Forward the Original Title‘MIIX Capital：美国加密市场调研报告’

Introduction

In many economic sectors, particularly in the field of artificial intelligence, the United States stands at or near the forefront of technological advancement and innovation. In the cryptocurrency realm, the United States is indeed the global hub. Well-known top applications and institutions such as Ethereum, UniSwap, Binance, Coinbase, DCG, and a16z are either born in the United States or headquartered there, establishing extremely close ties with the country.

American culture emphasizes individualism, encouraging individuals to be self-sufficient. It advocates that returns should be determined by individual ability rather than wealth or social status. The United States’ free-market capitalism emphasizes profit motives and high-risk tolerance, providing ample opportunities, funding, and support for startups. This has fostered an ecosystem primarily driven by the private sector with minimal intervention from the public sector, serving as a natural incubator for the growth of the cryptocurrency market.

1. Macroeconomic Indicators and Current Situation

The United States has a highly developed mixed economic system. By nominal GDP, it is the largest economy in the world; however, by Purchasing Power Parity (PPP), it is the second largest economy, following only China. As of 2022, the United States ranks seventh in nominal GDP per capita and eighth in GDP per capita based on PPP calculations.

1.1 Geographical Location and Population Size

The United States of America, commonly known as the United States, is a country primarily located in North America. By land and total area, the United States is the third-largest country in the world. It consists of 50 states, one federal district, five territories, and several uninhabited island territories. It is the oldest existing federation in the world and, according to the World Economic Forum, also the oldest democratic country.

The United States is situated in the central part of North America, with its territory including the state of Alaska in the northwest of North America and the Hawaiian Islands in the central Pacific Ocean. It borders Canada to the north, the Gulf of Mexico to the south, the Pacific Ocean to the west, and the Atlantic Ocean to the east. The land area covers 9.37 million square kilometers. The mainland stretches approximately 4,500 kilometers from east to west and 2,700 kilometers from north to south, with a coastline extending 22,700 kilometers. By land area and total area, the United States ranks as the third-largest country in the world, following Russia and Canada.

As of February 2023, the total population of the United States is approximately 333 million. According to the 2020 U.S. Census data, non-Hispanic White people make up 57.8%, Hispanic or Latino individuals make up 18.7%, African Americans make up 12.4%, Asians make up 6%, Native Americans and Alaska Natives make up 1.1%, and Native Hawaiians or other Pacific Islanders make up 0.2% (these percentages overlap). Approximately 46.5% of the population identify as Christian, 20.8% as Catholic, 1.9% as Jewish, 0.9% as Muslim, 0.7% as Buddhist, 0.5% as Eastern Orthodox, 1.2% as adherents of other religions, and 22.8% as having no religious affiliation (with some individuals belonging to multiple religious affiliations and thus being counted more than once).

1.2 Economic Structure and Scale

The United States economy is highly developed, with a massive production scale and leading production technologies. Its sectoral structure is comprehensive, with advanced development in both agriculture and industry. The country leads the world in technology and volume in areas such as highways and aviation and ranks second globally in terms of foreign trade volume. Its financial industry is also highly developed, with its economy ranking first globally in terms of long-term scale. With a GDP per capita exceeding $60,000, it holds the top spot among countries with populations over 50 million, playing the most crucial role in the global economy.

However, wealth in the United States is highly concentrated, with the wealthiest 10% of the adult population owning 72% of the nation’s household wealth, while the bottom 50% own only 2%. Income inequality in the United States remains at historically high levels, with the top fifth of earners receiving more than half of the income, making the United States one of the countries with the widest income distribution among OECD member states.

The United States leads or is close to the forefront of technological progress and innovation in many economic sectors, particularly in artificial intelligence, computers, pharmaceuticals, as well as medical, aerospace, and military equipment. The country’s economy is propelled by rich natural resources, developed infrastructure, and high productivity. Its largest trading partners include the European Union, Mexico, Canada, China, Japan, South Korea, the United Kingdom, Vietnam, India, and Taiwan. The United States is the world’s largest importer and the second-largest exporter after China. It remains the largest services-exporting country globally to date.

