The US is a country of some 330 million people, or just 4% of the global population, but it’s the world’s largest economy, accounting for around 25% of all economic activity. The decisions made by the US government and regulators therefore have global significance.
That’s why the crypto world has been dismayed at the Biden administration’s approach to digital assets. The government is now seeking to impose tough new tax reporting rules on blockchain organisations of all kinds, adding to the burdens already faced by the country’s crypto businesses and driving many of them away.
Fortunately, that’s not the case in Australia, which has a far more moderate regulatory framework – allowing businesses like Chrono.Tech to innovate, thrive, and attract users from all over the world.
The US: A Hostile Jurisdiction
The US has proven to be an extremely hostile jurisdiction in which to run a crypto business of almost any kind. Operation Choke Point 2.0 is the term given to a quiet, behind-the-scenes initiative between regulators, institutions and politicians to shut crypto businesses out of banking services. The SEC has repeatedly taken enforcement action against crypto exchanges, DAOs, and recently even NFT projects, all without laying out clear guidance for organisations to follow in the first place (even when they explicitly ask for it).
Now, new regulation has been proposed by the US Treasury that would place an enormous burden on payment processors, centralised exchanges, brokers, decentralised protocols and potentially even wallet providers.
The proposed rules have been slammed by advocates from the crypto and DeFi sector, and are considered unworkable, unnecessary, and illogical by those they will impact.
Focus On Tax
The Treasury’s new rules propose the introduction of a new tax reporting form, Form 1099-DA. The aim is to use brokers to help taxpayers figure out and report what they owe, while avoiding the kind of complicated calculations currently required to determine profits and losses for crypto trades.
This would simplify matters for users and the IRS (the form would be sent to both), and would bring digital asset intermediaries into line with other TradFi brokers, who deal in assets like stocks and bonds.
While this might seem sensible and helpful, there’s a problem with the Treasury’s definition of the term “broker” as "Operators of websites that interact with wallets". This encompasses centralised exchanges and crypto payment processors, but also decentralised exchanges and arguably even certain wallets. The definition is so impossibly broad that, as one critic notes, it could include tax software and even Etherscan.
Not A Done Deal
The US Treasury’s proposed new rules are intended to prevent tax evasion, and are part of a wider set of updates that are predicted to collect almost $30 billion over the next ten years.
While the aim of reducing fraud is reasonable, and the idea of traders having the platforms they use compile their tax obligations for them might seem attractive, it is utterly unrealistic to expect that these sites would collect information, process it and send it to the IRS. Essentially, it means that sites that view and handle publicly-available information, even if they have no control over it and make no profit from it, de facto become ‘brokers’.
At this point the rules have only been proposed. If approved, they would not come into force until 2025, in time for the 2026 tax filing season. There is a feedback period and public consultation, and it can only be hoped that the rules as they stand will not be made law.
Still, the fact that such harsh and illogical regulation could even be proposed is indicative of how hostile the US is to crypto, and just how hard it is for crypto businesses to operate with any degree of confidence they will not be shut down by arbitrary rules at some point in the future.
Chrono.Tech: An Australian Approach To Crypto
Many US entrepreneurs and businesses are facing the reality that the country is simply not a good place to set up a crypto company. Some, like Grayscale and Coinbase, have taken their battle to the court – with a degree of success. But it’s a long, stressful, and expensive process, and for most start-ups it’s not worth the trouble. There are plenty of jurisdictions that are less hostile, and many that are welcoming crypto businesses with open arms. Hong Kong and the UK are both seeking to position themselves as crypto innovation hubs, for example.
Australia has a reputation for being laid back in all kinds of ways, and there’s certainly some truth to that stereotype in terms of its approach to the cryptocurrency sector. The country has always sought to have an open stance on crypto, and was one of the first to engage with this new set of technologies.
Crypto is regulated under the existing regime for financial services. Cryptocurrencies are classed as property and subject to capital gains tax. Exchanges can operate freely, so long as they are registered with AUSTRAC (Australia’s financial intelligence agency), and meet reasonable AML/CTF obligations. The country regulated (rather than simply banned) ICOs, and has been proactive in creating sensible laws since crypto first started to become popular. In 2022, Australia's Prudential Regulation Authority (APRA) published a roadmap detailing its plans to fully regulate the crypto industry by 2025.
The regulatory clarity this offers has allowed businesses to operate freely within a sensible framework, enabling them to innovate and grow safely. Chrono.Tech has benefitted from this open environment, raising money and delivering new software and functionality consistently since its launch in 2016. As an Australian crypto success story, Chrono.Tech has a bright future, and looks forward to seeing other blockchain businesses enjoy the same advantages in the coming years.