IRS and Crypto Compliance: Will we see a breakthrough before year’s end?
Regulation has been a greatly discussed topic for a long time within the DeFI Space and seems like it is on the pointy end throughout 2023. From the long overdue case with Ripple Labs to the recent Tax Reporting Rule introduced by the IRS, there has been a hindering gap that is putting Crypto Compliance and Regulation within the USA at a standstill. With the end of 2023 approaching and a new momentum breathing in the DeFI Space, will we finally see a breakthrough before the end of the year?
The DeFI Space within the USA….
The DeFI Space shares a close bond that traces back from the beginning as due to the 2008 Great Recession, Bitcoin was formed. Nobody can really find out who Satoshi Nakamoto is but the Bitcoin whitepaper laid out the blueprint for a payment system around the same time the US was experiencing its Major Recession. The idea behind Blockchain technology was also laid out by American physicist W Scott Stonetta and American Cryptographer Stuart Haber back in 1991.
This idea was later refined by Hal Finney, an American Software Engineer who introduced the cryptographic Proof of Work System in 2001 that would become the framework behind Bitcoin. Bitcoin then grew steadily over time with the majority of the miners during the early days coming or situated within the USA. The United States still holds the top spot a decade later controlling 37% of the global Bitcoin Mining hash rate.
The US as one of the few developed countries clearly was amongst the most active within the DeFI Space with data from Triple-A that the United States is ranked 5th highest in terms of Global Adoption of Digital Asset. Currently, more than 13.7% of U.S citizens own a digital asset of which 57.6% are millennials, then followed by Gen Xers, who represent 19.8%. With the United States being amongst the largest population in the world there is a lot of growth potential for the DeFI Space within the United States.
DeFI Space is slowly reaching its peak in 2024 so far and throughout this vast new world, there seems to be one sector in the United States that continues to show its dominance, which is Stablecoin. USDT and USDC are amongst the Digital Assets with the biggest market cap and continue to be the most widely used cryptocurrency in the world. Both projects are backed by the United States Dollar and developed by institutions within the country.
The Popularity of the US Dollar-backed Stablecoin continued to grow over the years and a separate category was built within the Stablecoin space. Web 3.0 and NFT also continue to be the space that was heavily developed by crypto enthusiasts within the country and a large potential for the United States to take the lead within the space with its tech-savvy population. This factor also helps that most of the DeFI Space is denominated in the US Dollar as the world reserve currency which gives easier access for the enthusiast within the Country.
The United States is also a teeming place for Blockchain and Cryptocurrency companies as a lot of the prominent ones are situated within the country. Ripple, Circle, and Coinbase are some of the world’s leading DeFI institutions within the United States with the latter Coinbase managing to be the first Publicly listed companies within the New York Stock Exchange. Leading Blockchain media Coindesk and Cointelegraph are also situated within the United States providing the latest updates from the DeFI Space to the enthusiast within the country.
With a large DeFI community within the United States, the biggest blockchain conferences are also held regularly within the country to grow and expand the DeFI community. Bitcoin Conference and Consensus are just some of these conferences that managed to garner thousands of enthusiasts annually as the DeFI community grew stronger. This whole aspect obviously puts a large question on why regulatory compliance within the country is still unclear.
The United States is leading the DeFI Space in so many different aspects but the regulatory aspects are still behind compared to crypto-friendly countries such as the Middle East or Southeast Asia region. The European Union recently released the MICA regulation which could be the leading framework in how to shape a crypto-friendly regulation. With the United States still not achieving breakthroughs in regulation, it leaves a lot of room for its dominance within the DeFI Space to be challenged.
Despite that, the SEC and the United States have been on the right track in forming a regulation that would grow the DeFI Space. Its continuous discussion and monitoring with the DeFI institutions within 2023 has shown a lot of progress has been made in regulating the DeFI Space. A lot of DeFI institutions are hopeful that the regulatory framework will come into effect around the coming months to establish clarity moving forward.
2024 seems to point out to be an exciting but also uncertain year for the DeFI Space as a lot of momentum was built up from the past year with a lot of challenges ahead. One of the recent challenges was the Spot ETF Approval which allowed the adoption of Digital Assets to the traditional markets although with still an unclear path ahead. The question in everyone’s mind is will we see more progress on the US Regulatory framework for the DeFI Space?
Building up to 2025….
The state of the DeFI Space within the United States could be facing some uncertainty in the year 2024. One of the main reasons for this will be the US Presidential Election scheduled for this year which will bring leadership and DeFI has already been a discussed topic amongst the candidates. There have been many supporters of the DeFI Space over the years and it’s shaping up to be a pivotal moment moving ahead.
2024 also sees the much-awaited Bitcoin halving event take place and learning from its history, the DeFI Space and its regulation will continue to be a discussed topic within the country. It eventually seems like every year the DeFI Space comes close to a resolution with the Regulation but that moment seems out of reach. While the regulators seem to be in no rush for the regulation, the DeFI space still remains desperate for the U.S. to catch up to other regions in its stance.
On top of it all, the IRS and the proposed 6045 digital asset broker regulations are filled with issues that are making Crypto Compliance a difficult task. The DeFI Space is a new world for everybody and fitting current regulations to Digital Assets is not going to apply really well. The preferable solution is to look at the DeFI Space as a whole and segment your regulation to fit its aspect just like how the MICA regulatory framework was built on.
Within all this uncertainty, there is a belief that some of the regulatory framework will be finalized within this year but 2025 seems to be a more realistic target to finally see a breakthrough in the Regulations. The approval of the spot ETF has shown the intention of resolving this regulatory framework within the coming years but perhaps the DeFI Space needs to continue showing its progress in order to form a clarity within the country. Let’s wait and see how 2024 unfolds for the DeFI Space!
We at Nagaya Technologies Pte Ltd. surely believe that a proper regulatory framework could help provide the structure needed for the Crypto Space to operate efficiently. This resonated in our principles which are to provide Legality and Transparency to our holders to promote trust and value. Our vision is this should not only create trust but also value for the stakeholders of our Hybrid Crypto Asset. To know more about Nagaya Technologies and the world’s first hybrid cryptocurrency, you can read our whitepaper through our website at nagaya.io
Or you can talk to us at t.me/nagayaofficial
