At Joint Open Meeting, SEC and CFTC Approve Final Rule on ...

The Senate hearings don't matter

At this point, it seems incredibly unlikely that the government over-regulates Bitcoin. In short, DC has everything to lose and nothing to gain by trying to shut down this currency. The Senate Bitcoin Lovefest (hearings?) confirmed that this week.
However, what needs more discussion / education are the massive disincentives DC has to shut down Bitcoin from a tax perspective. You may not have heard, but the U.S. is still running up massive deficits and printing trillions of dollars each year to finance our trade imbalance. Then here comes Bitcoin — with its paper millionaires and ungodly amounts of taxable (if trackable) income. With U.S. holders owning something between 25-35% of the outstanding bitcoins, that equates to billions of dollars worth of taxable appreciated assets.
So the Senate hearings don’t matter, but what's taking place behind the scenes certainly does, especially at agencies like the SEC, IRS and CFTC (Commodity Futures Trading Commission). As Time reported on Monday:
"While the Treasury refuses to define bitcoin as a currency, a federal judge hearing a case about a Ponzi scheme recently ruled bitcoin was indeed currency. And noticeably absent from the agency responses were those from the Internal Revenue Service, which has been looking into virtual-currency tax shelters, and the Commodity Futures Trading Commission, which has said it is looking into regulating bitcoin as a commodity. The question of jurisdiction will remain up in the air until Washington can settle on a definition for bitcoin. Is it a security? A currency? A commodity?"
And there’s the rub. Because the definition of bitcoin (the specific currency) matters enormously. The tax consideration has to be the most important issue for interested U.S. parties (consumers, merchants, entrepreneurs, regulators) right now.
On the one hand, the government can treat bitcoin as a security or commodity, in which case, the government will likely tax only the realized gains at capital gains rates. This would reward the long-term speculators, and preserve their incentives to hold bitcoin indefinitely. This seems like the most likely near-term path given the alternative, which would do significant harm to existing holders, and likely entice many to evade taxes.
That alternative, of course, is that the government will adopt the view of the federal courts (thus far), labeling bitcoin a currency and taxing the unrealized gains holders accrue over time. This could be politically stupid and economically disastrous for the U.S. bitcoin market. With unrealized currency gains taxable at the ordinary income rate, the government would essentially be forcing sales of the currency when holders learn that they need liquidity in order to pay taxes on what are much more similar to unrealized paper gains than traditional forex gains.
The net effect would equate to an enormous tax on the industry and a power shift in the bitcoin market to China and other nations, whose residents could buy up the bitcoin getting fire-sold by U.S. investors without the same tax penalties.
No, the Senate hearings really don’t matter if you look at the big picture. Keep your fingers crossed that the IRS ruling is sensical, and won’t end up mattering much either.
submitted by twobitidiot to Bitcoin [link] [comments]

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But then, the CFTC extended their claim of jurisdiction to a ridiculous degree — The CFTC went so far as to allege that a foreign broker who has a website which can be accessed from inside the U.S. has a “U.S. presence”, and therefore comes under CFTC jurisdiction. In my opinion, this is absurd over-reaching on the part of the CFTC. In basic terms, the SEC governs the U.S. securities markets, the CFTC regulates the U.S. commodities markets. The two agencies were created by separate legislation, and have separate governing commissions, powers and approaches to their respective... Under the Dodd-Frank Act, the CFTC has jurisdiction over uncleared swaps and the SEC has jurisdiction over non-cleared security-based swaps. The CFTC has adopted margin rules (including minimum standards for the safekeeping of collateral) for uncleared swaps applicable to nonbank swap dealers and the SEC has adopted margin and segregation rules applicable to nonbank security-based swap dealers ... The rules implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Food, Conservation, and Energy Act of 2008, which, together, provide the CFTC with broad authority to register and regulate entities wishing to serve as counterparties to, or to intermediate, retail foreign exchange (forex) transactions. The final rules become effective October 18, 2010. Worried that the CFTC’s involvement in OTC forex markets would dampen the important institutional market in currencies, the Treasury Department lobbied for a specific amendment, which was included in the final version of the Commodity Futures Trading Commission Act of 1974, intended to exclude from the CFTC’s jurisdiction OTC forex contracts in the interbank market, or as between large ... CFTC/SEC Joint Meetings on Regulatory Harmonization ... Essentially, Congress provided that the CFTC did have regulatory jurisdiction over forex futures contracts involving retail customers, unless the counterparty was a bank, a broker-dealer, a futures commission merchant or an insurance company. This solution was dealt a crippling blow, though, in 2004 when the 7. th Circuit ruled in the ... CFTC’s jurisdiction over OTC Currency Transactions. The debate around the scope of the Treasury Amendment culminated in a U.S. Su-preme Court decision in Dunn v. CFTC in 1997.20 In that case, the U.S. Supreme Court held that OTC foreign currency options were among the products excluded from CFTC jurisdiction by the Treasury Amendment, noting that “[t]he legisla-tive history strongly ... The CFTC is authorized to adopt registration rules and other requirements for retail forex dealers subject to its exclusive jurisdiction or unregulated by another federal agency. This would include FCMs that are registered with the CFTC but not subject to SEC or banking regulation, as well as dealers that are not regulated by any federal regulator (RFEDs). Under this proposal, the handful of retail forex brokers that are registered with the SEC would be subject to stricter regulation than their counterparts under the control of the CFTC. Brokers registered only with the CFTC, then, would probably enjoy a competitive advantage (specifically the right to offer 10:1 leverage, instead of 4:1, as proposed by the SEC). Where forex firms do not fall into the categories of regulated entities outlined above and engage in foreign currency futures and options transactions with or for retail customers who do not have high net worths, the CFTC has jurisdiction over those firms and their transactions. Warning Signs of Fraud

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