The cryptocurrency market is hot right now. In early May, Ethereum (ETH) was valued at more than $3,500, up from less than $1,100 at the beginning of the year. Often considered the second most popular cryptocurrency after Bitcoin (BTC), Ethereum has been called “digital oil” while, by comparison, Bitcoin has been called “digital gold.” And then there’s others, like Dogecoin (DOGEUSD), which started as a joke. As investors jump on the bandwagon, though, Dogecoin has jumped above $0.60 (as of this writing)—that’s up from about a dime just a few weeks earlier. As the crypto ecosystem gains attention from investors, it’s gaining attention from regulators as well.
Both Bitcoin and Ether, the currency used on the Ethereum blockchain network, are decentralized digital currencies that leverage blockchain, but the two currencies aim to accomplish different goals. Bitcoin’s design is to provide a secure, P2P (peer-to-peer) decentralized payment system. Ethereum’s design is to enable smart contracts. In one bold prediction, Nigel Green, deVere founder and CEO, says Ethereum could hit $5,000 and soon. Green points to a global shift toward DeFi (decentralized finance) and the trend toward using NFT (non-fungible) tokens as reasons to expect the Ethereum blockchain to experience a big boost in the coming weeks and months. Investopedia defines NFTs as “cryptographic assets on blockchain with unique identification codes and metadata that distinguish them from each other.”
Digital assets and blockchain have enabled an NFT craze. In March, a piece of digital artwork called “EVERYDAYS: THE FIRST 5000 DAYS” sold at auction for more than $6 million. It was auctioned by Christie’s, the first major auction house to offer a completely digital piece of artwork with an NFT and the first to accept cryptocurrency as payment. In this case, the buyer purchased the art with Ether. The latest in NFTs includes the stars of Internet memes, including the “David After Dentist” kid, who’s now a college student, selling an NFT of the immensely popular 2009 YouTube video featuring him acting loopy after being put under anesthesia for a tooth extraction.
Earlier this month, Gary Gensler, chair of the SEC (Securities and Exchange Commissions), said investors in the cryptocurrency market need more protection in the U.S., and he suggests Congress take a more active role in regulating it, although he didn’t make any more specific recommendations at the time. The IRS, too, is taking note of what’s going on in the crypto space, and capital gains made in the crypto ecosystem aren’t exempt from taxation.
On May 5, a federal court in Northern California authorized the IRS to go sniffing around for U.S. taxpayers who have conducted $20,000 or more in crypto transactions via Kraken, a cryptocurrency exchange, between 2016 and 2020. In April, a court in Massachusetts granted a similar order authorizing the IRS to investigate U.S. taxpayers who conducted $20,000 or more in crypto transactions via Circle.
For some investors, the cryptocurrency scene is feeling like a bit of a gold rush right now, especially those playing in the Dogecoin realm. But cryptocurrencies and their blockchain-based platforms are moving from the wild west to mainstream, and that often means regulation and other government involvement—for better or for worse, depending on whom you ask.
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