China’s crackdown and US tax rules loom large over crypto

24 May 2021260 Views

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China’s tighter cryptocurrency rules came just days after the US Treasury floated new tax reporting requirements for crypto users.

The prospect of new regulation coming from both China and the US has fuelled the latest bitcoin drama.

Bitcoin’s price creeped back up over the weekend after a tumultuous and volatile week, but the spectres of China’s crackdown on crypto and new tax rules in the US loom large.

Last week China’s State Council affirmed that tighter regulations of cryptocurrencies were necessary to “crack down on bitcoin mining and trading behaviour”. Part of the crackdown included banning financial institutions and payment companies from carrying out crypto-related business.

This came just days after the US Treasury floated the possibility of new tax rules for cryptocurrency activities. It could require that any crypto transfer worth $10,000 or more be reported to the country’s revenue service.

“Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion,” the department said.

The moves sent shivers down the spines of cryptocurrency holders and investors, resulting in a significant sell-off of bitcoin and other cryptocurrencies on Friday that led to the price drop. Bitcoin dropped to as low as $30,000, down from its recent record highs of more than $60,000.

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The Chinese crackdown has caused the most consternation for crypto advocates as the new rules restrict trading and mining.

Crypto trading has actually been illegal in China since 2019 – to combat money laundering, according to officials – but the latest actions from the government suggest a much stricter enforcement regime is coming.

Major Chinese cryptocurrency exchange Huobi announced a scaling back of its operations in response, including cutting off its mining hosting service in mainland China.

“Huobi always strives to abide by the evolving policies and regulations of each jurisdiction to adhere to risk and preserve the wellbeing of our users and their assets,” the company said.

Tighter regulations, whether in China or the US, could lead other jurisdictions to follow suit on clamping new controls on cryptocurrencies, which would have a profound effect on their value.

Regulatory threats are coupled with Tesla dialling back its stance on bitcoin and removing it as a payment method, citing environmental concerns, but Elon Musk suggested on Twitter that the company has no plans to sell off the bitcoin it holds – though it has already sold off some of it.

Jonathan Keane is a freelance business and technology journalist based in Dublin

editorial@siliconrepublic.com