Weekly Crypto Policy News Roundup, February 6 2022

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Developments in Tax Policy

This week, there were a number of developments in tax policy around the world.

India to introduce 30% crypto tax and CBDC

Indian cryptocurrency investors and traders breathed a sigh of relief this week when the government intimated that they will not make crypto illegal (after months of speculation). The government did however announce that digital assets will be subject to a 30% tax.

There were mixed feelings about the new tax rules – many Indians consider the tax punitive. In particular, the new rules will not allow Indians to offset losses from the sale of digital assets against other income,

The announcement was made by Indian Finance Minister Nirmala Sitharaman as part of the 2022 budget. Sitharaman also said that the Reserve Bank of India (RBI) has been working on a central bank digital currency (CBDC), which will be launched in April.

US Virtual Currency Tax Fairness Act

On 3 February, Representatives Suzan DelBene and David Schweikert introduced a bill
that would amend the IRS’s tax code to exempt consumers from paying taxes on crypto payments or gains of less than $200.

The Bill is co-sponsored by Representatives Darren Soto and Tom Emmer.

DelBene said that “The U.S. must stay on top of these changes and ensure that our tax code evolves with our use of virtual currency. This commonsense bill cuts the red tape and opens the door to further innovations, ultimately growing our digital economy.”

You can read Congresswoman Suzan DelBene’s full press statement here.

UK Revenue clarifies crypto taxes

On 2 February 2022, the UK’s taxing authority HM Revenue & Customs updated its manual on the taxation of crypto-assets, including on the treatment of decentralized finance (DeFi) lending and staking, and whether returns or rewards from these services are to be treated as capital or revenue for taxation purposes.

NIST blockchain comments due by 7 February 2022

Comments on the National Institute of Standards and Technology (NIST) consultation on Blockchain for Access Control Systems are due by 7 February 2022.

The report investigates blockchain’s uses in access control mechanisms i.e. systems for authenticating legitimate users and calls for patent claims. See more here.

IMF warns crypto could destabilise emerging markets

The Financial Times reported on 31 January 2022 that a senior International Monetary Fund (IMF) official warned that crypto may exacerbate capital flight from emerging market countries and that sharp price swings in cryptocurrencies are causing “destabilizing” capital flows posing “immediate and acute risks” to the fiat currencies of those countries.

Just last week the IMF urged El Salvador to jettison Bitcoin as legal tender saying that it was a major risk to the country’s financial system.

Also on 31 January 2022 El Salvadorian Treasury Minister Alejandro Zelaya rejected the IMF’s appeals saying that “… no international organization is going to make us do anything, anything at all.”

However, the IMF is also worried about crypto’s impact in developed markets, suggesting that it is becoming increasingly correlated with equity markets so that a dump (or “sharp deleveraging episode”) in one market may impact the other market.

Reiterating the IMF’s earlier calls the IMF official, Tobias Adrian, speaking to the Financial Times implored global regulators to urgently prioritize their agreement on the regulation of crypto assets.

Recall that in November 2021 the Basel Committee on Banking Supervision (BCBS) confirmed that it intends to specify a proposed prudential treatment of banks’ crypto-asset exposures, and will consult on this mid-2022.

US Treasury tasks FinCEN with final KYC rules

On 31 January 2022, the US Department of the Treasury released its semi-annual agenda and regulatory plan which includes future regulatory actions a decision by the Financial Crimes Enforcement Network (FinCEN) on the proposals to introduce know-your-customer (KYC) requirements on un-hosted or self-hosted crypto-wallets (such as hardware or cold-storage crypto wallets).

It’s unclear how KYC rules for self custody would operate in practice, however, FinCEN is expected to make a decision on the new rules by September 2022.

SWIFT explores interoperability of tokenized assets

Testing by SWIFT, announced last year, is ongoing during Q1 2022 and focuses on the issuance, delivery, and redemption processes that would better support a frictionless and seamless tokenized asset market using both current forms of payment and potential
CBDCs.

SEC delays decision on listing of Bitwise spot bitcoin ETF

Following several other Bitcoin exchange-traded fund (ETF) rejections, the US Securities and Exchange Commission (SEC) said on 1 February 2022 that it hadn’t yet concluded whether a spot bitcoin ETF by Bitwise Asset Management should be listed.

Facebook’s would be stablecoin ‘Diem’ sold to Silvergate for $182million

On 31 January 2022 the Diem Association announced the sale of its technology to Silvergate Capital Corporation. The Diem Association will be wound down in due course. Diem attracted the immediate ire of global regulators, who were much less familiar with the concept of a stablecoin in early 2019 than they are now.

Jordanian Parliamentary Committee Discusses CBDC and crypto regulation

The Jordanian Parliamentary Committee, attended by the country’s Central Bank Governor, discussed the Central Bank of Jordan’s progress on a CBDC linked to its national currency, the Jordanian dinar, and a regulatory framework to protect investors. You can read more about these crypto policy developments in Jordan here.

Myanmar Junta CBDC

Myanmar’s military government plans to release a digital currency during 2022 to boost the economy, however, the details are as yet very unclear.