1.3 The World’s Largest Economy

The United States boasts a diverse, highly developed economy predominantly led by the private sector. Since around 1890, the United States has consistently held the position of the world’s largest national economy by GDP. Its characteristics include high productivity, technological innovation, and competitiveness.

According to World Bank data, the Gross Domestic Product (GDP) of the United States in 2022 was $25,439.7 billion. The U.S. GDP accounted for 10.91% of the world economy.

The data shows that the Gross Domestic Product (GDP) of the United States increased from $22,384.60 billion in the second quarter of 2023 to $22,641.82 billion in the third quarter of 2023, reaching a historic high.

1.4 Top in the World for Per Capita GDP

The latest record for the United States’ per capita Gross Domestic Product (GDP) was $62,789.13 in 2022. The per capita GDP of the United States is equivalent to 497% of the world average. It ranks first globally, followed by Canada and Germany, ranking ninth globally based on purchasing power parity calculations.

1.5 Inflation Rate Slightly Higher Than Expected

Due to the slowing decline in energy prices, the annual inflation rate in the United States rose from a five-month low of 3.1% in November to 3.4% in December 2023, exceeding market expectations of 3.2%. The annual core inflation rate fell to 3.9%, lower than the previous period’s 4%, but higher than the expected 3.8%. Compared to November, consumer prices rose by 0.3%, marking the highest increase in three months and surpassing the forecast of 0.2%.

1.6 Consumer Confidence Index Continues to Rise

Preliminary estimates indicate that the University of Michigan’s Consumer Confidence Index surged to 78.8 in January 2024, reaching its highest level since July 2021. Meanwhile, the index measuring consumer expectations soared from 67.4 to 75.9, and the index assessing the current economic situation rose from 73.3 to 83.3. Cumulatively for January and December, consumer confidence has risen by 29%, marking the largest two-month increase since the end of the 1991 economic recession.

1.7 Legal Tender in the United States

The US dollar is the most widely used currency in international trade, supported by the country’s dominant economic, military, petrodollar system, and financial system. Since World War II, the US dollar has played the primary role as the world’s main reserve currency, used as the official currency in some countries, and as the de facto currency in others. Currently, the US dollar accounts for 58% of the global foreign exchange reserve value. In contrast, the second most commonly used currency, the Euro, only accounts for 21% of foreign exchange reserves.

2. Characteristics of Users in the US Cryptocurrency Market

According to TripleA’s data, the United States has over 52 million cryptocurrency users, ranking among the top in terms of adoption rate, accounting for 15.56% of the total population. There is limited sample data available regarding the characteristics of US users, primarily relying on TripleA’s 2022 report on the adoption and trends of cryptocurrency in the United States.

2.1 Wealthier Class Represents a Higher Proportion

Dividing cryptocurrency ownership by income, 44% of cryptocurrency owners in the United States have annual incomes of $100,000 or more. This indicates that cryptocurrency is primarily owned by wealthier Americans.

2.2 Users Under 45 Years Old Account for Over 80%

The majority of cryptocurrency holders in the United States are aged between 18 and 44 (82%). Only 7% of individuals are aged 55 and above. This conclusion suggests that cryptocurrency is primarily owned by young Americans.

2.3 66% Of Users Are From High-Education Demographics

Most American cryptocurrency holders have higher education, with 66% holding a bachelor’s degree or higher.

2.4 People Are More Inclined To Hold BTC And ETH

Bitcoin remains the top choice for cryptocurrency holders in the United States, with over 73% of cryptocurrency holders surveyed owning Bitcoin. Ethereum follows closely behind due to its widespread use cases in the cryptocurrency space, ranking second, followed by Ripple (XRP), Tether (USDT), and other cryptocurrencies.

2.5 Cryptocurrency Is Viewed As A Secure Asset.

More and more people are considering cryptocurrencies as a secure asset and an alternative to their national currency, with over 15% of cryptocurrency holders owning over $10,000 worth of crypto assets.

