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The growth of the cryptocurrency market has caught the attention of investors, businesses, and now, Uncle Sam. So if you’re among the 16% of Americans involved in the crypto market, you may be wondering: What do upcoming regulations mean for me?
It’s not yet clear, but we may soon have a better idea. For investors who are wondering what to make of President Biden’s recent executive order on cryptocurrency or any other new regulatory developments, plenty of experts say it’s actually a good thing. More regulation could increase market stability and the price and value of crypto, so investors can look at it with a healthy optimism, says Nicole DeCicco, founder of CryptoConsultz, a digital currency consulting service based in Vancouver, Washington.
investor will be affected by growing regulations, at least not until the federal government decides on the specific rules. And some market participants may not feel many changes at all once the dust settles, says Marco Santori, the chief legal officer at digital cryptocurrency exchange Kraken.
Biden’s move has encouraged optimism as it signals to the crypto industry that there’s now a “cop on the beat,” and investors who were worried about the Wild West feel to the market may now see it as a safer place to invest, says Santori.
And while some investors are wary of cryptocurrency regulation, Biden’s executive order is not altogether unexpected, and is even being viewed as a positive by some in the industry. “We’ve anticipated this for years,” says Santori. “We are delighted to see it and look forward to the outcome, and the studies that the executive order will produce,” he says.
President Biden’s executive order does not establish new cryptocurrency rules or regulations, but it’s spurring federal agencies to look at potential risks and benefits. You should start by making sure you’re above-board with the IRS.
Keep in mind that with volatile cryptocurrency assets, experts recommend keeping any holdings to less than 5% of your total portfolio, and only invest what you’d be comfortable losing. Before you invest, make sure you have an emergency fund and have paid off any high-interest debt, such as credit cards.
While the exact substance and timing of new crypto regulation is unclear, there are things investors can do right now to prepare and be ready for it.
How You Can Prepare for Crypto Investor Regulations
No matter what regulation might look like in the future, here are four things experts say crypto investors should do now to be ready for it:
1. Stick to your investing strategy
Sticking to your strategy is likely the best course of action, no matter what’s happening in the news or in conference rooms at the White House. Crypto investors should think about their strategy similarly to the stock market — just like you shouldn’t stop contributing to your Roth IRA or 401(k) over a bad day or headline, you shouldn’t drastically change your crypto strategy.
“Change is inevitable, and we are hopeful crypto investments will continue to provide opportunities investors might not otherwise have access to in traditional markets,” says DeCicco. “Keeping the faith during uncertain times, while risky, can position investors to maximize their stake in the game while weeding out investors impacted by fear of the unknown.”
2. Keep records
It’s also critical to keep records of your crypto transactions, as some investors may have corresponding tax liabilities. The IRS currently views virtual currency as property, and trading crypto, as a result, is a taxable event. “It’s the investor’s responsibility to track transactions,” says Joshua White, an assistant professor of finance at Vanderbilt University, and a former financial economist for the Securities and Exchange Commission. White adds that many exchanges may already offer investors year-end tax documents detailing their trading activity.
A crypto portfolio tracker can do the work for you and help ensure accuracy in your record-keeping. This can be particularly helpful for more active traders. A tracker is a third-party tool you can sync with your wallets that will pull your data and show your gains, losses, and other factors about your activity and holdings. Some will monitor price changes, autofill tax forms, or offer negative balance warnings.
3. Report income and gains on your taxes
It’s important to keep records and report any income or capital gains earned through crypto trading. “The IRS wants records of capital gains,” says White. “They’ll also want to know if you have holdings in a foreign account,” he says, so if you have crypto amounting to more than $10,000 held on a foreign exchange or account, you should report that as well.
You might also want to revisit your previous tax returns if you have any unreported crypto, and consider getting a crypto portfolio tracker to help you stay on top of your transactions.
