Biden Budget Puts Cryptocurrency in Crosshairs

Government regulations related to cryptocurrency are slowly evolving to keep up with the fast-growing industry. In his recent 2023 budget proposal, President Joe Biden included several provisions related to digital currencies, some of which could generate up to $11 billion in government revenues. Here's a breakdown of what cryptocurrency enthusiasts may want to know.

Mark-to-Market Accounting Rules

One line in the Biden budget proposal indicates increased revenues from amendments to "the mark-to-market rules to include digital assets." For those without a background in accounting, mark-to-market rules require certain taxpayers to recognize profits from an increase in value before the sale date.

Increasing the scope of mark-to-market rules to include cryptocurrencies wouldn't likely affect most individuals. The updated rules primarily apply to businesses and individuals involved in professional investing or trading.

Other changes related to cryptocurrencies would require reporting of foreign digital asset accounts. Among all cryptocurrency-related updates, the Biden administration expects an estimated $11 billion in additional government revenue over the next 10 years.

As an example of how this works, consider a firm that bought Bitcoin, Ethereum, and other digital assets early on, leading to unrealized gains of millions or billions of dollars. Mark-to-market rules would require the company to recognize those unrealized profits for tax purposes. Depending on profits recognized and tax rate, those payments could be significant. The one-time result would include $4.8 billion in tax revenues in 2023 if the budget is adopted as proposed.

Department of Justice Funding

While law-abiding cryptocurrency traders shouldn't worry, cybercriminals using digital assets may be concerned about a proposed $52 million in funding for the Department of Justice to combat ransomware and cryptocurrency crimes.

While cryptocurrency is undoubtedly a part of financial operations for many criminals, cryptocurrency remains a safe and law-abiding space, according to a report from cryptocurrency research firm Chainalysis. According to the report, cryptocurrency-based crime hit an all-time high in 2021, with $14 billion in receipts. However, that's just 0.15% of cryptocurrency volume, hardly a drop in the bucket.

The $52 million in funding is specifically aimed to build cyber investigative capabilities at the Federal Bureau of Investigation (FBI). The agency can hire additional agents to improve intelligence collection and analysis abilities with the funding. The budget states, "These investments are in line with the administration's counter-ransomware strategy that emphasizes disruptive activity and combatting the misuse of cryptocurrency."

Cryptocurrency Rules Can Change Quickly

In March 2022, President Biden signed an executive order on "ensuring the responsible development of digital assets." The Biden administration is working to modernize financial laws to include digital assets, which may have positive or negative results for cryptocurrency investors and traders.

Enhanced regulations may limit opportunities for crypto profits and add clarity to the future of the cryptocurrency economy. If you invest in cryptocurrencies, staying apprised of new regulations will help you make the best cryptocurrency and tax decisions.