SEC States Bitcoin and Ethereum Are Not Securities, Favorable Tax Implications

This article does not contain tax advice, investment advice or recommendations. Every investment and trading move involves risk, you should conduct your own research when making a decision.

William Hinman, the Securities and Exchange Commission’ director of the division of corporate finance said Thursday that ether—the currency that powers the Ethereum network—shouldn’t be regulated in the same way as stocks and bonds.

“Based on my understanding of the present state of ether, the Ethereum network, and its decentralized structure, current offers and sales of ether are not securities transactions,” Hinman said at Yahoo’s All Market Summit: Crypto in San Francisco. “And, as with bitcoin, applying the disclosure regime of the federal securities laws to current transactions in ether would seem to add little value.”

His statements follow similar ones made in April by SEC chair Jay Clayton about bitcoin. Taken together, the two sets of remarks provide the clearest understanding of how the regulatory agency views the cryptocurrency market.

When a cryptocurrency becomes sufficiently decentralized, as the widely popular bitcoin and ether have, the agency no longer views it as a security. In contrast, smaller initial coin offerings, or ICOs, are almost always securities in the SEC’s eyes. That distinction matters, because securities are subject to the same regulations as normal stocks.

This indication by the SEC has implications investors may not first consider from a tax perspective. Since cryptocurrencies are generally classified as property, wash sale regulations should not currently be a concern for investors. This means investors can sell an investment to realize a tax loss, only to buy it back immediately thereafter at a bargain.

Today, wash sales only apply to stocks and securities, since Bitcoin and Ethereum have not been labeled a stock or security, the IRS can only tax traders for non-economic substance transactions under property rules. These transactions are similar to wash sales, considering the volatility of crypto markets and the potential argument that investors made late trades in response to market-moving news as opposed to tax motivations, traders have a legitimate position on the matter.

If you searching for CPA firms to assist you with reporting cryptocurrency income and capital gains, contact Camuso CPA. Whether you need tax preparation services, assistance with properly reporting gains and income from virtual currencies on your taxes, cryptocurrency portfolio analysis, or any other service provided by a certified accountant, Camuso CPA can help.

 

Author: Patrick Camuso, CPA is founder and owner of Camuso CPA, a Charlotte, NC based CPA firm consulting to cryptocurrency investors, miners and business nationwide.