4. Diversify and safeguard your holdings
Finally, it’s a good idea to take some steps to safeguard your crypto holdings — both from the whims of the market, and from potential security threats. DeCicco recommends that you diversify your holdings (just like with traditional assets) to lessen the blow that any new rules may have on individual cryptocurrencies or tokens. “Diversifying is important, whether regulations happen or not,” she says.
DeCicco also recommends you move your crypto holdings to an offline digital wallet. “Keep your funds in cold storage,” she recommends, as it’s a strong way to ensure that cybercriminals can’t somehow access your holdings.
While these steps can help investors get up to speed with best practices and stay above board with the IRS, the fact is, we won’t know what new rules or regulations will look like for some time.
Crypto Regulation: What You Need to Know
While it’s unknown what rules or regulations may develop, it should help clear the current logjam of agencies trying to keep track of the crypto markets. “There’s been a lot of regulatory uncertainty because you have a lot of agencies playing roles,” says White.
For example, the Commodity Futures Trading Commission (CFTC) oversees the trading of crypto futures, while the Financial Crimes Enforcement Network (FinCEN), a part of the Department of the Treasury, tries to tackle cyber crimes and money laundering. Further, the Securities and Exchange Commission (SEC) has been wading into the crypto markets, too, with SEC chairman Gary Gensler talking about the need for crypto regulation during the past year.
In effect, federal agencies are all over the place in trying to grapple with cryptocurrencies. “I think regulations could provide some stability, depending on how strict they are,” White says.
But don’t expect your cryptocurrency to be under new regulation too soon. “Most federal regulations, when I worked at the SEC, if there’s rule-making activity — it’s not going to happen immediately,” says White. “They’ll think about what areas need regulation, they’ll propose rules, get public input, and meet with members of the industry,” before deciding on any concrete regulations, he says.
You should, however, take Biden’s executive order seriously, as it is a sign that the federal government is preparing to get involved in the crypto space, Santori says. “It’s more than just a signal flare,” he says. “This is meant to send a message to the entire ecosystem of stakeholders: The government is on it [regulation], and we’ve got it covered.”
Elena Whisler, senior vice president, The Clearing House
Courtesy The Clearing House
Real-time payment systems which are appearing in major economies around the world, undercut a claim for crypto as a fast, low-cost payments innovation. Instead, it is slow, has limited capacity, and is unregulated, which means users are not protected.
She sees crypto operating in closed loop systems —you can’t easily go from bitcoin to Ethereum and other digital assets.
“Our payment network can provide, and will be providing, what crypto claims to offer. Right now we see niche reasons why crypto exists — to hedge on currency or provide an alternative way to buy goods and services.”
However, in order to buy goods and services with crypto, funds need to move from crypto wallets to bank accounts.
“I still think the audience for crypto is a bit of a niche — users looking to create investment mechanisms to buy and sell those cryptos. It’s not mature or mass enough for people to buy services with crypto. People are playing with the idea, but it’s not a mature concept yet. It’s expensive and its slow because it’s not made available to function in our daily lives. I view it as an investment mechanism for trading.”
Crypto advocates have touted it as a way to simplify cross-border payments and lower the costs, but The Clearing House is moving ahead there too, Whisler said.
“We have been conducting a proof of concept for cross-border real-time payments. We have finished that, focused mainly between the U.S. and Europe with the EBA (European Banking Authority) clearing. It showed the technical feasibility to go from the U.S. to a European financial institution and facilitating the payment flow, with minor formatting adjustments to ISO 20022, and having confirmation within a few seconds. The next step is establishing all the work-streams related to participation.”
The cross border initiative, dubbed IXB (Immediate Cross Border), will probably launch in 2023. Eventually it can lead to 24×7 funds movement around the world for real-time large-value payments.
“Any financial institution that is a participant in the RTP network would be able to originate or receive a real-time payment directly to any European financial institution that is member of EBA clearing.”
The Clearing House is still in the process of prioritizing the next countries to get involved. Whisler said TCH would like to work with nonbanks and fintechs who are providing payments services as partners, rather than the banks just providing settlement services. Financial institutions provide safety, security and trust, she added.
