budget

SEC’s Gensler seeks $2.4B in funding to chase down crypto ‘misconduct’

United States Securities and Exchange Commission Chair Gary Gensler says the regulator is spread thin and needs additional funding to keep up with the “increased complexity in the capital markets.”

United States Securities and Exchange Commission Chair Gary Gensler has thrown his support behind U.S. President Joe Biden’s request to allocate a record $2.4 billion in funding for the regulator, highlighting the ongoing need to crack down on “misconduct” in the cryptocurrency industry.

In prepared testimony for the March 29 budget hearing with the House Appropriations Committee, Gensler said the additional funding was needed to keep up the pace of innovation, adding:

“Rapid technological innovation in the financial markets has led to misconduct in emerging and new areas, not least in the crypto space. Addressing this requires new tools, expertise, and resources.”

The additional funding would allow the SEC to hire 170 additional staff, most of whom would work within its enforcement and examination divisions, said Gensler.

Related: Beaxy exchange shutters after SEC presses multiple charges against founder, execs

The SEC chair said that the prior year’s budget increase allowed it to bring staffing levels above what it was in 2016 for the first time, but said the regulatory agency was still stretched thin, adding:

“As the cop on the beat, we must be able to meet the match of bad actors. Thus, it makes sense for the SEC to grow along with the expansion and increased complexity in the capital markets.”

Gensler again described crypto as the wild west, suggesting the nascent industry is “rife with noncompliance,” and that crypto investors were putting their “hard-earned assets at risk in a highly speculative asset class.”

According to Gensler, the regulator “received more than 35,000 separate tips, complaints, and referrals from whistleblowers and others in FY 2022,” which helped it bring more than 750 enforcement actions and “resulted in orders for $6.4 billion in penalties and disgorgement.”

Thirty of these actions were related to the crypto industry, which resulted in $242 million in monetary penalties and represents a 36% increase over the 22 actions announced in 2021.

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Biden budget proposes 30% tax on crypto mining electricity usage

The tax would be phased-in at 10% per year over three years and covers electricity generated from both on and off-grid sources.

United States crypto miners could eventually be subject to a 30% tax on electricity costs under a budget proposal by President Joe Biden aimed to “reduce mining activity.”

A Department of the Treasury supplementary budget explainer paper released March 9 said any firm using resources — whether they be owned or rented — would be “subject to an excise tax equal to 30 percent of the costs of electricity used in digital asset mining.”

It proposed the tax would be implemented after Dec. 31, phased in over three years at a rate of 10% a year, reaching the max 30% tax rate by the third year.

Crypto miners would have reporting requirements on the “amount and type of electricity used as well as the value of that electricity.”

Related: US legislators renew call for EPA investigation of crypto mining emissions data

Crypto miners who acquire their electricity needs off-grid would still be subject to the tax and would be required to estimate the electricity costs generated by any “electricity generating plant.”

In its reasoning for the tax, the Treasury claimed the energy consumption of crypto mining operations “has negative environmental effects,” increases prices for those sharing a grid with the operations and creates “uncertainty and risks to local utilities and communities.”

“An excise tax on electricity usage by digital asset miners could reduce mining activity along with its associated environmental impacts and other harms.”

In a March 9 statement, the White House also confirmed reports that it’s looking to end a tax strategy for crypto transactions that it estimates would raise $24 billion.

Current rules allow crypto investors to sell digital assets at a loss for tax purposes — what’s known as tax-loss harvesting — and then immediately buy back those cryptocurrencies.

The new rules would bring crypto trading tax rules in line with stocks, where such a practice is not permitted under wash sale rules.

Biden wants to double capital gains and clamp down on crypto wash sales: Reports

The Biden administration reportedly wants to apply the wash sale rule to crypto, which would end a strategy in which a trader sells and then immediately buys digital assets for tax purposes.

U.S. President Joe Biden’s upcoming budget proposal has a few surprises for crypto traders and investors, including a proposed doubling of capital gains for certain investors and a crackdown on crypto wash sales. 

The Biden administration is set to release its fiscal 2024 budget plan on March 9, which is reportedly aimed at reducing the deficit by almost $3 trillion over the next decade. It also includes changes to crypto tax treatment with the aim of raising around $24 billion, according to newsreports.

One of these proposals includes an end to a strategy in which a crypto trader sells assets at a loss for tax purposes, known as tax-loss harvesting, before repurchasing them immediately after, according to The Wall Street Journal.

Such a strategy is not permitted when stocks and bonds are involved under current wash sale rules. However, crypto is currently not under these same rules, as digital assets have not been classified as securities.

Now it appears that the U.S. government is looking to change that.

Speaking to Cointelegraph, Danny Talwar from crypto tax software firm Koinly commented:

“This is an inevitable consideration for the U.S., which, if implemented, will see it on par with other jurisdictions such as Canada and Australia, where crypto wash sales apply.”

“If the rule is applied, the timing is significant as many crypto holders who entered the crypto space on the back of 2021 market peaks are suffering from heavy losses,” he added.

