New Regulations on Tax Supervision of Cryptographic Assets Spark Industry Controversy

Recently, the Internal Revenue Service (IRS) of the United States issued final regulations regarding the sale and trading of digital assets, marking a renewed escalation of the U.S. tax regulation on encryption assets. The new rules will take effect on January 1, 2025, requiring all brokers holding customers to sell digital assets to use the brand new 1099-DA form to report core information about each transaction to the IRS. It is worth noting that decentralized finance (DeFi) front-end service providers are also recognized as encryption asset brokers and are required to bear corresponding tax reporting obligations.

At the same time, a well-known venture capital firm’s encryption division has expressed support for suing the U.S. Treasury over new regulations, arguing that this rule poses a direct threat to the development of DeFi and could hinder innovation in the United States in this field. The firm supports several industry associations in filing lawsuits, accusing the IRS and the Treasury of exceeding their statutory authority, violating the Administrative Procedure Act, and even having constitutional concerns.

Looking back at the evolution of the United States' tax regulation of encryption assets, the path of its development is quite clear. From defining cryptocurrencies as property in 2014, to the signing of the Infrastructure Investment and Jobs Act in 2021, and now to the finalization of the broker reporting rules, the tax regulation of encryption assets in the U.S. has entered an unprecedented strict phase.

The new regulations require brokers to provide detailed disclosure of the transaction date, type, amount, and comprehensive information about investors, including their names, addresses, social security numbers, etc. This not only increases the operating costs and compliance difficulties for brokers but also raises concerns about privacy protection and industry innovation.

From the perspective of anti-money laundering, counter-terrorism financing, and anti-tax evasion, it is indeed necessary to strengthen the transparency and regulation of encryption assets. However, this measure has a particularly significant impact on the DeFi sector. DeFi platforms may need to alter their anonymity and decentralized characteristics to meet new regulatory requirements, which could affect their market attractiveness and development potential.

The implementation of the new regulations may lead to a reshuffling of the encryption industry, with small or startup brokers potentially exiting the market due to the inability to bear compliance costs. At the same time, there are concerns within the industry regarding the privacy, data security, and constitutional rights issues raised by the new regulations, with the belief that excessive regulation could stifle the industry's innovative drive.

Although the new regulations aim to enhance tax transparency, combat illegal activities, and ensure tax fairness and market order, the rapid pace of their implementation has raised concerns in the industry about their potential to become a "fatal poison." Finding a balance between encouraging innovation and strengthening regulation has become an urgent issue that needs to be addressed.

It is worth noting that, considering the attitude of certain political figures towards pro-encryption assets, the new regulations may face uncertainties before they officially take effect. Nevertheless, the resilience and innovative capacity demonstrated by the encryption industry in the face of regulatory pressure still gives hope for its future development. Although the road ahead is full of challenges, the encryption industry still possesses vast prospects and limitless possibilities.