Common cryptocurrency regulations discussed at G20 summit, tax warning from IRS

G20 financial leaders are set to discuss regulations for cryptocurrencies at a summit in Buenos Aires, with Bank of England Governor Mark Carney warning that bitcoin and its peers are evolving at such a rate that they could become a threat to the financial system.

“Wider use and greater interconnectedness could, if it occurred without material improvements in conduct, market integrity and cyber resilience, pose financial stability risks through confidence effects,” Carney wrote in a letter to the G20 leaders published on Sunday.

Although BoE's financial policy committee said last week that cryptocurrencies "do not currently" pose a material risk to UK financial stability as they are still a small part to the financial system, Carney said cryptocurrency markets were evolving so rapidly that they needed to be monitored closely.

Investors have also seen complications recently as they discovered that there are tax liabilities related to trading in cryptocurrencies. According to the US tax authority, the Internal Revenue Service, anything bought with digital currencies can be taxed as capital gain as much as 39%. This is because the IRS consider cryptocurrencies as property and not currency.

Furthermore, if investors sell cryptocurrencies after holding them for longer than a year, profits are considered long-term capital gains. If they aren’t reported it could be considered as tax evasion by the IRS.

Millennial investors are being particularly affected by this since many enjoyed huge gains last year but do not own enough capital pay their tax bills, forcing some to sell off even more of their digital currencies.

Chief executive of deVere Group, Nigel Green said, “I would urge officials to study the proactive fintech [financial technology] approach being taken by Japan, which was among the very first adopters of a regulatory framework to oversee trading on registered exchanges. What is needed is a global consensus on robust guidelines for this burgeoning industry.”