The United States will introduce third-party tax reporting requirements for cryptocurrency transactions for the first time, reflecting the growing interest in digital assets. Analysts suggest that this shift could drive investors towards decentralized platforms.
According to the final regulation published by the Internal Revenue Service (IRS), centralized crypto exchanges (CEXs) and other brokers will begin reporting the sales and exchanges of digital assets, including cryptocurrencies, starting in 2025.
The IRS aims to help investors accurately report tax returns related to digital asset transactions and address potential noncompliance in digital currency, as stated in their report issued in June 2024.
Some investors may perceive this as an overreach, which could result in more users turning to decentralized trading platforms, according to Anndy Lian, an author and intergovernmental blockchain expert.
Lian told Cointelegraph, “There’s a real risk of pushing users toward decentralized platforms like Uniswap or PancakeSwap. This shift could lead to a paradoxical situation where the IRS’s desire for tax revenue might drive more users towards environments where tax enforcement is currently unfeasible.”
In response to the backlash from the crypto industry, the Blockchain Association filed a lawsuit against the IRS in December 2024, arguing that the rules are unconstitutional because they include decentralized exchanges (DEXs) under the “broker” term, imposing data collection requirements on them.
According to Lian, advancements in blockchain analytics and potential regulatory developments by 2027 could make DeFi transactions more traceable, despite the current challenges faced by tax enforcement in decentralized systems.
To prevent a potential exodus, Lian suggests that the crypto industry needs specialized tax brackets that consider high volatility and significant retail participation. He believes that treating crypto gains the same as traditional capital gains may not always be fair.
The increasing valuations of cryptocurrencies have also caught the attention of other jurisdictions. Dmitrij Radin, the founder of Zekret and chief technology officer of Fideum, a regulatory and blockchain infrastructure firm, stated that European retail investors should prepare for taxation following the implementation of the Markets in Crypto-Assets (MiCA) framework. He mentioned that most Europeans will face taxation, as retail users will be obligated to provide information that will be screened.
MiCA is the world’s first comprehensive regulatory crypto framework, which came into full effect for crypto-asset service providers on December 30.