The United States is “behind the eight ball” compared to other leading global economies in providing clarity about how it will regulate digital assets, according to Ripple CEO Brad Garlinghouse.
And that’s a problem for investors, he says.
“Without [regulatory] clarity, you’re navigating with uncertainty. It discourages investment, and it certainly discourages investment here in the United States,” Garlinghouse said Thursday at an Axios event on crypto regulation.
Ripple was founded in 2012 and describes itself as a blockchain-based alternative to SWIFT, the global messaging system that enables bank transactions. The company has been fighting a lengthy legal battle with the Securities and Exchange Commission over allegations that Ripple illegally sold securities through sales of XRP, an altcoin the company uses to facilitate cross-border transactions. The SEC claims that XRP, the sixth-largest cryptocurrency by market, is a security, while Ripple contends that it’s a commodity.
The outcome of the lawsuit could be a turning point for the crypto industry. Ripple could be on the way to victory after clearing a big hurdle this week, but if the SEC wins, most tokens or coins trading on platforms in the U.S. could be deemed securities. That, in turn, could determine how the crypto industry will grow and be regulated.
So, what does that mean for investors?
For crypto investors who are wondering what to make of regulatory talks and new developments – including President Biden’s executive order on cryptocurrency, the Federal Reserve’s digital currency report, and the SEC’s recent announcement to regulate crypto exchanges – plenty of experts say crypto regulation is actually a good thing. More regulation could increase market stability and value of crypto and bring new protections to investors.
How You Can Prepare for New Crypto Regulation
Cryptocurrency is still in its relative infancy as an asset class, so any new regulation has the potential to make a big impact on investors’ portfolios. But no matter what regulation might look like in the future, here are three things experts say crypto investors should do now to be ready for it:
1. Stick to Your Investing Strategy
Sticking to your strategy is likely the best course of action, no matter what’s happening with regulation. Crypto investors should think about their strategy similarly to the stock market — experts say you shouldn’t stop contributing to your Roth IRA or 401(k) over a bad day or headline, so you shouldn’t drastically change your long-term crypto strategy either.
2. Keep Records and Report Gains on Taxes
You should also keep records of your crypto transactions for tax purposes and report any income or capital gains earned through crypto trading. The IRS currently views virtual currency as property, so selling or trading crypto are considered taxable events. You might also want to revisit your previous tax returns if you have any unreported crypto, and consider getting a crypto portfolio tracker to help you stay on top of your transactions.
3. Diversify and Safeguard Your Holdings
Take some steps to safeguard your crypto assets — both from the volatility of the market and potential security threats. Just like with traditional assets, experts recommend diversifying your crypto holdings to lessen the impact that any new regulation may have on individual cryptocurrencies or tokens. You should also consider moving your crypto holdings to a hot or cold wallet to further protect them from scams or hacks.