Regulation

President Joe Biden’s proposed budget for fiscal 2025, unveiled this week, spans across various sectors of the American economy, with notable focus on new crypto-related taxes and regulations.

Among the proposed tax measures is an excise tax targeting cryptocurrency mining operations. Under this plan, firms engaged in mining digital assets using computing resources, whether self-owned or leased, would face a 30% excise tax on the electricity costs incurred during mining activities. The tax would be phased in over three years, starting at 10% in the first year, increasing to 20% in the second year, and reaching the full 30% in the third year.

The Treasury Department highlights concerns about the environmental impact of increased energy consumption due to digital asset mining, emphasizing negative effects on the environment and energy prices, as well as potential risks to local utilities and communities.

Additionally, the budget proposal addresses wash trading, a form of market manipulation common in cryptocurrency trading. The plan aims to eliminate tax subsidies for cryptocurrencies by updating anti-abuse rules in the tax code to include crypto assets, similar to stocks and securities. This adjustment would restrict tax benefits associated with wash trading unless the asset is sold and not repurchased within 30 days.

The Biden administration anticipates significant revenue generation from these measures, estimating $302 million in the first year and $7.7 billion over the next decade from the excise tax, and nearly $26 billion over the next decade from the wash trading rule.

However, the proposed budget has faced opposition from Republicans, with Speaker of the House Mike Johnson criticizing it for excessive spending and fiscal irresponsibility. The budgetary process is often contentious and subject to revisions before final approval, leaving room for potential adjustments to crypto regulations. Ultimately, the fate of these proposals remains uncertain until the final budget is passed.

On Monday, Britain’s financial regulator announced its decision to allow recognized investment exchanges to introduce crypto-backed exchange-traded notes (ETNs), joining other regulators in facilitating the launch of digital asset trading products.

These ETNs will be exclusively accessible to professional investors, including authorized investment firms and credit institutions operating in financial markets, according to the Financial Conduct Authority (FCA).

However, the FCA issued a cautionary note, highlighting the potential risks crypto ETNs could pose to retail investors. It emphasized the need for exchanges to ensure orderly trading and adequate investor protection, asserting that crypto ETNs must meet all UK listing requirements.

Amidst a surge in the crypto market, fueled by regulatory approvals of digital asset investment products globally, Bitcoin reached a record high above $70,400 on Monday. This surge was attributed to increased investment in spot bitcoin exchange-traded funds sanctioned by U.S. regulators, as well as anticipation of potential interest rate cuts by the U.S. Federal Reserve.

The FCA noted that professional investors now have access to more data and insights from an extended period of trading history, enabling them to better evaluate the suitability of crypto ETNs for their risk tolerance.

In a separate announcement on Monday, the London Stock Exchange revealed its plans to accept applications for the inclusion of bitcoin and ether ETNs starting from the second quarter of this year.

Despite these developments, the FCA reiterated its stance that crypto ETNs and derivatives are not suitable for retail consumers due to the associated risks. It reaffirmed the ban on crypto ETNs and derivatives for retail consumers, emphasizing the high-risk nature of cryptoassets and the lack of regulation in the space. Investors were cautioned to be prepared for the possibility of losing all their invested funds.

Chinese state media outlets have issued warnings to citizens regarding the risks associated with cryptocurrency investing, despite China’s explicit prohibition of crypto trading. The renewed interest in Bitcoin within the country followed a surge in its price to levels not seen since 2021.

Bitcoin surpassed the $64,000 mark, reaching its highest value since the 2021 bull run when it peaked at $69,000. This recent rally in Bitcoin’s price sparked increased activity in the overall altcoin market and reignited interest in crypto trading, even from an unexpected source: China. State-owned media felt compelled to advise Chinese crypto investors, despite the nation’s comprehensive ban on crypto trading and mining.

