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Government Authorities Crackdown on Trading Activity – Gensler Alludes to Incoming Oversight





Times are changing in the world of digital assets.  With interest by both retail and institutional investors on the rise, we are now seeing a resulting crackdown on these assets by government authorities.

In recent weeks this has been highlighted not only by commentary from SEC Chairman, Gary Gensler, but by various summons put forth by tax agencies.  Based on the following examples, it is clear that these efforts are only beginning to ramp up – meaning more exchanges can expect to see their client bases scrutinized in the coming months.

Gensler’s Speech

When Gary Gensler took charge of the SEC, many were excited for what was to come based on his past experience with digital assets.  In a recent discussion by the House Committee of Financial Services, Gensler highlighted his views on the state of regulation pertaining to digital assets.  Unsurprisingly, he indicated that the industry overall lacked the necessary levels of government oversight needed to ensure proper levels of investor protection.

Furthermore, Gensler alluded to a need for a new market regulator, custom built to oversee the digital asset sector.  He stated, “Right now, the exchanges, trading in these crypto assets, do not have a regulatory framework either at the SEC or our sister agency, the Commodity Futures Trading Commission…Right now, there’s not a market regulator around these crypto exchanges, and thus there’s really not protection against fraud or manipulation.”

Many digital assets are not securities – with the SEC designed to regulate securities, extending its powers to the broader digital asset sector would be an obvious step over the line.

Internal Revenue Agency

While a dedicated digital asset watch-dog has yet to be formed, this has not stopped tax authorities from flexing their muscle.  Back in 2017, Coinbase was subject to the first major instance of a tax authority demanded access to troves of customer data.  While the company was able to arrange a deal in which only customers meeting select criteria would have their data handed over, it was clearly a sign of things to come.  Fast-forward to 2021, and popular digital asset exchange Kraken, has now become the recipient of a similar order demanding client data.  Those behind this move did not mince words when elaborating on their goals.

IRS Commissioner, Chuck Rettig, states,

“There is no excuse for taxpayers continuing to fail to report the income earned and taxes due from virtual currency transactions…This John Doe summons is part of our effort to uncover those who are trying to skirt reporting and avoid paying their fair share.”

Acting Assistant Attorney General of the Justice Department’s Tax Division, David A. Hubbert, states,

“Gathering the information in the summons approved today is an important step to ensure cryptocurrency owners are following the tax laws…Those who transacted with cryptocurrency must meet their tax obligations like any other taxpayer.”

This most recent summons involving Kraken will apply to customers who have conducted ‘at least the equivalent of $20,000 in transactions in cryptocurrency during the years 2016 to 2020’.

Canada Revenue Agency

Similar to the United States, the Canadian government has seen its own tax authority, the Canada Revenue Agency (CRA), opt to summon information on digital asset trading in a selective fashion.  This was highlighted recently when one of the nations most popular exchanges, Coinsquare, was forced to hand over customer data.  This data was restricted to those which held in excess of $20,000 CAD on the platform over a 6-year span ranging from 2014-2020.

Much like the aforementioned situation involving Coinbase and the IRS, Coinsquare was able to limit the amount of data released.  At the time, Coinsquare stated, “Instead of providing the CRA with all client data dating back to 2013 as was initially requested, Coinsquare and the CRA have agreed that information relating to 90%-95% of Coinsquare’s clients will not be disclosed.”

Turkish Financial Crimes Investigation Board

For weeks now, it has been known that authorities within the Republic of Turkey were in the process of developing restrictions on digital assets.  In the time since a crackdown was announced in the country, we have seen glimpses of what the future holds as the Turkish government’s stance came in to focus.

Further clarity has now been provided as the Turkish Minister of Treasury and Finance, Lütfi Elvan, recently stated that moving forward, “MASAK has full audit authority over crypto exchanges.  Crypto trading platforms are no obliged to share the information of their active users with MASAK.  They are liable for any suspicious activities on their platforms.  They are also responsible for notifying MASAK about any transactions worth over 10,000 Turkish liras in 10 days after the trading.”