One opening question for the new Biden Administration is how they might deal with cryptocurrencies. It’s not going to be an issue central to the administration directly, yet with the emergence of the digital yuan by China’s geopolitical rival, and inflationary monetary policy supposed to bring about a recovery in employment rates, the questions on the economy , a great power contest and worldwide digital rights, the central themes of bitcoin, will be immediate priorities.
The Biden Administration will have to weigh its policy tools and speeches carefully in an age of emerging “big power” conflicts, worldwide protest movements, and the economic stagnation that has coming from the COVID-19 pandemic. The theme of bitcoin and cryptocurrencies is not just one of direct regulations and laws, but rather its external impact on international geopolitics, finance and political relations.
This article is not meant to be legal advice of any kind, but rather a walkthrough of the various issues, laws, and regulations that the incoming Biden Administration may face with bitcoin and other cryptocurrencies.
The current state of bitcoin and federal policies
Currently, bitcoin is regulated “directly” at the federal level by the Office of the Currency Manager (OCC) in terms of its custody, and the U.S. Commodity Futures Trading Commission (CFTC) under the Exchange Act Goods (CEA).
There is a cross section with the IRS on tax policy, where transparency rules on disclosure and classification as property mean that cryptocurrency holders must pay federal capital gains tax.
Exchanges of cryptocurrencies and bitcoin may be subject to the Bank Secrecy Act and its registration / disclosure requirements. Cryptocurrencies and bitcoin are not insured by the Federal Deposit Insurance Corporation (FDIC).
Jay Clayton, the former chairman of the SEC, confirmed that he decided that “bitcoin was not a security” and therefore did not fall under the SEC’s regulatory view, unless people used crypto assets as securities to raise capital for a company or enterprise such as in the case of ICOs.
Biden nominees and advisers
A few Biden nominees and advisers have expressed opinions on bitcoin. They may be a reflection of his approach to decentralization and cryptocurrencies.
Perhaps most important of these is Janet Yellen, Biden’s nominee to head the Treasury Department. She was the former chairman of Economic Advisers during the Clinton Administration, and chair of the Federal Reserve System. She has said “she will absolutely say she is not a fan” of bitcoin, saying that many of the transactions that “take place on bitcoin are illegal, illegal transactions.” She has speculated on the “very high” energy usage of bitcoin, as well as cybersecurity concerns over anonymous cryptocurrencies.
The Treasury Department comprises the Office of the Currency Manager (OCC), the lead of which is designated by the Secretary of the Treasury. The current office holder was Coinbase’s Chief Legal Officer Brian Brooks, someone who had been considered cryptocurrency friendly, allowing for USDcoin reserves for banks. It is likely to be replaced by someone who is either apathetic to cryptocurrencies or perhaps somewhat hostile.
The US Treasury Department’s Office of Foreign Assets Management can also add cryptocurrency addresses associated with penalized individuals to its blacklist. FinCEN is also a base in the U.S. Treasury Department, one that has tremendous powers to enforce against money laundering crimes. He is responsible for enforcing actions against bitcoin mixers and enforcing the Bank Secrecy Act.
Expect a Treasury Department led by someone essentially skeptical about an unknown cryptocurrency default or nickname doing more like these enforcement actions to target approved cryptocurrency holders and to enforce actions against certain privacy tools in the bitcoin space with “serious and egregious allegations” of dealing with “darknet criminals”.
Another interesting Biden adviser when it comes to bitcoin is Gary Gensler, who led the CFTC during the Obama Administration. He has been tapped to lead the transition team for monetary policy for the incoming Biden Administration. Previously, he seemed skeptical of the conventional financial system, and has previously expressed pro-bitcoin sentiment.
Throughout the Biden team, the themes of fiscal and monetary policy promotion to solve unemployment, protect investors, break down technology monopolies and more resonate. These are all themes and variables that will interact with how the Biden Administration will work with bitcoin.
And yet, perhaps the most important variable is Joe Biden himself. Historically, it has been against encryption, introducing two bills with strong anti-encryption language while in Parliament. In fact, it was his two bills that inspired Hal Finney to work on PGP encryption – as well as, perhaps down the road, bitcoin itself.
Laws and regulations
Perhaps the most direct way the Biden Administration could affect bitcoin is through various laws and regulations. While a “ban” might be impossible to implement even if it were to do so (especially with what looks like a divided Congress), there are significant steps the Biden Administration can take. One avenue is Treasury-based enforcement that severely restricts or even prohibits cryptocurrency self-holding.