Bitcoin’s Recent Surge: Bitcoin’s price surged to over $64,000, fueled by anticipation surrounding the next Bitcoin halving event and the SEC’s approval of 11 spot Bitcoin exchange-traded funds (ETFs) in January. This surge in the world’s leading cryptocurrency prompted renewed interest from various quarters, including China, which had explicitly prohibited all crypto trading and mining activities in 2021.

Despite the ban, Chinese state-owned media outlets published articles cautioning investors about the risks associated with Bitcoin and crypto trading.

According to reports from the South China Morning Post, the state-owned Economic Daily newspaper emphasized the risks of investing in digital assets, emphasizing that the recent increase in Bitcoin’s price could not mask the inherent risks associated with the cryptocurrency. The article highlighted the volatile nature of Bitcoin’s value and emphasized that cryptocurrencies have yet to achieve mainstream acceptance. Investors were warned to maintain a clear and rational mindset in light of the strict regulatory oversight in the industry.

The article reiterated that while the US had allowed the listing of spot BTC ETFs, China continued to enforce a blanket ban on crypto trading and mining. Citing Beijing-based lawyer Xiao Sa, the article explained that the sweeping ban prohibited foreign Bitcoin ETF dealers from selling relevant financial products to Chinese residents and forbade investors in mainland China from directly purchasing such products.

Chinese Investors Turn to Bitcoin Amid Sluggish Local Stock Market: Bitcoin remains an attractive option for Chinese investors as the country’s stock market continues to experience a downturn amidst slowing economic growth. According to Reuters, clandestine Bitcoin trades have increased in China as the stock market has languished over the past three years. Dylan Run, a finance sector executive in Shanghai, shifted some of his assets into crypto in early 2023 after noticing the slowdown in the Chinese economy and stock market.

Run likened Bitcoin to a safe haven, akin to gold, stating that it now constitutes half of his portfolio, valued at around one million yuan. He noted that his crypto investments had appreciated by 45%, while China’s stock market had declined for three consecutive years. Reuters reported that more Chinese investors like Run are exploring alternative avenues to acquire Bitcoin and other assets, believing them to be safer than investing in China’s struggling stock and property markets.

Indonesia’s Commodity Futures Trading Regulatory Agency (Bappebti) is reportedly urging the Ministry of Finance to reconsider the existing tax rules governing cryptocurrency transactions. This call for review stems from Bappebti’s expectation of crypto’s expanding role in the nation’s future economy.

Bappebti officials, led by Tirta Karma Senjaya, head of the Bureau of Market Development and Development, contend that the current 0.11% value-added tax (VAT) and 0.1% income tax imposed on crypto transactions need reevaluation. Their argument revolves around the increasing incorporation of crypto into Indonesia’s financial framework.

Despite the tax framework being in effect since April 2022 and generating approximately $2.49 million in January 2024 alone, Senjaya underscores the importance of periodic assessments, aligning crypto taxation with the standard practice for other tax regulations.

This development coincides with a period of notable growth in Indonesia’s crypto sector. The number of crypto holders has surged by over 11% from 2021 to 2023, indicating a rising public interest. Furthermore, the recent presidential election victory of Prabowo Subianto, whose running mate, Gibran Rakabuming Raka, has voiced support for nurturing opportunities in the crypto and blockchain realm for Indonesia’s younger generation.

Starting April 26, 2024, the UK is gearing up to empower law enforcement with fresh authority to freeze crypto assets suspected of criminal involvement, all without the need for a prior conviction. This significant move is part of the revisions to the Economic Crime and Corporate Transparency Act 2023.

Outlined in a document unveiled on February 29, these amendments will arm the National Crime Agency (NCA) with the capability to seize crypto assets suspected of unlawful activities. This includes the authority to directly retrieve them from exchanges and custodian wallet providers. Moreover, authorities will be empowered to obliterate seized assets, typically by transferring them to a designated “burn wallet.”

The primary objective behind this legislation is to fortify the NCA’s arsenal against a spectrum of crimes, ranging from cybercrime and scams to drug trafficking, all involving cryptocurrencies. It tackles the concern that traditional legal avenues may fall short in cases where involved individuals are situated overseas and evade conviction.