2.6 People Desire Widespread Education

Most non-cryptocurrency respondents (64%) indicate a lack of knowledge, highlighting the significant potential for increased cryptocurrency adoption through appropriate channels of education and awareness.

3. Regional Characteristics of the Cryptocurrency Market in the United States

3.1 TOP20 states account for 76% market share

Coinbase, the largest centralized exchange in the United States, lists the top 20 states with the highest percentage of cryptocurrency holders, accounting for 76% of the market share.

3.2 California Holds the Highest Popularity

California Surpasses All States, Holding 43% of the Total Web Traffic for Bitcoin and Ethereum on CoinGecko in the United States, indicating the highest interest in these cryptocurrencies. Other competitors entering the top ten include Illinois, New York, Florida, Washington, Pennsylvania, Texas, Virginia, Georgia, and Arizona.

3.3 New Jersey’s ETH Market Share Reaches 65%.

While Bitcoin holds a significant market share in most of the top 10 states, Ethereum dominates in New Jersey with a market share of 65.0%, followed by Wisconsin at 57.1%. Colorado and Florida have Ethereum search interest market shares of 51.7% and 51.5%, respectively.

4. CEX Preferences Among U.S. Users

https://coinledger.io/tools/best-us-crypto-exchanges

Prominent exchanges in the United States, such as Coinbase, Gemini, and Kraken, enable users to buy and sell Bitcoin using US dollars and various fiat currencies. These platforms typically adhere to strict compliance standards to meet regulatory requirements in the United States.

4.1 Coinbase: The Most Trusted CEX

Coinbase, founded in 2012 by Brian Armstrong and Fred Ehrsam, serves as a secure online platform dedicated to acquiring, selling, transferring, and storing cryptocurrencies. While Coinbase’s fees in the market today may not be the most competitive, with market trading fees ranging from 0.05% to 0.60% and maker trading fees varying from 0% to 0.40%, these fees are offset by the high level of security provided by Coinbase.

4.2 Gemini: A Secure, Regulated CEX

Gemini is a cryptocurrency exchange and custodian platform founded by Cameron and Tyler Winklevoss, renowned for their early involvement in the development of Facebook. Launched in 2015, the exchange focuses on providing a secure and regulated platform for buying, selling, and storing various cryptocurrencies, including Bitcoin and Ethereum. Gemini’s maker trading fees range from 0.00% to 0.25%, while market trading fees range from 0.03% to 0.35%. The more cryptocurrency traded, the lower the fees. Gemini is widely recognized for its compliance with regulatory standards and security measures in the cryptocurrency industry.

4.3 Kraken: Widely Recognized as the Premier CEX

Kraken is a cryptocurrency exchange platform founded by Jesse Powell. Launched in 2011, it has become one of the largest and longest-running cryptocurrency exchanges globally. The platform is renowned for its advanced trading features, high liquidity, and strong emphasis on security. Founder and CEO Jesse Powell played a key role in shaping Kraken into a reputable and longstanding exchange within the cryptocurrency industry. Kraken’s trading fees range between 0.16% and 0.26% for traders with a monthly trading volume below $50,000.

4.4 Uphold: Ideal for Beginners in the CEX Space

Uphold firmly secures its position as the second-largest cryptocurrency exchange in the United States, offering trading and custody services for over 260 digital assets. Under the supervision of FinCEN, the platform adheres to strict regulations, providing American users with a regulated trading environment. Notable features of the platform include user-friendly portfolio tracking services, allowing investors to earn up to 21% annual interest on selected cryptocurrencies.

Uphold’s reputation in the US market is enhanced by its steadfast commitment to transparency and security. It is worth noting that Uphold is one of the few exchanges that provide audited reserve proofs, assuring users of the safety of their funds and confirming full 1:1 backing for all assets. This focus on clarity and reliability makes Uphold a trustworthy and dependable choice in the US cryptocurrency landscape.

