Welcome to FinTech TV.
The chair speaking here at Blockworks underscores how important regulatory progress is to the crypto industry, but crypto investors need Washington DC's response to be comprehensive and also include help from Congress and federal agencies like the IRS, and that's because they are faced with a tricky tax season.
This comes as brokerages are required to send 1099 forms for the first time, but the Doesn't include cost basis which could trip traders up on things like swaps and rewards.
Joining me here at DAS is Miller Whitehouse Levine, founder and CEO of the Solana Policy Institute.
Well, great to have you here.
Thank you so much for joining me.
Thank you for having me.
Well, it is almost tax season here in the US.
We're counting down to mid-April here.
So while we're keeping an eye on the nation's capital and progress regarding Clarity Act, tell us why this tax season is different from others.
Uh, it's different for a variety of reasons.
To, to your point, uh, this is the first year where 1099s for digital assets are being issued by crypto brokerages to their customers.
Historically, that wasn't a requirement.
Uh, some exchanges gave their customers an attempt at a 1099, so they could easily understand their, uh, tax obligations for the, the tax year in question.
But, uh, figuring out how to do that in practice, It is always, uh, easier said than done.
To your point, there are certain characteristics about crypto that are different than traditional financial assets.
Uh, when you're buying a security in Tradfi, for example, you're only buying it at a broker.
You can't buy it on chain and hold it in self-custody, which means, uh, some broker knows what your basis was.
In this instance, uh, crypto is different.
You can go buy crypto from, uh, on chain from someone else, get it on a peer to peer basis.
Which means you have to self-report your basis.
That's a new, uh, environment that the IRS is trying to navigate, and there will be fits and starts.
Uh, this is the first, I think, major reform to the tax code focused on digital assets, so it's great to see it at the implementation stage, and, uh, I expect there will be some wrinkles to iron out over the next few years, uh, not just on this issue, but there's a whole host of other issues related to tax that Congress will need to address.
Yeah, and speaking of those additional issues, what are those going to be?
Yes, so there's several, I think, uh, from an individual user's perspective of crypto, the most important one is a, what's called a de minimis, uh, exemption for small transactions.
Uh, this is a thing in traditional finance with other currencies.
So, for example, when you go to Europe and buy a cup of coffee with euros, uh, to the extent you come back home.
And sell that those euros for dollars, you're gonna have a little gain or a little loss between the time you bought the euros and the time you sold the euros.
Right now, if that gain or loss is under $200 the IRS says no harm, no foul.
We don't want to scope in, you know, however many hundreds of millions, if not billions of transactions, uh, that a Forex, uh, uh, a, a blanket 4x policy would.
Entails, so they have this de minimis exemption.
We're trying to apply that to crypto, so when you buy a cup of coffee with a stablecoin or with Bitcoin, you don't have a capital gain or loss that you need to report and uh pay your taxes on at the end of the year.
Right now, every crypto transaction you do creates uh at.
At least two taxable events.
You pay gas to the network, which in and of itself is a disposition of an asset, and can be a gain or a loss, you know, it could be 1/10 million of a cent, and kind of points to the ridiculousness of current policy that the, uh, Congress will need to amend.
The other big one is staking tax treatment.
Uh, so when, or, uh, staking in mining tax treatment, excuse me.
Right now, you know, when you're a Bitcoin miner, for example, and you're participating in the network, you create new tokens, and, uh, right now those are taxed upon receipt.
The issue with that is, uh, when you dispose of those assets for the first time, and realize, uh, the net wealth creation from those new tokens, the price could have changed significantly, but your tax obligation hasn't.
So, say, for example, you get $100 worth of Bitcoin in February.
You eventually sell it for $1 in December, cause the Bitcoin price crashed.
You have uh a tax obligation on $100 but the assets underlying that $100 are actually worth $1.
So, also illogical and a major hurdle to a broader use of these assets, and I think those two are the most important issues Congress will have to resolve.
Yeah, and Miller, you highlight a lot of key issues here, and when you and I think about going overseas and getting a cup of coffee, I think it adds to the complexity here because I'm concerned about the actual ounces that go into the cup as opposed to some of these layers that you're talking about.
But when it comes to the regulatory landscape, we're here in New York City at Digital Asset Summit, and we heard from Paul Atkins, the SEC chair, as well as Mike Selig yesterday.
But when it comes to Atkins, he mentioned the importance of the innovation exemption here.
So how does it relate to tokenization?
Uh, it's really, I think, gonna be the biggest unlock for tokenized, uh, tokenized assets, uh, of any potential regulatory chain change on the horizon right now.
What the SEC is currently allowing is for folks to tokenize securities on chain.
So, Miller can issue stock in Miller Corp on chain, and, the issue right now is that once I issue it to someone, they can't trade it.
There's no.
Secondary market on chain right now for securities that are in compliance with the US securities laws.
That's because the US securities laws envision venues like NASDAQ and NICE, not on chain protocols for the trading of tokenized assets.
So what the SEC is about to do in, uh, per Chairman Atkins's comments yesterday and over the last few weeks is to allow, uh, for that kind of activity to happen within what they're referring to as.
An innovation exemption.
It's going to say, to the extent you meet these requirements, these regulatory and consumer protection requirements, you're going to be able to trade these securities on chain using DI protocols, using self-hosted wallets, etc.
So it, I think, is really a revolutionary proposal, and it'll be a massive unlock for US capital markets, and we're certainly excited to see it, uh, come to fruition.
And finally, Miller, while I have you here, I do want to get your perspective when it comes to progress on the Clarity Act.
So where are we when it comes to market structure?
Uh, well, the yield issue that everyone has been hearing about for the last 8 weeks appears to not be resolved.
It seems, it seemed like we had a Reason for hope late last week, the, uh, White House and Congress announced that they had reached a deal in principle among those stakeholders.
Uh, and today Coinbase, uh, just announced that they are opposed to that deal.
So, uh, you know, this yield issue, which was never part of market structure over the last 8 years, we've been working on it, uh, really is, um, you know, put a, uh, monkey wrench into the works a bit on market structure.
Uh, so I think, um, hope springs eternal that there will be a, a positive resolution on this rewards issue because it's really holding up the bill and, uh, time is short.
Well, Miller, thank you so much for taking time out of your busy schedule to join me here in New York City at Digital Asset Summit 2026.
My pleasure.
Thank you for having me.
Thank you.