This could seriously shorten the price of bitcoin in the short term, and cause a potential split between bitcoin stuck in the United States and the rest of the chain.
Some Democratic lawmakers are also looking to get stablecoins to comply with banking regulations. While the law in question has a slim chance of passing, Democratic lawmakers may see an opening with Democratic control of the executive to offer more bills that try to fit cryptocurrencies and bitcoin into the traditional financial system.
The amounts of taxation on cryptocurrency and its treatment, along with some of the implications of cryptocurrency’s pseudonym or anonymous payments on tax evasion, mean that the cross-section between cryptocurrency and taxes weighs heavily on states are trying to maximize their tax collection.
The IRS during the Trump Administration has been relatively lenient, exempting like-for-like trades from tax protections and distributing cryptocurrency as property (thus requiring capital gains tax to be paid on it when there has been earnings). The Biden administration will probably not do worse, though it will coincide with increasing taxes and decreasing privacy, broadly speaking.
In the post-COVID period, with tax revenues possibly increasing to counteract ever-growing national debt, there could be a direct increase in cryptocurrencies taxation through capital gains increases and an increasingly existing collection of taxes (including taxes on digital goods) ) where cryptocurrencies could get caught up.
More importantly, from a philosophical point of view, the state’s drive to maximize taxation will likely involve looking at central bank digital currencies and other tactics to try to rename cryptocurrency flows with a centrally stated reason to fight evasion tax.
China and Hong Kong
As the Pentagon redirects from “counter-terrorism” to “big power” conflicts and sanctions and other ups and downs, the issue of China and Hong Kong and their relationship with the United States has a bitcoin dimension to it.
China is aggressively expanding DCEP, its version of a digital yuan, and looking to build alternatives to SWIFT for international wiring. It is looking to locate its new digital yuan, currently being trialled in Chinese cities and flagged in Shenzhen, as a domestic technological innovation that makes it resilient to international financial systems. Meanwhile, with the gradual abolition of the “one country, two systems” framework in Hong Kong, cryptocurrency regulations have become overflowing which makes it impossible to sell bitcoin to “non-accredited investors”.
There is also long-term play in disrupting the position of the USD in international trade finance by combining China’s trade partnerships and new, more efficient payment standards.
How the United States responds to this trend will determine its position as either incumbent continuing to rise, or growing complacent and falling – and the Biden Administration will occupy a critical time window in which this infill point will expire.
Sanctions, human rights and international finance
Some of the provinces most prone to using bitcoin are those that have been cut off from the international financial system. There are rumors that North Korea is supporting bitcoin mining and also mining or soliciting cryptocurrency in malicious software attacks. Venezuela and Iran have both seized bitcoin miners. The common denominator among these states is that they are classed as “rogue states” in US-led financial order.
Iran is trying hard to fix a continuation of the deal it had under the Obama Administration with Joe Biden – it is unclear what will happen to other states like Venezuela and North Korea with a more traditional and institutionalized foreign policy.
Yet it is not just rogue provinces, and oppressive ones who use bitcoin and cryptocurrencies. Disagreement uses bitcoin’s censorship resistance property to, among other things, fund anti-police cruelty protests in Nigeria and supports dissent by Belarus state employees. Individual protesters around the world are seeking money in bitcoin.
A balanced approach to human rights and bitcoin will take into account this emerging consequence of economic freedom and privacy, as Tor is used to help dissidents connect to freer and more private versions of the Internet.
Yet, as the Biden Administration deals with the interaction between these various “rogue nations” and the disagreement that more established states can suppress, one thing is clear: the bitcoin element will be part of these negotiations .
While it may be easy to paint bitcoin and cryptocurrency as bearish or bullish from a very broad thesis of the emergence of the Biden administration (either the economy will collapse under excessive fiscal and monetary stimulus and bullish for bitcoin or Biden will somehow unilaterally ban bitcoin. and it will be … bearish.), not the easiest case to make is the existential theme of House Divided “either this or that” but rather a Hegelian synthesis of ideas.
The biggest testament to bitcoin’s growth is not the direct price movements that will precede or result from the Biden Administration’s actions. Within its themes of individual freedom, financial privacy, easy cross-border payments and the empowerment of meaningful disagreement, it has grown to the extent that it intertwines with many of the central policy discussions that the incoming Biden Administration will have to their contents.