President Biden recently unveiled his budget proposal for fiscal year 2025, which includes several changes to federal cryptocurrency regulations. While some of these changes are positive, such as applying existing securities regulations to crypto, there is one change that raises concerns – a special tax on crypto mining.
The proposal includes two regulatory changes. The first is the elimination of a tax loophole that allows cryptocurrency traders to write off losses on assets they sell and quickly rebuy. This change brings cryptocurrencies in line with existing rules for stock and bond trading, creating a level playing field for similar asset classes without adding unnecessary bureaucracy.
Currently, stocks sold at a loss cannot be repurchased within 30 days, or else traders cannot deduct the loss on their taxes. This practice, known as wash trading, is more ambiguous when it comes to crypto. Traders can repurchase crypto assets quickly after realizing their losses for tax purposes, effectively avoiding actual losses. This inconsistency is due to slow regulatory application, rather than fundamental differences between crypto and securities.
The second regulatory change applies securities regulations to crypto trading, recognizing the similarities between the two markets. When loaning out traditional securities, the lender does not have to recognize losses or gains if they receive back essentially the same securities. Extending this rule to digital assets will make many of these loans tax-free, similar to securities.
Both of these proposals demonstrate the expansion of regulatory applications without the need for new agencies or burdensome regulations on the crypto industry.
However, the proposed crypto mining tax takes a different approach. Mining is essential to decentralized cryptocurrencies like Bitcoin, as it incentivizes participants to validate transactions and update the ledger. Biden’s proposal would impose a 30 percent tax on electricity used in all crypto mining, even if it is off the grid and internally sourced. This would significantly increase costs for mining in the US, leading many miners to move overseas. Instead of curbing American crypto usage, it would simply push innovators to operate in countries with more favorable regulations.
While the plan aims to address environmental concerns surrounding crypto mining, it fails to distinguish between sustainably sourced electricity and nonrenewable sources. The 30 percent threshold is excessive and could easily be offshored given the international nature of crypto.
The Biden administration should reconsider imposing a large punitive tax on mining, as it undermines the positive regulatory changes proposed. By applying common-sense rules from securities trading to crypto, the administration can achieve meaningful reforms without stifling innovation.
Isaac Schick, a policy analyst with the American Consumer Institute, emphasizes the need for sensible changes in the regulatory space. This article provides general information and should not be construed as legal or investment advice. The opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.