaccurately.
“Many governments believe that these kinds of statistics persist and therefore there is a need for more positive action to determine who owns crypto assets,” he said.
In Australia, the ATO believed that more than 600,000 taxpayers had invested in crypto in recent years, prompting the government to say it would implement token mapping, which is a way to define different types of digital assets to properly group them and identify regulatory gaps. are.
“Understanding this, the Australian government is able to determine who in Australia is trading crypto,” Brown said. “But this effort alone will not be a panacea.
“Why? Because the vast majority of transfers from Australian exchanges are to non-Australians or private wallets.
“That’s why I think token mapping is something most governments are looking to do, and you see it multilaterally with the OECD Crypto Asset Reporting Framework.”
As governments begin to tighten regulation of decentralized investments, some crypto advocates fear losing the appeal of being beyond regulation, but Brown said regulation will only strengthen digital assets.
“When you look at what governments are doing to tax crypto, examples include the summons the IRS publicly issued to US stock exchanges to say, ‘Tell me who’s an American trading on your exchange,’ and the 350,000 letters the ATO has sent around crypto trading – US and other governments are increasingly releasing guidance on how crypto is going to be taxed“said Mr. Brown.
“All of these things didn’t hold back the upside, other than the crypto winter, you had a climb until the end of 2021, 45,000ish was the bitcoin price that closed at the end of 2021.
“You had nothing but increasing levels of government action on taxation, so I don’t think that stifled people’s desire to invest at all.
“The vast majority we see based on our data is that people want to focus on the economic promise of crypto.”
Brown said he believes increased responsible regulation will help crypto valuations.
“We see that people are focused on the promise of crypto and sensible regulation doesn’t drive the price down.“said Mr. Brown.
“I think governments will actually attract institutional money and institutional money is risk averse, and with risk aversion crypto again I think will pump from its pre-highs. 2022.
“I think those who play in this space should believe in protection guarantees, because who wants to deal with all-in prints, who wants to be afraid of being exposed to an economic asset and someone running away with their silver?
“It’s a new system and it’s had some growing pains, but I think the growing pains like all teenagers will go away and it will be a mature asset class with recognition of full economic promise.”
But Mr Brown said governments need to change little when it comes to the basic rules around buying and selling.
“In most countries there is no uncertainty that if I buy an asset for 10 and sell it for 100, I have 90 of income,” he said.
“Whether it’s gold, crypto, stocks, bonds, there’s really little uncertainty there, and that’s the majority of what we’re talking about.
“So I don’t think governments need to clarify much around that core business of buying and selling.”