4.5 eToro: A CEX Suited for Diverse Asset Categories

eToro is the fourth-ranked multi-asset brokerage in the United States, providing a robust platform for diversified financial investments. With a vast portfolio of over 4,500 assets, including various cryptocurrencies like Bitcoin and Ethereum, as well as traditional investment options such as stocks, commodities, and ETFs, eToro caters to investors’ desires for diversification within a single, secure environment, under strict regulatory compliance.

Adherence to regulations is the cornerstone of eToro’s operations in the United States. eToro also allows investment in crypto assets and crypto-related stocks, including Microstrategy and Coinbase, positioning itself as a comprehensive platform for enthusiasts in the crypto and blockchain fields. Attention to regulatory compliance ensures that US traders have a safe and reliable experience.

5. U.S. Employment Data

5.1 Cryptocurrency Professionals Are Relatively Concentrated

LinkedIn Data: There are over 83,000 cryptocurrency professionals in the United States, mainly concentrated in the New York, San Francisco, and Los Angeles areas. The overall number of professionals in the field is trending upwards, with Los Angeles experiencing the highest growth rate at 35%.

5.2 Technical Personnel Have the Highest Proportion

In the United States, approximately 50% of professionals are engaged in technology-related work such as software development and IT services, while around 12% are involved in financial services. This indicates that the cryptocurrency industry in the United States leans more towards technology-driven and product-driven aspects, with financial services being a strong component.

6. Web3 project in the United States

6.1 The Largest-Scale Application Ecosystem of Ethereum

Ethereum was initiated by Vitalik Buterin in 2013, with Gavin Wood, Charles Hoskinson, Anthony Di Iorio, and Joseph Lubin as co-founders. It raised funds through crowdfunding and officially launched on July 30, 2015.

Ethereum is a decentralized blockchain platform that establishes a peer-to-peer network for securely executing and verifying application code (smart contracts). Smart contracts enable participants to transact without the need for a trusted central authority.

Ethereum is known for its cryptocurrency Ether (ETH), which operates on a blockchain-based platform. The underlying blockchain technology ensures the secure creation and maintenance of a public digital ledger. While Bitcoin and Ethereum share similarities, they differ in long-term vision and limitations.

In September 2022, Ethereum transitioned from a proof-of-work mechanism to a proof-of-stake mechanism. Ethereum has laid the groundwork for numerous emerging technologies based on blockchain advancements.

6.2 Uniswap, the world’s largest DEX

Uniswap is a decentralized finance (DeFi) protocol that operates on Ethereum and other blockchains, serving as the largest decentralized exchange (DEX). It enables users to exchange various cryptocurrencies without intermediaries.

In Uniswap, anyone can create liquidity pools or add tokens to existing pools, providing liquidity for token swaps to other users. Users earn transaction fees as rewards by providing funds to these pools. This approach reduces the barriers to entry for trading and incentivizes the growth of the decentralized finance ecosystem.

Uniswap also has its native token called UNI, which is used for governance and incentivizing protocol participants. UNI holders can vote to determine the protocol’s future direction, such as upgrades and adjustments to fee structures.

6.3 Polygon An extension platform that enhances Ethereum

Polygon was founded in 2017, initially known as Matic Network. It is the brainchild of experienced Ethereum developers Jaynti Kanani, Sandeep Nailwal, Anurag Arjun, and Mihailo Bjelic. Polygon is a protocol stack designed to address Ethereum’s scalability issues.

Polygon operates as an independent blockchain (sidechain) running parallel to the main Ethereum chain. These sidechains can process transactions and smart contracts, then relay the final results back to the main chain. This approach significantly alleviates the pressure on the Ethereum network by offloading much of the processing work to sidechains, thereby improving overall efficiency and speed.

Its goal is to create a multi-chain ecosystem that is compatible with Ethereum, allowing developers to easily build scalable and efficient decentralized applications (DApps). Polygon provides various tools and services to support this ecosystem, including development frameworks, APIs, and software development kits (SDKs).

6.4 Filecoin, A Decentralized Storage Network

Filecoin is a decentralized storage network designed to allow users to store, retrieve, and exchange data. Built on blockchain technology, it makes data storage more transparent and reliable. In the Filecoin network, users pay Filecoin tokens to store their data, while storage providers (miners) earn tokens as rewards for storing this data. Filecoin can be seen as a financial layer for IPFS (InterPlanetary File System), incentivizing more storage resources to join the network by providing economic incentives.

