EU must regulate cryptocurrency to rein in fraud and money laundering

Brussels based think tank Bruegel insists there is the need for the EU to put the hammer down and regulate the cryptocurrency market.

Bruegel claims there is a growing need for EU-level regulation, particularly of initial coin offerings (ICOs) and cryptocurrency exchanges, Reuters reports .

It would seem that EU authorities have steered clear of regulating the market due to its relative insignificance, as volumes of cryptocurrency purchased with Euros is relatively low.

That said, the EU won’t be able to regulate cryptocurrencies directly due to their intangibility. As such, the Belgian think tank recommends that regulating the key players of the industry, like exchanges or ICOs, would be more realistic.

Reuters states that it is the fear of fraud and money laundering that may provide the motivating factors encouraging the EU to get involved.

As we know, ICOs have been a hot-bed for scammers intent on cheating unwitting investors out of their hard-earned cash.

Even in the last couple of weeks, the Belgian authorities has reissued its warning over scam cryptocurrency exchange websites and blockchain startups.

Regulating ICOs and exchanges in particular would certainly make it easier to spot those that should be avoided, but these new regulations likely won’t be in place until 2020.

South Korea isn’t banning cryptocurrency trading – for now

Per The Cointelegraph , South Korean media outlet The Hankyoreh reports that the country won’t enforce a ban on cryptocurrency trading nationwide in the near future.

The news comes a day after South Korean law enforcement agencies raided the offices of local cryptocurrency exchanges to investigate alleged tax evasion. Reports of those incidents caused the value of Bitcoin to plummet by 10 percent.

The Cointelegraph noted that Justice minister Park Sang-ki, who said earlier this week that the government is working on a bill to ban Bitcoin trading on domestic exchanges, is at risk of losing his job, as more than 60,000 citizens signed a petition voicing their support of his removal; minister Park is said to have acted independently and without having consulted the local task force in charge of regulating cryptocurrencies, or even the Ministry of Strategy and Finance (also a part of the task force that’s currently being set up).

It’ll be interesting to see how South Korea proceeds to manage domestic cryptocurrency exchanges from here on out. The raids from earlier this week were believed to have been conducted in connection with auditing payable taxes and KYC processes. A spokesperson from the cryptocurrency task force told ChosunBiz that the plan is to follow regulatory plans laid out by other countries whose populations are majorly interested in the technology – so it’s possible that the country may not want to ban virtual currencies anytime soon after all.

Bitcoin and the pumpkin spice latte problem

As Bitcoin continues to test new lows investors have more to worry about than an impending bottom. As the saying goes, “death and taxes” are the only certainties. For cryptocurrency investors, the latter will undoubtedly be responsible for more anxiety than the former this tax season.

“It’s going to be a nightmare for people who are worried about [paying taxes on cryptocurrency earnings],” said Andrew Schaefer, a federally licensed tax expert in Florida, in a comment to The Washington Post .

Aside from the sheer number of transactions some traders have on the books, the ambiguous classification of cryptocurrency means investors have to look all the way back to 2014 for anything resembling guidance from the IRS.

Under that rule, taxpayers must declare any profits from cryptocurrency sales as a capital asset, much like selling a home, a piece of land, or valuable artwork.

As a capital asset, sales are subject to capital gains taxes that range from nothing to 28 percent, depending on income level and the amount of time the asset was held. Investments held over a year are generally considered a long-term capital gain, and often free from capital gains for those in the 10 or 15 percent tax bracket. Those in higher tax brackets pay higher capital gains.

While the IRS ruling answered some questions, it created many more. Who’s responsible for tracking purchase and sale prices, for example. Or, how does one account for a Bitcoin fork where investors are given additional assets without purchase, like Bitcoin Cash?

Or, simpler still, what accounting methodology should be used to calculate gains?

And if you haven’t lost your mind yet, how about this: how do you account for debit transactions with a Bitcoin payment card? Remember, any bitcoin sale is considered a capital gain, if sold at a profit, or a capital loss, if sold at a value lower than it was purchased. Hypothetically, that cup of coffee could be taxed at a 28 percent premium due to the sale of assets required to purchase it with bitcoin.

Enjoy your pumpkin spice latte.