Did Trump’s Crypto Order Deliver on His Crypto Promises?

In March 2022, President Donald Trump issued an executive order focused on regulating cryptocurrencies, addressing growing concerns while seeking to harness potential benefits in the digital asset space. This directive represented a step toward clearer guidelines for this rapidly evolving sector, impacting investors, businesses, and regulatory bodies.

Financial Classification of Digital Assets Under Official Directives

The classification of digital assets has long been contentious, with regulatory bodies offering differing interpretations. Trump’s executive order aimed to streamline this process, providing clarity for investors and businesses. The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) were tasked with distinguishing between securities and commodities in the digital realm, which determines the applicable regulatory framework and impacts compliance obligations.

The SEC applies the Howey Test to identify whether a digital asset qualifies as a security, subjecting it to the same standards as traditional financial instruments. Meanwhile, the CFTC classifies certain digital assets, like Bitcoin, as commodities under its jurisdiction. This dual classification creates a complex regulatory landscape for issuers and investors, requiring careful navigation to avoid noncompliance.

In line with the executive order, the Internal Revenue Service (IRS) updated its guidelines on the tax treatment of digital assets, continuing to classify them as property. This means capital gains taxes apply to transactions, requiring individuals and businesses to report gains and losses accurately. The IRS has bolstered its enforcement capabilities using advanced analytics to identify noncompliance.

Tax Documentation Requirements for Crypto Transactions

Tax documentation for cryptocurrency transactions has grown increasingly intricate as regulations evolve. The IRS requires taxpayers to maintain detailed records of all crypto activities, including acquisition dates, fair market values, and associated costs, which are critical for calculating capital gains or losses.

Specific forms, such as Form 8949, are necessary for reporting gains and losses from crypto transactions, while Schedule D summarizes these figures for inclusion on Form 1040. Failure to file accurately can result in penalties, such as a 5% monthly charge on unpaid taxes for late returns. To enhance compliance, the IRS now includes a virtual currency question on Form 1040, reminding taxpayers of their reporting obligations.

Additionally, taxpayers engaging in trades through broker platforms may need to issue Form 1099-B, which helps both individuals and the IRS track taxable transactions. These measures underscore the importance of precise record-keeping and reporting in the crypto space.

Enforcement for Noncompliant Entities

Cryptocurrency regulation has tightened significantly as authorities seek to enforce compliance. The IRS employs sophisticated data analytics and blockchain tracing tools to identify discrepancies in crypto-related tax filings, targeting underreporting or misreporting of gains.

Beyond tax enforcement, the SEC has intensified scrutiny of entities violating securities laws, particularly through unregistered initial coin offerings (ICOs). Many ICOs fall under securities regulations, requiring compliance with registration standards. Violators risk severe penalties, including fines and cease-and-desist orders.

The Financial Crimes Enforcement Network (FinCEN) enforces anti-money laundering (AML) regulations within the crypto sector. Cryptocurrency exchanges and service providers must implement AML programs, including customer due diligence and reporting suspicious activities. Noncompliance has led to significant penalties, with some exchanges paying multimillion-dollar fines for failing to meet these standards.

Coverage of Stablecoins in Regulatory Measures

Stablecoins, which aim to maintain stable value by pegging to fiat currencies or other assets, have drawn increased regulatory attention due to their growing role in the financial ecosystem. The Financial Stability Oversight Council (FSOC) has identified stablecoins as a potential threat to monetary stability, citing their ability to move large amounts of capital quickly without traditional oversight.

To address these risks, the FSOC has recommended stricter disclosure requirements for stablecoin issuers, including transparency around reserve assets and redemption mechanisms. The Office of the Comptroller of the Currency (OCC) has authorized national banks to offer custody services for stablecoin reserves, provided they adhere to sound risk management practices.

Cross-Border Considerations in Changing Crypto Policies

The global nature of cryptocurrencies presents challenges for regulatory alignment across borders. Digital assets operate on decentralized networks that transcend national boundaries, enabling regulatory arbitrage in jurisdictions with lenient oversight. This inconsistency complicates efforts to address illicit activities like money laundering and tax evasion.

To counter these challenges, the Financial Action Task Force (FATF) has introduced global standards for combating money laundering and terrorism financing through cryptocurrencies. These include the “Travel Rule,” which requires Virtual Asset Service Providers (VASPs) to share customer information for transactions exceeding a specified threshold. However, compliance with this rule is difficult due to the decentralized nature of many crypto networks. Countries failing to implement FATF recommendations risk being added to the organization’s “grey list,” deterring foreign investment.

Bilateral and multilateral agreements are emerging as tools to harmonize crypto regulations. For example, the European Union’s Markets in Crypto-Assets (MiCA) framework aims to create a unified regulatory environment across member states, addressing consumer protection, market integrity, and AML concerns. However, MiCA’s success depends on cooperation with non-EU countries, particularly those with significant crypto activity. International collaboration remains crucial to mitigating risks while fostering innovation in the digital asset space.