IPFS is a distributed system for storing and sharing files, aiming to create a faster, more open, and more secure internet. IPFS allows users to store files on multiple nodes in the network rather than a centralized server. This makes files more durable and resistant to censorship. Both Filecoin and IPFS were founded and released by Juan Benet and his laboratory team.

6.5 Tezos Is a Blockchain Platform with Self-Amending Architecture

Tezos originated in 2014 when co-founders Arthur Breitman and Kathleen Breitman, along with a group of core developers, launched the project. The company is headquartered in Switzerland. Tezos’ ICO successfully raised $232 million in just 2 weeks, accepting donations in Bitcoin and Ether.

Tezos is a decentralized blockchain platform aimed at providing a more secure, upgradable, and durable framework for building distributed applications and smart contracts. It’s a unique project in the cryptocurrency space, primarily due to its self-amending blockchain architecture, where stakeholders are responsible for managing upgrades to the core protocol, including upgrades to the amendment process itself.

6.6 The Sandbox

The Sandbox is the sequel to the 2D world-building mobile game “The Sandbox,” developed by Sandbox in 2012. It is a blockchain-based virtual world that allows users to create, control, and monetize their experiences and assets created in the game. Its goal is to create a player-driven platform where players not only participate in the creative process of the game but also earn real economic rewards through the content they create. This platform utilizes blockchain technology to ensure transparency and security of asset ownership, providing users with an innovative and interactive virtual environment.

In The Sandbox, decentralized non-fungible tokens (NFTs) are combined with its native cryptocurrency SAND as part of its economic system. Players can use the Voxel editor to create and edit assets such as game characters, props, and plots (referred to as LAND). These assets can become NFTs and be traded within the game or through cryptocurrency markets. LAND is a piece of virtual land in the game where players can build games, experiences, and social spaces.

7. Crypto Venture Capital in the United States

7.1 Digital Currency Group

Digital Currency Group (DCG) was founded in 2015 and is led by Barry Silbert. It is a collective of venture organizations supported by significant entities such as Mastercard, Bain Capital, Transamerica Ventures, CME Ventures, FirstMark Capital, and New York Life. DCG has played a crucial role in promoting cryptocurrency adoption, emphasizing education and advocacy. Its subsidiary, Grayscale, has impacted mainstream investor involvement in digital assets through innovative products such as Bitcoin Investment Trust and other cryptocurrency-focused investment products.

Digital Currency Group frequently collaborates with investment partners such as Coinbase Ventures, Pantera Capital, Blockchain Capital, CoinFund, and Andreessen Horowitz (a16z).

Some of its notable investments include Coinbase, Kraken, Ledger, Etherscan, The Graph, Hubble, Nomics, eToro, and Flare Network.

7.2 Andreessen Horowitz (a16z)

Andreessen Horowitz (a16z) is an investment firm founded by Marc Andreessen and Ben Horowitz in 2009. It manages $35 billion and operates in various technology sectors including healthcare, consumer goods, cryptocurrency, enterprise, fintech, and gaming. It is known for its stage-agnostic investment approach and values and respects entrepreneurs, leveraging its own extensive experience in building companies. The team consists of former founders, CEOs, and CTOs with expertise in different technology domains.

Andreessen Horowitz (a16z) frequently collaborates with investment partners such as Coinbase Ventures, Polychain Capital, Union Square Ventures, SV Angel, and Paradigm.

Some of its notable investments include Compound, dYdX, Uniswap, Forta, and Arweave.

7.3 Binance Labs

Binance Labs was founded in 2018 with the aim of nurturing and supporting promising blockchain projects capable of redefining the future. Its supported projects span exchanges, blockchain infrastructure, decentralized finance (DeFi) platforms, and non-fungible tokens (NFTs), playing a crucial role in expanding various sectors of the cryptocurrency field.

