The country’s top securities cop is talking tougher on cryptos, especially stablecoins, “staking,” and lending services.
Democrats, meanwhile, appear keen on taxing cryptos more like stocks—subjecting them to “wash sale” rules, according to a blueprint of the $3.5 trillion reconciliation bill in the House.
Gary Gensler, chair of the Securities and Exchange Commission, issued an expansive view of regulating the crypto market in a Senate hearing on Tuesday. Asked by Sen. Patrick Toomey (R-Penn.) if stablecoins qualify as securities, he said “they may well be securities.” Stablecoin is a type of crypto that is normally pegged to the dollar or another currency.
Gensler later reiterated views that crypto “staking” and lending services are likely to fall under the SEC’s jurisdiction, according to an interview with crypto site The Block. Staking involves pledging one’s crypto holdings to an exchange or network operator, in return for a yield or interest rate.
“If you are offering a lending product, it is quite likely that that lending product itself is under the securities laws,” Gensler told The Block.
The fight over crypto lending has implications for exchanges and decentralized trading platforms. Coinbase Global (ticker: COIN), in particular, appears to be on a collision course with Gensler over multiple issues.
Gensler said Tuesday that while Coinbase hasn’t registered as a stock exchange, “they have dozens of tokens that might be securities.”
The SEC has also signaled that it may try to block Coinbase over its plans to launch a lending platform, starting with the stablecoin USD Coin (USDC). Coinbase received a “Wells notice” from the SEC in early September—an official warning from the government that it intends to sue Coinbase over its planned Lend platform. Coinbase aims to offer 4% yields to investors who lend their USD Coins. It now says it’s delaying the platform’s launch until at least October and said it would “welcome additional regulatory clarity.”
Regulatory battles aren’t the only concern for investors. Congress may eliminate the ability for crypto investors to take tax losses on transactions, according to draft language of the $3.5 trillion reconciliation bill in the House.
The bill could amend the tax code to include digital assets in “wash sale” rules, which limit investors’ eligibility to take losses on stocks and other securities transactions. A wash sale occurs when an investor sells a security at a loss; if the investor buys a “substantially identical” security within 30 days, before or after the sale, the investor can’t then take a deduction for the loss.
The new rules could make it much tougher to take trading losses on cryptos. If an investor bought $10,000 worth of Bitcoin (BTC), for example, and sold it at a loss, the investor would have to wait 30 days to buy it again to be eligible for a tax write-off. An investors might still be able to buy other cryptos without violating the wash sale rules, provided also that the IRS doesn’t view them as “substantially identical.”
The new rules would go into effect after the 2021 tax year, according to a blueprint from Rep. Richard Neal (D-Mass.), chairman of the House Ways and Means Committee.
Crypto markets appear to be taking the tax and regulatory changes in stride, for now. Bitcoin was trading higher on Wednesday, up 3% in the last 24 hours to $48,200. Ethereum was ahead 3.6% to $3,500 while Cardano (ADA) was up 7.5% to $2.57, according to Coinmarketcap.
Crypto stocks were also rallying, with Coinbase up 2% to $248 and the Grayscale Bitcoin Trust (GBTC) ahead 4.5% to $38.50.
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