U.S. President Joe Biden caught crypto investors off guard with his new 2024 budget proposal. Within are at least 3 changes that could significantly impact crypto investors, especially those residing in the United States.
The 3 changes revolve around Bitcoin mining, tax loss harvesting, and capital gains tax.
While it may not directly affect those outside of the U.S., let’s dig deeper into the proposed regulations and it’s possible impacts on Web3.
What’s In Biden’s 2024 Budget Proposal?
Biden’s proposal to effectively double capital gains tax from 20% to 39.6%, the highest since 1978, took headlines by storm.
While inflation rates in the United States are trending toward a decade-long high, an outright 100% increase in capital gains tax has sparked outrage across social media.
While the proposal will only applies to investors earning “at least $1 million”, a 39% tax could significantly dampen spending and investments from the United States. Furthermore, this rate will also apply to dividends, which some tax companies argue crypto staking rewards fall under.
Doubling down on this, Biden also proposes a 7% increase in corporate income tax and a quadrupling of the “stock buyback tax”.
Considering that many crypto projects have “buyback and burn” schemes, this could significantly impact the amount of tokens burnt, especially over an extended period of time.
Secondly, President Biden has proposed a 30% tax on electricity used for crypto mining.
Currently, the largest PoW blockchain, Bitcoin, consumers 253 terawatt-Hours of energy annually, according to Bitcoin Magazine. To put this into perspective, that amount of electricity could power the entire nation of Singapore for 9 entire years.
Although the tax was implemented with the message of “the transition to a low-emission energy future”, twitter user John Buhl pointed out the proposal targets energy usage instead of carbon footprint.
With almost 60% of Bitcoin miners currently using renewable energy sources to power their rigs, the proposal seems to be crafted specifically with crypto in mind, instead of environmental concerns.
Lastly, his budget proposal could eliminate tax loss harvesting in crypto , something already deemed illegal for equities and bonds in the United States.
Investors in the United States use tax-loss harvesting, or the selling of a security (stocks, bonds, etc) at a loss to offset any capital gains taxed in the same period.
More precisely, this refers to the buying and selling of the exact same crypto, stock, or bond that was sold for tax purposes under the “Wash-Sale Rule”.
As crypto has yet to be deemed a security in the United States, investors can currently sell their tokens or NFTs for a loss during tax season and repurchase the exact asset immediately after declaring taxes in order to offset any capital gain.
While this aspect of his proposal did not come to anyone’s surprise, it does mean a 30-day waiting period following tax-loss harvesting before an investor can purchase the same asset again.
Will Singaporeans (& Everyone Outside the U.S.) Be Affected?
While regulation in the United States do not directly affect Singaporeans, they might have long term effects that could be felt locally.
“Singapore’s free market economy with its attractive tax regime already provides a draw for individuals and corporates looking for these efficiencies. Although the US applies a global income tax model, these proposed changes would only strengthen the value of having significant operations in corporate tax havens outside of the US. I believe that Biden’s proposal aligns tax rules for crypto assets with other assets, which is a positive start for its integration into capital markets/economy”
-Leonard Hoh, APAC GM of Bitstamp
Relocation has become an increasingly attractive option for many U.S. Crypto-centric activities. Be it investors, companies, or even miners, tax implications are becoming a strong push factor for anyone operating within the United States.
With Singapore previously showing interest in being a hub for cryptocurrency activities, this would be primetime for local authorities to show favor regarding crypto regulations. However, recent efforts by the Monetary Authority of Singapore to discourage retail investors from adopting cryptocurrency could signal otherwise.
Nevertheless, as more companies seek a crypto safe haven, the island nation may just have another shot at becoming the global hub for Web3.
On a more macro scale, the United States seems to be ramping up efforts to keep inflation under pressure – with an estimated $4.7 trillion in new taxes possible from the budget 2024 proposal.
Theoretically, this could translate into a flight from risk-on assets, especially as both interest rates and the Dollar Index (DXY) continue rising.
Furthermore, with 38% of Bitcoin miners being located in the United States, a tax on crypto-related electricity consumption could lead to falling hash rates, which has historically been linked with lower Bitcoin prices.
However, an article by Bloomberg notes that Biden’s proposal could potentially be dead on arrival.
“The proposal has little chance of passing Congress, particularly now that Republicans control the House of Representatives.”
–Ed Van Der Walt, via Bloomberg
Despite the proposal’s slim odds of passing, the language used and suggested taxes within clearly signal the White House’s current stance on crypto.
How Far Will The Crypto Crackdown Go?
Maybe it’s the lack of Sam Bankman-Fried’s political donations, or maybe it’s just natural progress for crypto regulations, but the United States has been clamping down on Web3 at a worrying rate.
Just today (10th March 2023), the New York Attorney General claimed that Ethereum was a security during a suit against KuCoin. Additionally, the SEC has been taking action against both Centralized staking services and stablecoins.
Regulations seem to be coming thick and fast for crypto, with nary a sign of slowing down. While many crypto-centric companies have protested that crypto legislation remains vague, these complaints seem to have fallen on deaf ears.
In light of this, companies have been taking action into their own hands, standing their ground against the SEC. Recent statements from judges presiding over the Grayscale case have also served to expose the opacity of crypto regulations.
[Editor’s Note: This article does not represent financial advice. Please do your own research before investing.]
Featured Image Credit: Chain Debrief