Binance Labs frequently collaborates with investment partners such as Animoca Brands, HashKey Capital, Coinbase Ventures, Hashed Fund, and NGC Ventures.

Some of its notable investments include Symbiosis Finance, Polygon, The Sandbox, Melos Studio, Axie Infinity, and STEPN.

7.4 Coinbase Ventrures

Coinbase Ventures was founded in 2018 as the venture arm of Coinbase, a globally renowned cryptocurrency exchange. Leveraging its wealth of expertise and extensive network, Coinbase Ventures is committed to supporting and investing in early-stage companies at the forefront of advancing blockchain technology and cryptocurrencies.

Coinbase Ventures frequently collaborates with investment partners such as Pantera Capital, Polychain Capital, Andreessen Horowitz (a16z), and DragonFly Capital.

Some of its notable investments include Compound, Polygon, Rocket Pool, Arweave, Diagonal Finance, Yoz Labs, Credora, and Mysten Labs.

7.5 Sequoia Capital

Sequoia Capital, as a leading venture capital firm, has been identifying and supporting groundbreaking companies since its founding in 1972. Its significant investments in tech giants such as Apple, Google, WhatsApp, and Airbnb have expanded its focus on the crypto world. As early as the early 2010s, the company recognized the immense potential of blockchain technology, positioning itself to play a key role in the continuously evolving cryptocurrency field across various industries.

Sequoia Capital frequently collaborates with investment partners such as Andreessen Horowitz (a16z), Coinbase Ventures, Paradigm, Multicoin Capital, and Pantera Capital, particularly in the crypto sector.

Some of its notable investments in the crypto domain include Block, Filecoin, Magic Eden, and Handshake.

7.6 Paradigm

Paradigm is a renowned cryptocurrency venture capital firm that plays a significant role in fostering innovation and transformation in the dynamic crypto space. Founded in 2018 by a

strong team of prominent veterans in the crypto industry, including Fred Ehrsam (co-founder of Coinbase), Matt Huang, and Charles Noyes.

Paradigm frequently collaborates with investment partners such as Coinbase Ventures, Andreessen Horowitz (a16z), Sequoia Capital, Three Arrows Capital, and Variant.

Some of its notable investments include Uniswap, Cosmos, Yield, dYdX, and Tezos.

8. The Regulatory Framework for Cryptocurrency in the United States

Cryptocurrency has been a focal point of both the federal and state governments in the United States, but the regulatory environment is currently unclear and evolving. Different federal agencies have taken varying approaches to digital assets based on their assessment of cryptocurrency characteristics. Legislators can express opinions, and individual states can enact their own rules. Many federal agencies and policymakers recognize blockchain and cryptocurrency as vital components of America’s future infrastructure and acknowledge the need for the United States to maintain leadership in the development of blockchain and cryptocurrency.

8.1 Summary of the US Regulatory Framework

In the United States, cryptocurrency regulation involves a combination of federal oversight and state laws. Federal agencies such as the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Federal Trade Commission (FTC), Internal Revenue Service (IRS), Office of the Comptroller of the Currency (OCC), and Financial Crimes Enforcement Network (FinCEN) play important roles in overseeing various aspects of digital assets.

At the state level, approaches vary widely. Some states, like Wyoming and Utah, have enacted laws to promote and harness blockchain technology for economic growth, including recognizing decentralized autonomous organizations (DAOs) and creating specialized financial institutions for digital assets. Other states have heightened regulatory requirements, such as mandating the acquisition of money transmitter licenses and strict adherence to securities laws, with enforcement actions targeting major participants in the blockchain industry as evidence.

Additionally, the United States has introduced legislation such as the “Responsible Financial Innovation Act” and the “Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act” to provide clarity and integrate digital assets into existing financial frameworks.

The regulatory landscape in the United States is still evolving, with ongoing discussions about the need for clearer guidance and regulations. Legal challenges and disputes persist, particularly regarding the classification of specific tokens and the regulatory treatment of decentralized finance (DeFi) platforms.

