The US government is set to introduce stricter cryptocurrency regulations that could make it tougher for criminals to get paid for ransomware attacks.
The US Department of the Treasury has announced the new rules as part of far-reaching tax reforms. The new reporting regime included provisions to close the so-called tax gap – the difference between taxes owed to the government and actually paid. The Treasury estimated that the gap came to almost $600bn in unpaid taxes in 2019 and that it would rise to almost $7tn over the course of the next decade if left unaddressed.
Among other things, the Biden administration’s new proposals take aim at the different ways business avoid paying tax. While some businesses hide their tracks by making cash transactions, others obscure them, increasingly, by making cryptocurrency payments.
The growing use of digital assets like bitcoin and ether – for instance to pay ransoms to cybercrooks to decrypt compromised data after a hack attack such as the one that hit Colonial Pipeline two weeks ago – has motivated the Treasury to take a long hard look at cryptocurrencies as well.
The regime could help soothe some concerns from law enforcement and private sector cybersecurity experts who have blamed the prevalence of hack attacks on the current lack of transparency around crypto payments.
Treasury secretary Janet Yellen has previously warned that bitcoin is often used “for illicit finance.”
Today, cryptocurrencies have a combined market cap of $2tn, according to the Treasury.
“Despite constituting a relatively small portion of business income today, cryptocurrency transactions are likely to rise in importance in the next decade, especially in the presence of a broad-based financial account reporting regime,” the Treasury wrote in the report outlining the proposals.
The new proposed financial account reporting regime would cover crypto exchanges like Coinbase and different payment service providers that accept cryptocurrencies. PayPal and Mastercard are two examples of such payment companies that would be covered under the new regime.
The new cryptocurrency regulations would force businesses as well as crypto exchanges and payment providers to report on any transaction exceeding $10,000 to the Internal Revenue Service (IRS).
“Although cryptocurrency is a small share of current business transactions, such comprehensive reporting is necessary to minimize the incentives and opportunity to shift income out of the new information reporting regime,” the Treasury said.
The news about the tougher crypto payments regime comes as several regulators and lawmakers around the world have proposed or argued for stricter cryptocurrency regulations. China, Turkey and the UK are three other countries that have introduced similar provisions over the past few months.
The fear of stricter cryptocurrency regulations is widely thought to be one of the factors which causing bitcoin to fall 44.5% from its all-time high in April to $35,319 earlier this week. It is currently trading at $38,241.
In other recent bad news for cryptocoin, Tesla has stopped people from buying cars with crypto – if they ever did – and graphical computing giant Nvidia announced that it will further reduce the hash rate in its new line of graphics cards, meaning it’s going to get even harder for bitcoin miners to use them.
Falling cryptocurrency prices have also hit the value of several publicly traded crypto exchanges. Coinbase, for instance, has seen its stock crash as the value of bitcoin continues to fall. Coinbase is currently trading at $225.5, down from $235.5 yesterday and down from $328.28 on its public debut on April 14. On the day, it was trading at a value close to $100bn. It’s current market cap is $59.1bn.