- The Biden administration has again highlighted its concerns over crypto-related activity.
- President Joe Biden has placed crypto at the center of a bipartisan dispute.
- The administration’s claim about crypto tax loopholes has left many confused.
President Joe Biden’s administration has been vocal about its desire to curb certain crypto-related activities in recent weeks. On May 2, The administration underscored plans to impose a harsh tax regime for crypto mining, suggesting that the activity caused significant environmental and economic harm.
In the latest instance, in a tweet on Monday, May 9, the president has employed “wealthy crypto investors” as a battering ram in his fight with Republicans on budget cuts. Biden claims he wants to cut “tax loopholes that help wealthy crypto investors,” further suggesting that it would save the government $18 billion. On the other hand, he asserted that Republicans want to cut food safety inspections which could save the government $15 billion.
The latest attack has, however, left the crypto community more confused than enraged, as no one seems to know what tax loopholes Biden is referring to.
The Community Reacts
Dogecoin co-creator Billy Markus asked, “what loopholes ser?” in the comments to Biden’s tweet. Markus argued that taxes robbed him of all of his profits while he took on all the risk.
"you also realize most american crypto users aren't rich, but are using crypto cuz they don't feel like they have enough to make ends meet - because of you guys?" he added.
Markus was not alone in this confusion, as retired game developer John W. Ratcliff said, “What loopholes? I pay the same taxes on my bitcoin that I do on all of my investments.”
Tangent Ventures partner Jason Choi also posed the same question, sarcastically asking if it was the freedom of investors to move to Puerto Rico.
What Could These Loopholes Be?
Despite President Biden’s statements, the United States Internal Revenue Service treats cryptocurrencies as property, subjecting them to capital gains tax when sold, traded, and spent.
Crypto tax preparation service Koinly suggested that one of the loopholes Biden was referring to was likely related to wash sales.
"In the US, wash sales don't currently apply to crypto in the US, in the way that it does with securities (such as stocks)," Koinly speculated.
The U.S. Securities and Exchange Commission defines a wash sale as selling a security at a loss only to repurchase it within 30 days. The IRS currently does not allow users to get a tax deduction for losses related to wash sales. As highlighted by Koinly, cryptocurrencies are not subject to this restriction at the time of writing.
MicroStrategy employed the tax-loss harvesting tactic in December 2022 to obtain a tax deduction on its Bitcoin holdings.
Eliminating the wash trading loophole for digital assets is included in Biden’s proposed 2024 budget. But it is expected to yield $23 billion in 10 years, with the estimated revenue for 2024 at around $1.24 billion, making Biden’s $18 billion figure a mystery.
Still, Glassnode’s tax compliance service Accointing supported Koinly’s view that Biden was referring to wash sales by citing a December 2022 paper by the National Bureau of Economic Research that estimated tax revenue loss from crypto wash sales at $16.2 billion.
“This is probably where Biden’s $18b figure comes from,” Accointing suggested.
The White House is yet to respond to a request for comment at the time of writing.
On the Flipside
- While the Biden administration appears to be clamping down on crypto, its inclusion of Distributed Ledger Technology in its standardization strategy indicates that it is bullish on the underlying technology.
Why You Should Care
The U.S. currently lacks a clear crypto regulatory framework. The increasingly hostile regulatory environment and posturing from the Biden administration appear to be pushing businesses to friendlier climates.
Read to learn more about the Biden administration’s proposed crypto mining tax:
Learn about the community’s reaction to the Bittrex bankruptcy: