Is Trading Cryptocurrency Legal In The US? – Essentials Things You Should Know
Cryptocurrency is much like other forms of currency known to purchase goods and avail services. The main difference is that it can only be used digitally, allowing online exchanges and payments more accessible. It is an emerging industry that tailor fits the rapid growth in the digital age. Currently, it's competently traded all over the world with thousands of currencies available. But, is trading cryptocurrency legal in the US? You’re about to know.
Along with many other countries, the US finds this type of investment welcome as long as the laws and boundaries are laid out properly. Trading cryptocurrencies, in general, are like arcade tokens or casino chips – you need to exchange it for any resource you may need without any tangible currency on your hand. It promises a level of security for its users but still has some glitches along with its development.
In this article, you will gain ample knowledge on trading this form of currency in the United States, the laws that cover it, as well as the comparisons to other countries who go for this technology. The best cryptocurrency available today is Bitcoin, so it’s got the necessary details needed to represent the trade.
The legal trade talks all over the world
It was only recently when Bitcoin became legal in the United States. In February 2020, the trading cryptocurrency with Bitcoin passed in other countries like the United Kingdom, Japan, and Canada. Other developed countries are still questioning this concept's legitimacy, with countries like China and India imposing restrictions on it.
Making the trading of cryptocurrency legal means, it has to be under the United States' tax laws. It is commonly where other currencies find themselves in a tough spot, leaving types Bitcoin to thrive than the others. However, for tax purposes, Bitcoins are more of a property than a currency.
A brief legal history of cryptocurrency in the US
Back in 2013, the United States Treasury put Bitcoin as a convertible decentralized virtual currency. It was classified as a commodity in September 2015 by the Commodity Futures Trading Commission or the CFTC. Eventually, Bitcoin was considered as a property by the International Revenue Service (IRS).
By 2018, there were discussions on changing Bitcoin's definition at the United States Supreme Court opinion. It led to a set of terms that if the cryptocurrency market performs the same with the other platforms like money transmitters, these requirements should have the following: registration with the Financial Crimes Enforcement Network and declare itself as a money services business; conceptualize an anti-money laundering program, and; keeping reports and records like suspicious activities and transactions.
The requirements led to the FinCEN receiving thousands of Suspicious Activity Reports (SARs) under the cryptocurrency market.
The IRS Guidelines on Bitcoin
With the rising demand for trading cryptocurrency, the IRS issued a set of guidelines for all taxpayers to be made aware of. The IRS Notice 2014-21 is a comprehensive piece of information that describes the tax treatment on virtual currencies. In this document,” virtual currencies” is the term used for cryptocurrencies.
The notice acknowledges Bitcoins' primary use and refers to them as a "convertible" virtual currency. That's because it can be digitally traded among its users, undergo foreign and co-cryptocurrency variety exchanges, and can purchase goods and services. One of the more notable details in this document is how the fair market value of cryptocurrencies are identified. Based on the notice, the transactions are reported as US dollars for tax purposes.
This year, a revision on the tax form got released, and it requires taxpayers to declare their cryptocurrency trades and transactions starting the year 2019.
The loopholes and glitches
Cryptocurrencies emerged in a digital platform that has a vast scope. That means there are no centralized regulations imposed for trading and transactions. It raises concerns for many governments because no authorized entity can issue social security numbers to Bitcoins. The lack of personal information and validation opens up the door to illegal transactions that can easily be covered by hackers online.
There have been records of illegal activity using Bitcoin in the early years. It is because anonymity is a convenient option for drug trafficking and other suspicious acts. A famous trend called the "Silk Road" proved to offer drugs on the dark side of the web without the threat of getting caught or being jailed for using Bitcoins. It was shut down in 2013, but the concern remains on the list.
Specifically, Bitcoin faces a loophole by releasing public records of a person's transactions permanently. It risks an individual's privacy and may involve them in cryptocurrency transactions they did not do. Rising competitors recognized this flaw and put attention to data privacy and trade.
There are also good reasons why a trading cryptocurrency is a legal option in the US. One, it is envisioned to be the future of the finance world. Experts find it right to start the trend early and let the market adapt to the change in a progressive manner.
Next, avid fans of cryptocurrency see it fit to take the banks' authority of money supply because of inflation. The decentralized characteristic of cryptocurrency technology and its developing security features outweighs current payment systems. Discover more about cryptocurrencies here!
Now that you know that trading cryptocurrency is legal in the United States, it opens up opportunities for convenient transactions. However, it requires you to research in-depth and weigh your options. You cannot quickly nod to a newcomer because of hearsay and risk your finances right then and there.
You should read the laws and consult experts if necessary. Keep an open mind and be critical because hard-earned money deserves the best investments. You can even list the pros and cons and be more specific.
UPDATED April 3, 2021
By: Lance Richards
May have seen in the news that Japan and China are working to make their very own cryptocurrency.
UPDATED March 4, 2021
By: Hunter Shultz
When digital money was initially launched, every banking institution was reluctant to embrace the innovation, believing that it would not be wise to invest in it.
UPDATED February 2, 2021
By: Hunter Shultz
With the astronomical rise of cryptocurrencies, there are also lots of hacks and schemes on the rise. If you are into crypto or thinking of getting into crypto, you’ll definitely want to keep your cryptocurrency safe.