8.2 Primary Regulatory Framework Explanation

Securities and Exchange Commission (SEC)

The SEC plays a crucial role in regulating digital assets deemed as securities. Initial Coin Offerings (ICOs) and certain token offerings are subject to scrutiny by the SEC. Compliance with securities laws is paramount in projects involving token sales.

Commodity Futures Trading Commission (CFTC)

The CFTC regulates commodities and futures, including Bitcoin and other cryptocurrencies. Bitcoin is considered a commodity, and the CFTC oversees derivatives of cryptocurrencies.

Financial Crimes Enforcement Network (FinCEN)

FinCEN, under the U.S. Department of the Treasury, focuses on combating money laundering and financial crimes. Cryptocurrency exchanges and certain wallet providers are subject to regulation under anti-money laundering (AML) regulations.

Internal Revenue Service (IRS)

The IRS treats cryptocurrency as property for tax purposes. Transactions involving cryptocurrency must comply with capital gains reporting requirements, and individuals are required to report income related to cryptocurrency.

State-Level Regulation

States take varying approaches to cryptocurrency regulation. Some states have introduced specific laws, licenses, or regulatory frameworks for cryptocurrency businesses, while others employ more general oversight.

Bank Secrecy Act (BSA) Compliance

Cryptocurrency exchanges and certain wallet providers must adhere to the Bank Secrecy Act, which includes implementing Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures.

8.3 How to Tax Cryptocurrency

The Internal Revenue Service (IRS) classifies cryptocurrency as property for taxation purposes. As detailed in IRS Notice 2014-21, this means that profits from cryptocurrency transactions are subject to taxation.

Taxpayers must report gains or losses from the sale or exchange of cryptocurrency on their tax returns, with the tax rate depending on the holding period of the asset. Cryptocurrency held for over a year is subject to capital gains tax, while gains from cryptocurrency held for less than a year are taxed as ordinary income.

The IRS requires detailed records of all cryptocurrency transactions for accurate tax reporting. This includes recording the date of transactions, amounts, and the fair market value of the cryptocurrency at the time of each transaction. (The 2017 tax reform eliminated the option to treat exchanges of one cryptocurrency for another as like-kind exchanges, meaning these transactions are now taxable events.)

Starting from January 2024, under the Infrastructure Investment and Jobs Act, digital asset brokers are required to report transactions over $10,000 to the IRS. This reflects increasing regulatory scrutiny on cryptocurrency transactions and the importance of compliance with tax reporting requirements in the U.S. cryptocurrency market.

9. Summary

In the United States, the free-market economy provides an ideal environment for new technology startups. With a pursuit of profit motivation and high tolerance for risk, the U.S. boasts the world’s largest economy, home to tech giants like Google, Apple, and Microsoft, as well as global financial centers like Wall Street. Additionally, as the global reserve currency, the U.S. dollar grants the U.S. government significant international influence.

The increasing popularity of blockchain technology across industries is driving market growth, leading to increased investment in blockchain-related projects and startups, thus fueling the growth of the U.S. cryptocurrency market. According to the latest report from Grand View Research, Inc., the size of the U.S. cryptocurrency market is projected to grow at a compound annual growth rate of 12.0% from 2023 to 2030, reaching $2.9 billion by 2030.

Cryptocurrency ownership is widely distributed in the U.S., but differences in dynamics, regulations, and wealth levels exist among states. Seventy percent of states have defined crypto assets within regulatory frameworks. However, classification issues remain regarding whether digital assets are considered securities or commodities, particularly due to ambiguity from the SEC.

With the approval of BTC spot ETFs (the U.S. Securities and Exchange Commission announced the urgent approval of spot Bitcoin ETFs for listing and trading starting on January 11, 2024, authorizing 11 ETFs to begin trading on that day), the agenda for ETH spot ETFs has been set. These developments further promote the adoption of cryptocurrencies in the U.S. and will drive the cryptocurrency market, led by BTC and ETH, to retail investors on a broader scale, while also fostering the rapid development and prosperity of the crypto ecosystem.

The above information and data are for reference only and should not be considered investment advice. If there are any objections, feel free to reach out for corrections.

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