The Elephant in the Dark: A New Framework for Cryptocurrency Taxation and Exchange Platform Regulation in the US

Abstract

The proliferation of cryptocurrencies and the remarkable expansion of novel economic practices associated with them pose an unprecedented challenge to established norms of taxation and market regulation. Drawing on two years of fieldwork, surveys, as well as big data analysis of the most valuable 100 cryptocurrencies’ white papers and the terms of service agreements of all cryptocurrency exchange platforms, this paper proposes an evidence-based framework to design a novel regulation and taxation approach to cryptocurrencies and their markets by using the US as case study. This new framework calls for approaching cryptocurrencies as data money. Drawing on the material political economy of new digital financial practices, the paper locates the universe of taxable events and invisible/vague regulation areas by approaching exchange platforms as stacked economization processes. We need to make sense of these new economic spaces in order to imagine more effective regulative instruments addressing questions of economic actor protection and efficiency. The paper concludes by proposing a new instrument of taxation (Data Money Tax) and a dynamic regulative approach to cryptocurrency exchange platforms (Stack Regulation).

Cryptocurrencies, Tax Ignorance and Tax Noncompliance in Direct Taxation: Spanish Empirical Evidence

“…The ease of access through digital platforms and the attractiveness of potentially high returns due to speculation (Auer and Tercero-Lucas 2022;Alonso 2023) have contributed to this massive growth. However, this boom has not gone unnoticed by tax agencies and public finances, which now face the challenge of adapting their regulatory frameworks to this new financial reality (Baer et al 2023;Caliskan 2022;Tyc and Siuci ński 2020;Ozili 2020).…”

“…Tax compliance is emerging as a key piece of this puzzle. It is essential that cryptocurrency users understand and comply with their tax responsibilities to avoid penalties, ensure state revenue collection, and maintain fairness in the distribution of the tax burden (Náñez Alonso 2019; Sanz-Bas et al 2021;Caliskan 2022;Ozili 2020).…”

“…Tax compliance in the field of cryptocurrencies is not only crucial for maintaining the legitimacy and stability of the financial market but also reflects the fundamental principles of economic capacity and generality, ensuring that all citizens contribute equitably to support state functions (Cumming et al 2019;Sanz-Bas et al 2021;Caliskan 2022;Paleka and Vitezić 2023).…”

“…A possible solution to this issue is suggested by the majority of respondents (87.4%), who express that tax authorities should provide more education and resources on the taxation of cryptocurrencies and other digital assets. This proposal is also echoed by Caliskan (2022). Cong et al (2023) indicate that increased tax scrutiny leads crypto investors to use conventional tax planning with tax loss harvesting as an alternative to non-compliance.…”

A Comparison of Regulation of Bitcoin as Crypto (Digital) Currency

“…Cases of virtual currencies like Shavers forced the US government to establish a "uniform cryptocurrency law". The proposed regulations will regulate licensing requirements, reciprocity, consumer protection, cybersecurity, anti-money laundering and licensing of license holders plus sanctions (Caliskan, 2022). Table 2 summarizes the regulation of cryptocurrency in USA.…”