“They are regulated and are managed to a very high standard, and that will in effect provide great security to those payment transactions and allow those payments to follow U.S. payment laws to protect the end consumers and businesses.”
For more on the topic, see the transcript of an interview that Karen Webster at Pymnts.com did in December with Rob Hunter, deputy general counsel of TCH. Hunter said the industry began thinking about real-time payments in 2010 but the global financial crisis meant banks were tight on money to invest in technology.
(If you have an American Banker subscription, search for the great stories Kevin Wack did on the way big banks blocked NACHA on moving to faster payments and his question whether the Fed had the will to move — it dithered for several years and TCH got ahead of it.)
Advances in real-time payments are rarely mentioned in crypto discussions — it is almost as if the two topics are traveling down parallel but separate, rails. In discussing a Central Bank Digital Currency (CBDC) Hunter brought the topics together: “We’ve seen a lot of debate in Congress on the issue,” Hunter said. “Most of it has focused on the potential benefits of the central bank digital currency. I think the question needs to be posed: What problem does it actually solve?”
But how far will Crypto.com go?
The digital currency exchange continues to expand its grip on sports. The platform has just signed a contract which will enable it to extend its notoriety throughout the world.
Crypto.com will become one of the sponsors of the next FIFA World Cup in Qatar, the platform announced on Tuesday. The agreement has been signed with FIFA, an international governing body for many major soccer tournaments.
This competition, which brings together the biggest soccer nations, will begin in November in Qatar, a country that still bans crypto.
The company will be the exclusive cryptocurrency trading platform sponsor of Qatar 2022 and will benefit from significant branding exposure both within and outside the tournament’s stadiums.
Crypto.com will provide opportunities for new and existing users to attend matches during the tournament or win exclusive merchandise as part of the partnership, the company said.
Crypto.com does not provide financial details of this partnership.
This agreement is particularly interesting since in general cryptocurrencies, including bitcoin are illegal in Qatar.
“Crypto.com has already demonstrated a commitment to supporting top-tier teams and leagues, major events and iconic venues across the world, and there is no platform bigger, or with a greater reach and cultural impact, than FIFA’s global platform of football,” said Kay Madati, FIFA’s chief commercial officer.
“We are delighted to have a global brand like Crypto.com join us as a sponsor of the exciting and groundbreaking FIFA World Cup in Qatar, ultimately helping to grow our beautiful game on a global scale.”
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This deal is the latest piece in Crypto.com’s strategy in sports. The platform counts basketball star Lebron James as an ambassador .
In November, Crypto.com secured the naming rights of the Staples Center in Los Angeles, home to the Lakers, Clippers, Kings and Sparks — and now called Crypto.com Arena in Los Angeles.
The platform also became the official cryptocurrency exchange and trading platform for the men’s and women’s professional soccer league in Australia.
Crypto.com has partnerships in motorsports, MMA, basketball, ice hockey as well as football.
“We could not be more excited to sponsor the FIFA World Cup, one of the most prestigious tournaments in the world, and to drive further awareness of Crypto.com globally,” said Kris Marszalek, co-founder and chief executive officer of Crypto.com.
This partnership is likely to give greater visibility to Crypto.com. According to FIFA, more than 3.5 billion people watched the 2018 FIFA World Cup in Russia, with more than a billion watching the final between France and Croatia.
The World Cup in Qatar will also be highly publicized because of the circumstances that marred the country’s bidding to host the marquee event, and the controversies surrounding the emirate.
Allegations of corruption and bribery surround the attribution of the organization of this planetary event to Qatar. The Department of Justice said in April 2020 that FIFA execs received bribes to give the World Cup to Russia and Qatar.
There are also accusations of mistreatment of the workers who built the sites and infrastructure to house the competition.
Crypto.com was founded on 2016 and claims more than 10 million customers and over 4,000 employees across its offices in the Americas, Europe and Asia.