4 Steps to Getting Your Crypto Investments Ready For Future Regulation

The burgeoning cryptocurrency industry has piqued the interest of investors, corporations, and, most recently, Uncle Sam. So, if you’re one among the 16 percent of Americans who invest in cryptocurrency, you might be wondering: What does the new regulatory framework imply for me? 

It isn’t obvious now, but we may have a better notion shortly. Many analysts agree that President Biden’s recent executive order on cryptocurrencies, as well as any other new regulatory developments, is a good thing for investors. According to Nicole DeCicco, creator of CryptoConsultz, a digital currency consulting agency headquartered in Vancouver, Washington, more regulation might boost market stability, as well as the price and value of crypto, allowing investors to see it with healthy optimism. She cries, “The train has departed from the station!” Instead of attempting to halt it, we should hope that it helps the market. 

Investors and Cryptocurrency Regulation

At least until the federal government decides on the particular laws, no one knows how the common investor would be affected by expanding restrictions. And, according to Marco Santori, the chief legal officer of digital cryptocurrency exchange Kraken, some market players may not notice any difference until the dust settles.

Keep in mind that when it comes to volatile cryptocurrency assets, experts advise restricting your holdings to less than 5% of your whole portfolio and only investing what you’re willing to lose. Make sure you have an emergency fund and any high-interest debt, such as credit cards, are paid off before you invest. While the specific nature and timing of future crypto legislation remain unknown, there are steps investors can do right now to prepare for it.

What Should You Do to Start Preparing for Cryptocurrency Investor Regulations?

Whatever future regulation may look like, experts say there are four things crypto investors can do now to be prepared:

1. Stick to Your Game Plan When It Comes to Investing

Whatever is going on in the press or in the White House conference rooms, sticking to your approach is probably the wisest course of action. Investors in cryptocurrencies should consider their strategy in the same manner that they consider the stock market. Contributions to your Roth IRA or 401(k) should not be stopped (k). You shouldn’t change your crypto strategy just because of a bad day or some bad news.

Change is inescapable, and we hope that crypto investments will continue to provide investors with opportunities they would not have otherwise, says DeCicco. While it’s risky to have faith in the face of adversity, it’s also necessary. It might let investors maximize their share in the game while weeding out those who are scared of the unknown.

2. Keep Track of Everything

It’s also crucial to maintain track of your bitcoin transactions because some investors may face tax consequences. As a result, the IRS considers virtual money to be property, and exchanging crypto is a taxable event. Associate professor of finance at Vanderbilt University and a former SEC financial economist. Many exchanges, according to White, may already provide investors with year-end tax paperwork showing their trading activities.

A cryptocurrency portfolio tracker helps automate the process and verify that your records are accurate. For more active traders, this is especially beneficial. A tracker is a third-party tool that you may connect to your wallets to pull data and display your profits, losses, and other information about your activity and holdings. Some will keep track of pricing fluctuations, auto-fill tax forms, and notify you if your account is in the red.

3. Make a Tax Return That Includes All of Your Earnings and Profits

It’s crucial to keep track of your bitcoin profits and losses. White adds that the IRS is seeking proof of capital gains. They’re interested in knowing whether you have any valuables in a registered account, he admits. As a result, any cryptocurrency valued at more than $10,000 held on foreign exchange or account should be declared.

You should also go through your prior tax returns to see whether there is any undeclared cryptocurrency. Also, purchase a cryptocurrency portfolio tracker to keep track of your transactions.

4. Invest in a Variety of Assets to Diversify Your Portfolio and Protect Your Assets

Finally, you should take precautions to protect your crypto assets from market fluctuations as well as any security concerns. To mitigate the impact of any new laws on specific cryptocurrencies or tokens, DeCicco advocates diversifying your holdings (just like you would with traditional assets). “Whether there are restrictions or not,” she argues, “diversification is crucial.”

DeCicco also suggests transferring your cryptocurrency assets to a secure digital wallet. While these measures can assist investors in becoming more knowledgeable about best practices and being compliant with the IRS, they are not exhaustive. In reality, we won’t know what the new laws or regulations will look like for a while.

Regulation of Cryptocurrencies: What You Should Know

While it’s unclear what rules or laws will emerge, they should help break the present stalemate of regulatory authorities attempting to maintain track of the crypto markets.

The Commodity Futures Trading Commission (CFTC), for example, regulates crypto futures trading. While the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) strives to combat cybercrime and money laundering. In addition, the Securities and Exchange Commission (SEC) has been weighing in on the crypto markets, with SEC Chairman Gary Gensler expressing his support for crypto regulation earlier this year.

In fact, government authorities are all over the place in their attempts to deal with cryptocurrencies. “I think rules might bring some stability, depending on how rigorous they are,” White adds. But don’t anticipate your Bitcoin to be subject to new regulations anytime soon. “Most federal rules, when I worked at the SEC, if there’s a rule-making activity it’s not going to happen soon,” White adds. “They’ll think about what sectors require regulation, suggest guidelines, gather public opinion, and meet with representatives of the industry,” he adds, before settling on any real restrictions.

Take Biden’s executive order seriously, though, since it indicates that the federal government is planning to enter the crypto realm, according to Santori. “It’s not just a signal flare,” he explains. “This is intended to convey a message to the entire ecosystem of stakeholders: the government is working on it [regulation], and we’ve got it covered.”

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