Cryptocurrency regulation is a hot topic these days and lawmakers around the world are proposing and pushing action in this area. One such area that is getting a lot of attention within the crypto ecosystem is stablecoin. Many lawmakers want digital coin issuers to operate like banks to prevent financial instability.
There are many such regulations proposed to be passed in the US, China, India, and other markets. So, how should existing and potential crypto investors prepare for a market where new regulations are highly likely to be implemented.
3 Keys to Preparing for a Regulated Crypto Market
2021 was a major year in the cryptocurrency market’s history. The market crossed the $3-trillion capitalization this year while Bitcoin and Ether touched their all-time high figures.
The mainstream adoption of these digital currencies has drawn the attention of lawmakers. Throughout 2021, everyone has been debating the development of a framework focused on taxation and investor protection.
If you want to trade cryptocurrency and other digital assets, it is recommended to take these 3 steps to prepare for any potential regulations.
1. Get Organized
Crypto investors are required to report their taxable transactions involving digital currencies to the fed in their 2021 tax returns.
- Calculate your profits or losses
- The IRS requires investors to maintain records
- Prioritize good record-keeping practices
- Maintain your crypto transaction history for at least 3 years
Many investors have multiple wallets and rely on different trading platforms. It can be difficult for such investors to sort everything themselves. However, the IRS requires you to maintain your records in ways that are sufficient enough to establish your positions on tax returns.
2. Track Your Transactions, Gains, Losses & Proof
It is recommended to use a credible crypto and portfolio management tool. It should allow you to track and calculate your gains and losses, and store proof.
Tracking this information is important for accurately building your tax profile and providing your tax liability to the IRS.
As your portfolio grows, it can be a good decision to seek the assistance of a CPA. An accounting professional can guide you with the reporting process and assist in planning. This can be helpful keeping in mind the growing chances of more crypto regulation.
3. Keep Track of Proposed & Potential Regulations
While it’s impossible to make predictions about the laws that will eventually be passed, it is important to be aware of the potential rules being discussed by lawmakers.
For example, lawmakers propose to implement ‘wash sale’ rules on currencies, commodities, and digital assets with the Build Back Better Act 2022. If this law is passed, crypto investors will not be able to immediately buy back the same asset after selling it at a loss.
The bipartisan infrastructure bill passed in November 2021 already requires tax reporting on digital assets including crypto and nonfungible tokens (NFTs).
Crypto Regulations in India & China
India and China are major economies and have significant potential in crypto investment. Their existing and future crypto regulations are also expected to make a big impact on the industry. So, investors should also keep track of developments taking place in these markets where there could be more potential investors than in North America.
While China has already banned any form of cryptocurrency trading, India is planning to prohibit ‘private cryptocurrencies’ with a few exceptions. While banning all private cryptos, the Indian lawmakers propose to allow exceptions so that the underlying technology and its applications can be promoted. Here you can check the crypto effect on law enforcement.
The proposed law has also been given a name – the Cryptocurrency & Regulation of Official Digital Currency Bill 2021. It has provisions for creating a facilitative framework for developing the country’s official digital currency. It is expected to be a government-backed digital currency.
With China, it is difficult to claim whether the current ban on crypto trading is a long-term strategy. Many speculate that it could be an attempt to guide the industry into a direction that is more favorable for the government.
So, with all these developments taking place in the regulatory ecosystem for cryptocurrencies, it is important for investors to be prepared for any major changes. The steps you take may also have a big impact on protecting any existing financial interests in cryptos and other digital assets.
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