Bitcoin, Governments and Regulators
So I did my daily cryptocurrency news scan and came across a story about the state of Ohio (which is where I was born and grew up) accepting payments in bitcoin for taxes.
Upon receipt of bitcoin, the Ohio treasury will sell it for USD, which brings up interesting ramifications regarding IRS notice 2014-21. Since it’s the state that is selling and not the sender, calculations and reporting of capital gains/losses is handled how?
Yes, I am being facetious because we all know the IRS, if we were to ask, would say, “That is considered a sale by the owner of said bitcoin for federal tax purposes and is therefore a reportable event - by the sender.”
Keep in mind, Congress has never outlined, in any overt or meaningful way, the particular tax treatment of cryptocurrency. No instructions were provided to the IRS by the established taxing authorities - The US House and Senate. How the IRS debated, discussed and established the codification of bitcoin into US tax law is a mystery. There is no record of any kind to describe the process, who exactly approved notice 2014-21 or how said individuals were granted or obtained the authority to create such a synthetic bill of attainder as Special Notice 2014-21.
A naive person who decides to use his bitcoin for the purpose of paying taxes to Ohio may inadvertently attract the attention of the federal authorities and mark himself for an audit or could be scrutinized by the Financial Crimes Enforcement Network (FINCen) under suspicion of money laundering.
This brings me to my point - the governments in the US and their regulatory bureaucrats are absolutely killing the rule of law with their fanciful (magical ) statutory interpretations with regard to cryptocurrency, bitcoin specifically.
Take the Commodity Futures Trading Commission, which officially designated Bitcoin as a commodity a couple years back. How the CFTC came to make that assertion, on its own authority, is interesting. Did Congress grant the CFTC authority to regulate trading of certain commodities but also to have the power to decide if something IS a commodity? What limitations exist in this regard? Could the CFTC decide that people are commodities and regulate their interactions with each other, as they change jobs or accept positions in companies, trading on their ‘employment value’ ? Yes, that is a stretch of the imagination but it helps demonstrate the absurdity of their reach. The CFTC has been provided constraints which allow it to narrowly focus on specific things which have been designated commodities like corn, wheat, oil, or copper. The peculiar case of bitcoin doesn’t quite fit the profile- just on the basis of being intangible. We are talking about addresses in a database. What kind of debate was held within the CFTC, where is the transcript of that discussion, who were the participants? And how did they go about deciding that bitcoin should be deemed a ‘commodity’? Do they vote, like members of Congress? Can Congress ‘give away’ , or delegate its responsibilities to such an extent? Is the CFTC a law unto itself?
And what of the SEC’s expansion into oversight of Inital Coin Offerings (ICO)? Am I sympathetic to the potential for fraud that exists? Yes. Does fraud, in fact, happen? Yes. Is fraud illegal? Yes. Does the Justice Department have the authority to prosecute individuals for fraud? Yes.
How has the SEC performed in this regard? Horribly. Two specific exhibits pop into my mind. Exhibit A is Bernie Madoff. Exhibit B would be the various and sundry participants in the mortgage backed securities fiasco - a disaster of such epic proportions- it is the ultimate indictment against the SEC’s attempt to expand into an area that falls outside of the scope of their concern, a concern at which they have been criminally negligent .
Are cryptocurrency tokens securities like stocks, bonds, mutual funds or variable annuities? Absolutely not. How does the SEC get to decide the legal definition of what it regulates? It does not. Only Congress has that authority.
Cryptocurrency is a real challenge for bureaucratic interests. The algorithm that runs the decentralized blockchain is a kind of automated, self regulating organism. The records update every ten minutes- there is no government or business on earth that is audited more frequently than the blockchain. The accountability is incredible. The evidence of what goes on is available for anyone to see. The potential applications and the tie in to other developing technologies such as AI, Robotics, etc... The potential to eliminate large numbers of needless positions in government is so fantastic, the actions of these functionaries should surprise no one. They represent the status quo, have nice salaries with good benefits, professional esteem and social standing. They are part of a ruling class. Getting control over the crypto-beast is imperative.... Unfortunately, for them, there is no way they will succeed.
The big question is: How far are the established interests willing to go undermining the rule of law in their effort to grab at something they can’t reach?
https://www.irs.gov/pub/irs-drop/n-14-21.pdf