Related: What is crypto tax-loss harvesting, and how does it work?

The Biden budget also proposes to nearly double the capital gains tax rate for investors making at least $1 million to pay 39.6% on long-term investments, up from the current 20% tax rate. It also plans to raise income levies on corporations and wealthy Americans, according to Bloomberg.

Update Mar. 9, 4:19 am UTC: Added clarification that the increased capital gains tax rate applies to a certain subset of investors, according to the Bloomberg report.

Canada to examine crypto, stablecoins, and CBDCs in new budget

Canada’s government stated its concerns on the risks digital assets and the digitalization of money may pose to its financial system as a reason for launching the consultation.

The Canadian federal government is set to launch a consultation on cryptocurrencies, stablecoins, and Central Bank Digital Currencies (CBDCs) as revealed in its new mini-budget.

The government’s “2022 Fall Economic Statement” released on Nov. 3 by Deputy Prime Minister Chrystia Freeland works as a fiscal update in conjunction with its main yearly budget.

The statement included a small section on “Addressing the Digitalization of Money” that outlined the government’s crypto plans.

It said the rise in cryptocurrencies and money digitalization is “transforming financial systems in Canada and around the world” and the country’s financial system regulation “needs to keep pace.”

The statement opined that money digitalization “poses a challenge to democratic institutions around the world” highlighting cryptos use in sanctions avoidance and illicit activity financing both domestically and abroad.

In the statement, the government said consultations with stakeholders on digital currencies, stablecoins, and CBDCs are being launched on Nov. 3 although exactly which stakeholders will be engaged remains unclear.

The announced consultations is understood to be as part of the government’s intention to launch a “financial sector legislative review focused on the digitalization of money and maintaining financial sector stability and security,” which was part of the 2022 budget released on Apr. 7.

This review will also examine the “potential need” of a Canadian CBDC in light of these risks.

Related: Quebec’s energy manager to seek government approval to stop powering crypto miners

In January protests broke out in the nation’s capital of Ottawa regarding the COVID-19 vaccine mandate and restrictions in Canada with protestors migrating to crypto fundraising platforms after being kicked off competing fiat fundraising platforms.

The province of Ontario declared a state of emergency on Feb. 11 due to the protestor’s road blockades resulting in its government freezing millions in donations to protestors, at the time protestors raised around 21 Bitcoin (BTC), worth $902,000.

Prime Minister Justin Trudeau invoked the Emergencies Act on Feb.14 for the first time in Canada’s history giving him the power to freeze protesters’ bank accounts and monitor “large and suspicious transactions,” including crypto.

Two days later Canada’s federal police force sent letters to several crypto exchanges demanding they stop processing transactions of more than 30 specific crypto wallet addresses linked to the ongoing protests.

Canada to examine crypto, stablecoins and CBDCs in new budget

Canada’s government stated its concerns about the risks digital assets and the digitalization of money may pose to its financial system as a reason for launching the consultation.

The Canadian federal government is set to launch a consultation on cryptocurrencies, stablecoins and central bank digital currencies (CBDCs) as revealed in its new mini-budget.

The government’s “2022 Fall Economic Statement,” released on Nov. 3 by Deputy Prime Minister Chrystia Freeland, works as a fiscal update in conjunction with its main yearly budget.

The statement included a small section on “Addressing the Digitalization of Money” that outlined the government’s crypto plans.

It said the rise in cryptocurrencies and money digitalization is “transforming financial systems in Canada and around the world” and the country’s financial system regulation “needs to keep pace.”

The statement opined that money digitalization “poses a challenge to democratic institutions around the world,” highlighting cryptocurrencies’ use in sanctions avoidance and illicit activity financing both domestically and abroad.

In the statement, the government said consultations with stakeholders on digital currencies, stablecoins, and CBDCs are being launched on Nov. 3, although exactly which stakeholders will be engaged remains unclear.

The announced consultations are understood to be part of the government’s intention to launch a “financial sector legislative review focused on the digitalization of money and maintaining financial sector stability and security,” which was part of the 2022 budget released on April 7.

This review will also examine the “potential need” of a Canadian CBDC in light of these risks.

Related: Quebec’s energy manager to seek government approval to stop powering crypto miners

In January, protests broke out in the nation’s capital of Ottawa regarding the COVID-19 vaccine mandate and restrictions in Canada, with protestors migrating to crypto fundraising platforms after being kicked off competing fiat fundraising platforms.

The province of Ontario declared a state of emergency on Feb. 11 due to the protestor’s road blockades resulting in its government freezing millions in donations to protestors, at the time protestors raised around 21 Bitcoin (BTC), worth $902,000.

Prime Minister Justin Trudeau invoked the Emergencies Act on Feb.14 for the first time in Canada’s history giving him the power to freeze protesters’ bank accounts and monitor “large and suspicious transactions,” including crypto.

Two days later, Canada’s federal police force sent letters to several crypto exchanges demanding they stop processing transactions of more than 30 specific crypto wallet addresses linked to the ongoing protests.