Despite apprehensions regarding the efficacy of these measures, the UK government remains steadfast in its commitment to expand the regulatory landscape for cryptocurrencies. They are poised to introduce fresh legislation within the next six months concerning stablecoins and crypto staking practices, with the aim of finalizing regulations before the scheduled January 2025 election.

The Law Commission of England has initiated a consultation on proposed legislation to officially recognize cryptoassets as a distinct category of property. This move follows the release of the Commission’s final report on digital assets in June 2023, which recommended legal adjustments to address uncertainties surrounding cryptocurrencies and other digital assets.

Recognizing cryptoassets as property is seen by the Law Commission as essential for enabling individuals and businesses to fully leverage these assets and for courts to adequately safeguard related property rights.

In a statement, the Law Commission emphasized the importance of personal property rights, particularly in scenarios involving insolvency or unlawful interference with assets. However, due to the significant differences between digital assets and physical or rights-based assets, traditional categories of personal property do not fully encompass cryptoassets.

Alongside the consultation on draft cryptoasset legislation, the Law Commission has issued a call for evidence for a separate project focusing on digital assets and electronic trade documents in private international law. Stakeholders are invited to provide feedback on the proposed legislation by March 22nd, while the deadline for the private international law project is May 16th.

These legislative initiatives, preceded by extensive review by the Law Commission, aim to offer clearer legal frameworks and protections for cryptoasset users. Successful implementation could also support the UK government’s ambition to position London as a leading global center for cryptocurrency innovation and investment.

Turkey’s forthcoming regulations in the crypto sector prioritize safeguarding consumers while fostering innovation, Ömer İleri, deputy chairman of the ruling AK Party, emphasized in an interview with CoinDesk Turkey.

İleri, responsible for Information and Communication Technologies within the AK Party, engaged with crypto industry stakeholders, including legal experts and media representatives, to discuss the proposed legislative framework.

“Our aim is to ensure the safety of citizens, protect investors, regulate platforms, and simultaneously introduce a draft law that encourages innovators and innovation,” İleri explained.

According to İleri, Turkey has ambitious plans for various technology sectors, including blockchain and artificial intelligence. He highlighted government initiatives like Blockchain Istanbul and Forum Metaverse as indicators of Turkey’s keen interest in the blockchain space.

In January, Finance Minister Mehmet Şimşek announced that the government was in the final stages of technical studies for a crypto regulatory package. İleri emphasized the importance of conducting a comprehensive legal review of crypto assets to ensure consumer protection and promote innovation.

“Today’s meeting was highly productive in this regard. Industry representatives shared their insights and suggestions for the draft legislation. It’s evident that we share similar perspectives on this journey,” İleri noted.

Japan is looking to ease restrictions on venture capital (VC) investments in the crypto space, aiming to allow VCs to support startups in the Web3 sector that solely deal in cryptocurrencies. As reported by local media outlet Coinpost, the Japanese Cabinet has greenlit revisions to the Act on Strengthening Industrial Competitiveness.

The proposed changes include adding crypto assets to the list of assets that investment business limited partnerships (LPS) can hold. Typically, LPSes are investment funds focused on unlisted companies and startups.

These legal adjustments are now awaiting debate in the legislative body after submission.

Previously, LPS operators were barred from holding crypto assets. If the revisions are approved, VCs could directly invest in cryptocurrencies, potentially transforming how Web3 companies in Japan secure funding. Presently, startups can only offer VCs equity shares due to regulations preventing them from providing LPS investors with crypto assets.

The government aims to present a bill to parliament later this year to formalize these changes to VC crypto investment rules. While parliamentary approval is still required, crypto-related legislation proposed by the government has historically been successful in Japan.

This initiative unfolds against a backdrop of increased scrutiny on “unlawful” crypto transactions via exchanges. Japan’s financial regulator, the Financial Services Agency (FSA), has urged banks to intensify monitoring efforts as part of its crackdown on fraudulent crypto activities.