The long and winding road to a resilient and helpful crypto regulatory environment

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In January Lindsey Argalas, COO of TaxBits, joined Michael Sonnenshein (CEO of Grayscale Investments), Mark Foster (Head of European Policy at the Crypto Council for Innovation) and Donna Redel (Professor at Fordham Law School, Wharton and Columbia Business School) to discuss the present and future of blockchain regulation.

To open the discussion, Professor Donna Redel asked the panelists:

Thus, the digital asset industry has often complained that the United States does not have a coordinated rational approach to regulation. How would you react to that, not just from your experience, but in general?

Michael Sonnenshein, CEO of Grayscale, who runs one of the world’s largest digital asset investment firms, responded:

Having been with Grayscale for nine years, and truly having our business rooted in compliant and regulated investment offerings, our approach has always been to ask permission, not forgiveness as an organization. And so what’s different in the United States compared to other parts of the world is how fragmented the regulatory environment is.

After discussing regulatory developments in the EU such as the MiCA framework with Mark Foster, the discussion shifted to Lindsey who was asked, Where have you seen digital asset regulation best adopted, and why the regulatory clarity important? Lindsey replied

I think you cannot underestimate the importance of clarity on the regulatory front. Right now we are seeing the paralysis of many very well-meaning companies and institutions that would like to engage in digital assets but, according to Michael, in the absence of regulatory clarity, are reluctant to do so.

Donna Redel then addressed Michael Sonnenshein: After FTX, there was a lot of criticism against the SEC. But this criticism is not new to many, including yourselves, towards ETFs. I know you filed a lawsuit. Even before that, you had your attorneys write a very detailed letter about why the SEC is not complying with certain types of other laws in the country. How do you think the SEC, in your view, specifically let the retail client down?

Michael responded by explaining: I think it’s an amalgamation of a few things When there’s regulatory clarity It’s not just about unlocking opportunities, it’s also about unlocking them in regulated frameworks where it’s there are no questions about where the law stops and does not stop. And a big part of the SEC’s failure is its regulation-by-enforcement methodology.

Regulation by enforcement is just literally every day we wake up and the SEC calls a bad actor out with fines or some kind of judgment Every industry has bad actors and we sure want those bad actors called out and to be removed from the crypto ecosystem, but if you look at these use cases, then they just become landmines that companies like mine and others then have to use as benchmarks as to where not to enter.

Later, the discussion returns to Lindsey with the question: Since the fallout of FTX, a number of accounting firms have publicly given up on wanting to do this. At the same time, industry participants want more real time. Accounting How do you see the way forward in this area? Lindsey replied

Clearly, the FTX debacle has shed light on accounting practices. This underscored the need for much greater transparency and a much higher bar for the quality of financial data. Basically, we have lost faith in the system in terms of financial data, and as a result, accounting firms are reluctant to get into this because they cannot do their job well Companies have to rely on accounting practices and strong internal controls and adherence to reporting requirements

Frankly, accounting for digital assets is extremely complex, it is far more complex than traditional financial reporting. The tools, processes and systems in place that businesses use today are not suited to the complexity, high volume of transactions and high price volatility, so the accounting problem that has surfaced At TaxBit, we we focus on accounting tools and solutions that help companies track, calculate and report on their digital asset activity in a very controlled way, which then allows accounting firms to step in and have confidence in auditing statements appropriate financial

The discussion then turned to the importance of education and how each of these panelist companies engage with various regulators who are increasingly eager to learn more and write rules for this emerging asset class. To highlight a key upcoming regulatory step that regulators are currently grappling with, Lindsey explained:

In 2021, the United States passed the Infrastructure Investment and Jobs Act, which actually contained requirements for digital asset brokers. We are still awaiting details from the Treasury, which we are expecting here probably in the next quarter or two, which will clarify the tax regime in terms of exactly what information we are reporting, which falls under the definition of asset broker digital, and what type of information do these exchanges need to provide to their consumers so that they can be compliant. And so there’s a lot of specificity that’s to come

To view the entire panel discussion, see the YouTube link hereDownload our Digital Assets Brokers: A Complete Guide to US Tax Compliance for a detailed overview of impending tax regulationsDownload our Complete Guide to Digital Asset Accounting for a detailed overview of standards cryptographic accounting

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