Exploring the Crypto Investment Landscape: SEC Enforcement, Taxation, and Potential Risks

Cryptocurrency investment has been on the rise ever since the value of Bitcoin shot up suddenly.^[0] Major players like PayPal and Xbox have been adopting cryptocurrencies, leading to an increased demand and an even more impressive market value. As of January 27, 2023, Bitcoin is the most valuable cryptocurrency, with a market value of billions of dollars.

Venture capital investments have also been on the rise and are likely to accelerate the market in the upcoming years. 2017 saw more mainstream investors entering the crypto space, and the IRS considers cryptocurrencies to be property, like stocks or real estate.^[1] As such, investors must pay taxes if they’ve realized a capital gain and lower their tax bill if they’ve taken a loss.^[1]

Since the start of its enforcement, the SEC has issued 127 crypto enforcement actions, including 82 litigations and 45 administrative proceedings, with 59% of all actions alleging fraud, 73% alleging an unregistered securities offering violation, and 44% alleging both.^[2]

Under the current SEC chairman, Gary Gensler, the agency has sharpened its focus on cryptocurrency lending and trading platforms as well as decentralized finance platforms.^[3] The SEC’s Crypto Assets and Cyber Unit recently expanded its workforce to investigate securities law violations in the crypto markets.^[2]

In addition to the SEC’s enforcement actions, investors must also consider the taxation of cryptocurrencies. Application-Specific Integrated Circuits (ASICs) are the most common hardware for mining cryptocurrencies, accounting for more than 43.0% of global revenue in 2021.^[4] Other hardware such as GPUs and trading platforms are also used to buy and store crypto.^[2]

Ultimately, the usefulness of cryptocurrency can depend on the individual investor. Before investing, it is important to consider the legal implications, taxation, and the potential risks of cryptocurrency-related investments.

0. “United States Hardware Wallet Markets, Competition, Forecast …” www.businesswire.com, 31 Jan. 2023, https://www.businesswire.com/news/home/20230123005559/en/United-States-Hardware-Wallet-Markets-Competition-Forecast-Opportunities-2022-2028-Increasing-Investments-in-Cryptocurrency-Based-Devices-and-Increasing-Use-of-NFC—ResearchAndMarkets.com

1. “Things to know about your cryptocurrency at tax time | Money …” www.yaktrinews.com, 31 Jan. 2023, https://www.yaktrinews.com/news/money/things-to-know-about-your-cryptocurrency-at-tax-time/article_c865112f-71e1-5020-bb14-07c518ac9288.html

2. “Cornerstone Research: SEC Tightens Cryptocurrency Enforcement” www.prweb.com, 31 Jan. 2023, https://www.prweb.com/releases/cornerstone_research_sec_tightens_cryptocurrency_enforcement/prweb19120222.htm

3. “SEC ramped up cryptocurrency enforcement in 2022, report shows …” www.pionline.com, 31 Jan. 2023, https://www.pionline.com/cryptocurrency/sec-ramped-cryptocurrency-enforcement-2022-report-shows

4. “Cryptocurrency Market Is Expected To Reach around USD 4.25” www.globenewswire.com, 31 Jan. 2023, https://www.globenewswire.com/en/news-release/2023/01/24/2594075/0/en/Cryptocurrency-Market-Is-Expected-To-Reach-around-USD-4-25-Billion-by-2022-Grow-at-a-CAGR-Of-12-2-during-Forecast-Period-2023-To-2030-Data-By-Contrive-Datum-Insights-Pvt-Ltd.html