A tax on digital currency transactions has been suggested in a bill being considered within the US. This piece examines the possible ramifications of such a tax. It discusses the current state of crypto taxation around the world.
With more and more businesses accepting cryptos, it’s likely that a transaction-based tax will become increasingly more feasible. This year, the introduction of this measure into legislation has many wondering what it will mean for their finances and how it pertains to an overall market regulatory stability in crypto.
Will the US Impose a Tax on Crypto?
The Wall Street Journal reports that the tax would apply to the US Department of Treasury. The journal cites this as “one of several measures,” which would target digital assets.
Many have raised concerns about what effect these new taxes could have on cryptocurrency prices. When such a measure is exercised within the legislation, it’s possible that it could lead to a change in price almost immediately since it would be an immediate demand for regulated crypto assets.
The journal cites that the measure will also apply to transactions occurring on “darknet markets” and digital currencies set up to evade regulation. These markets have continued to thrive despite crackdowns from governments all over the world. However, this new bill may be poised to shut them down – and will likely bring a decline in price if that happens.
What Do Other Governments Do?
Most countries worldwide do not tax cryptocurrencies, with Canada leading the way as an example of a country where there is no tax. Yet, according to the Journal report, America has been looking to other countries for ideas for crypto regulation, and Canada’s approach is not one of them.
Instead of a hands-off approach, most other governments have created a framework that allows them to tax cryptocurrencies. The Journal report cites Singapore as another country without a tax on digital assets. However, the island nation-state does charge capital gains taxes on crypto investments if they are considered investments.
Designating DEXs
This new bill would also designate decentralized exchanges as “money services businesses” – carrying out a similar function to Wyoming’s BitLicense, which expected cryptocurrency exchanges to follow cumbersome guidelines and payout of pocket to apply for a license.
Many have said that DEXs like EtherDelta, Bisq, LocalBitcoins, and Hodl Hodl should be exempt from these kinds of regulations. They have done so mainly without a profit motive. They are not centralized organizations that can easily be held accountable by authorities.
How Will a Transaction Tax Affect Crypto?
The question many people are asking is what these new taxes will mean for crypto prices? Theoretically, since it would impose a tax on all transactions, it should lead to high volatility in the market. With more taxes being introduced, we could see crypto declining in value as governments monitor transactions and prepare to take their cut.
There may be some damage that could be done to the decentralized concept of crypto as a whole. If there is much more regulation and taxation, this may cause users to move to less regulated platforms. The platforms looking to provide user-friendly features while avoiding regulation risks could take a hit in the market and see their price drop if people opt for more regulated systems.
Yet, despite this legislation’s potential effects on crypto prices, there is still uncertainty around the exact tax measures employed.