Authorities have expressed concerns that digital currencies such as bitcoin may become the next offshore bank account – a way for the everyday person to move mass amounts of money without leaving a trail while simultaneously dodging taxes.
U.S. Treasury Secretary Steven Mnuchin said in January he plans to work with countries in the G20 international forum to prevent cryptocurrencies from becoming the digital equivalent of an anonymous Swiss bank account, but LDJ Capital founder and Chairman David Drake said there’s still a lot of uncertainty regarding how digital currencies will be regulated.
“The normal person in the U.S. today can actually start using offshore banking with bitcoin if they have an account abroad,” Drake told FOX Business’ Maria Bartiromo during an interview on Wednesday.
But, as bitcoin and cryptocurrencies have increased in market value, so has the scrutiny by government regulators. The Internal Revenue Service (IRS) began investigating how taxpayers reported, and didn’t report, virtual currency transactions. Congress subsequently amended the tax code to close a loophole that allowed cryptocurrency owners to exchange digital currencies without reporting the transactions on their returns.
“The IRS is having a hard time embracing this,” Drake said. “We saw the loss of Coinbase and other platforms out there when the IRS said we want to see all the documentation, we want to tax people.” Now, Drake said increased regulation of cryptocurrencies could be coming as mainstream companies look to monetize the technology. Some of those include Starbucks, which has suggested it may invest in a user app that relies on blockchain technology. Despite other countries cracking down on bitcoin (South Korea banned digital currency tradings, and a number of other countries are weighing the possibility), the Securities and Exchange Commission, however, has yet to delineate how it plans to monitor digital currencies in the U.S.
“There’s a lot of uncertainty in that space,” Drake said. “And I think as soon as that’s resolved, Wall Street is coming in.”