These are some things that cryptocurrency investors should bear in mind as holiday parties and year-end gifts take center stage.
With the IRS comment period on the proposed regulatory changes having just closed, there is a lot of attention being paid to crypto tax planning and preparation, but that is only part of the story. Every day, the approaching holiday season will undoubtedly spark tabletop discussions about a wide range of subjects, with cryptocurrency being one of them.
In previous years, cryptocurrency supporters and investors have either been praised or mocked on these occasions, reflecting the sharp fluctuations in prices and market mood. The news this year is expected to be filled with numerous stories about cryptocurrencies, including how charitable donations and other year-end tax planning techniques may be impacted by the rebound in cryptocurrency prices.
The cryptocurrency industry in general and people involved in it, whether as investors, developers, or business owners, have had a turbulent year. One the one hand, the space has been negatively impacted by the persistence of lower price levels and the recently concluded drama of the FTX trial. Investigations into even well-known companies like PayPal are not improving the industry’s reputation, and regulatory crackdowns and public declarations are certain to rekindle concerns about whether the whole thing is one big fraud. However, there is no denying that the quick adoption of tokenization and blockchain technology by a number of TradFi banking institutions both domestically and internationally, as well as the growing possibility of an exchange-traded fund for both Bitcoin and Ethereum, are positive developments.
Now let’s examine a few subjects and developments that cryptocurrency investors ought to be prepared to talk about during the approaching holidays.
Why All Are Being Sued by the SEC
To suggest that the SEC has been actively involved in enforcement proceedings over the past year would be a grave understatement. Some may find it particularly perplexing that there has been such a sudden shift in strategy from years of being hands-off to now appearing to be cracking down on all market participants. Outsiders may find it mysterious, but experienced investors and members of the crypto industry are well-versed in the details that motivate these actions. The rationale behind this apparent reversal of course can be summed up in a few sentences, whether that is a good thing or not.
The stunning failure of FTX and the impression that the company had influenced US policy took the SEC and other US regulators and lawmakers by surprise—some would even say they were embarrassed. Regulators have become far more proactive, despite the fact that the timing of these enforcement actions can be considered coincidental, as a result of calls from the marketplace. Establishing authoritative standards has displaced other regulatory bodies and agencies, which is another reason the SEC appears to be involved in every enforcement action. An exception to this is the IRS, which has been updating and expanding its tax advice on cryptocurrencies on a regular basis.
As for the media, bad news stories might still rule the day as it appears that the SEC will remain the top regulator in this field for the foreseeable future.
The Way Tax Planning Strategies Are Affected by Price Recovery
By the end of 2023, cryptocurrency investors have a few reasons to rejoice because prices have increased everywhere. Among the best-performing assets of 2023 is bitcoin, which has increased by 60%. In addition to being good news for investors, year-end tax planning and charitable giving may be affected by these price increases.
In short, tax loss harvesting is the process by which investors recognize losses on coins, tokens, or NFTs by selling them for less than their original cost basis. In the case of cryptocurrency, wash sale regulations do not apply (yet), so investors who have faith in the project’s viability can repurchase these same cryptoassets without facing additional tax complexities. Other taxable income may be reduced by these harvested losses.
An increase in investors wishing to donate or contribute cryptoassets may result from the fact that charitable contributions related to crypto have been steadily rising and that cryptoassets have recovered considerably from their early 2023 lows. Those who are interested in contributing cryptocurrency should be aware that doing so may result in additional filing and compliance obligations. The taxpayer must fill out and submit Form 8283 for any contributions exceeding $500. The taxpayer must either undergo an appraisal that satisfies IRS requirements or forego the charitable contribution if they wish to donate more than $5,000 worth of cryptocurrency.
The New Year Will Be Jam-Packed With Action
In the coming year or so, investors and market observers can expect even more heated discussion if they felt that the last year or several have been action-packed. There is undoubtedly a lot of work in the pipeline between the numerous stablecoin bills that Congress has seen, the IRS’s increased efforts to connect with cryptoassets, the world’s largest banks and asset managers’ substantial investments in and use of blockchain-based products, and the introduction of stablecoins by major corporations like PayPal.
Furthermore, as the conversation about tokenized assets has evolved to include more everyday applications, and as bad actors like those at FTX are brought to justice, trust and market confidence in these assets will only grow.
The trend of blockchain technology and tokenizing assets appears to be here to stay, regardless of what happens to any particular project, coin, or token.