Cryptocurrency’s journey over the last few years has been a wild ride, and 2023 was no exception. The most recent crypto winter, triggered by 2022’s cascading triple-digit billion losses from Luna, TerraUSD, and FTX, extended its chill into 2023 with the failure of crypto banks Silvergate Bank and Signature Bank in March. The Crypto Year in Review is a classic example of how truth is stranger than fiction.
Against a backdrop of losses, regulatory uncertainty, and global economic turmoil, Bitcoin increased over 65% since January 2023. BTC’s performance for the rest of the year will likely hinge on several key factors, such as the direction of monetary policy and pending cryptocurrency regulation progress.
A complete 2023 crypto year in review could fill a book. This post offers some highlights, starting with global trends and moving on to US specifics.
Crypto 2023 Global Trends
Governments of almost every country with a functioning economy are working to integrate cryptocurrency, a CBDC, or both. Key global standard-setters like the Financial Stability Board, Basel Committee on Banking Supervision, and Financial Action Task Force continued their efforts to wrangle a coherent approach for international adoption.
The European Union advanced in finalizing the Markets in Crypto-Assets Regulation (MICA), and Dubai initiated setting up the world’s first authority focusing on virtual assets. The UK government moved to regulate crypto assets as financial instruments.
Cryptocurrency remains illegal in China, yet they are global leaders in rolling out a CBDC. The People’s Bank of China (PBOC) accelerated the implementation of China’s digital yuan, with transactions equalling US$249.9 billion by the end of June 2023, up from US$13.9 billion in August 2023.
Hong Kong’s government, aspiring to be a Web3 hub, actively updated regulations to enhance industry growth. Measures by Hong Kong’s Securities and Futures Commission signaled the potential opening of digital asset exchanges to retail investors. The HK government also plans to introduce official regulations for stablecoins by the end of 2024.
US Institutional Crypto Adoption and Regulatory Changes
Institutional interest and investment in cryptocurrencies increased in 2023, with PayPal launching a stablecoin in August and VISA making moves in the NFT space.
In July, the SEC accepted Blackrock’s Bitcoin ETF application, causing a wave of follow-on applications. The agency has postponed its decision on several Bitcoin exchange-traded fund (ETF) filings from influential firms, adhering to a formal review process under the Securities Exchange Act of 1934.
This postponement is part of an ongoing pattern of delays in Bitcoin ETF approvals, indicating the SEC’s cautious approach towards integrating cryptocurrencies into the mainstream financial market. The SEC has postponed its decision on all applications for spot bitcoin ETFs until 2024.
Crypto Year in Review: US Treasury Comes Out Swinging
In September, the US Treasury released a 300-page set of rules for taxing cryptocurrencies, impacting DeFi, NFTs, and crypto wallets. If these rules receive approval, they will take effect in 2026 and apply to crypto transactions starting in 2025. Non-compliance could result in a ban in the United States.
The US Treasury’s proposed crypto tax rules mark a significant shift in regulating cryptocurrencies, NFTs, and related digital assets, indicating a more stringent approach to this rapidly evolving market. One of the main controversies is an attempt to expand the definition of “broker” in cryptocurrency regulation.
DeFi Facing Regulatory Hurdles
The Treasury targets decentralized exchanges indiscriminately in the DeFi space, aiming to broaden the broker definition to include these operators. The move to include DeFi operators in the broker definition raises concerns about the future of DeFi in the United States. Requiring KYC information from all users in a decentralized system poses significant challenges and could stifle innovation.
Wallets as Brokers
According to the Treasury, an individual or entity qualifies as a broker if they have experience or knowledge of or can discern the identity of the parties involved in a transaction. This definition could exempt specific cryptocurrency validators and wallet providers from the broker category. However, certain activities of unhosted wallet providers could still qualify them as brokers.
NFTs Under Scrutiny
The proposed rules extend their reach to NFTs, potentially classifying NFT marketplaces as brokers. This change follows the SEC’s recent enforcement action related to NFTs, indicating a shift in the regulatory approach to these digital assets. The Treasury’s rules recognize the evolving nature of NFTs but maintain a cautious stance, especially when creators control collections through governance tokens or multi-signature arrangements.
Uncertainty Over Stablecoins
The ongoing debate over stablecoins—whether they should be digital assets or currency—continues. The Treasury’s current stance may favor a central bank digital currency (CBDC) over privately issued stablecoins. The proposed rules consider stablecoins as digital assets, subjecting them to reporting requirements similar to those of other cryptocurrencies.
2023 Treasury Crypto Proposals Status
Currently, these rules are proposals. Public comments ended in October 2023, and public hearings were happening at the time of writing this post. In the first public hearing, crypto industry advocates objected to the Treasury’s attempt to broadly apply the definition of “broker.”
As of late September, support (or lack thereof) was lining up for a CBDC. The House Financial Services Committee approved a bill preventing the Fed from issuing a U.S. central bank digital currency without congressional approval.
As with other stablecoin and crypto market-structure legislation advanced previously by the committee, this bill was opposed by the panel’s Rep. Maxine Waters (D-Calif) because it will stifle progress on a digital dollar and cause the US to fall behind other countries, such as China, in financial innovation.
Christopher Giancarlo, self-styled Crypto Dad and former Chairman of the U.S. Commodity Futures Trading Commission (CFTC) says the division in Congress is not along party lines but generational. Older representatives that have an opinion are against the concept of a digital dollar and crypto in general, while younger members are pushing for crypto innovation.
Crypto Taxes in 2023
The IRS has taxed cryptocurrencies as property assets since 2014. Most US taxpayers are liable to pay up to 37% tax against short-term capital gains, including income derived from crypto. Longer-term gains are also taxed, with rates of up to 20%. NFTs may be treated differently if categorized as collectible assets, with a potential tax of 28% on profits.
The IRS continues to monitor cryptocurrency’s progress and adjust accordingly. In August 2023, the agency issued two new guidance publications relating to taxes on crypto staking and the treatment of crypto brokerage activities. Starting January 2026, brokers must send Form 1099-DA to the IRS and investors, reporting crypto activities from 2025.
Looking back on this crypto year in review, we can see that despite uneven progress, cryptocurrency’s integration into mainstream global finance seems inevitable. As crypto investors navigate these developments, staying informed and adaptable in the unpredictable crypto landscape is essential.
If you trade crypto assets, ZenLedger can help ensure you remain compliant despite changing regulations. The platform automatically aggregates trades across wallets and exchanges, computes your capital gains and losses, and generates the tax forms you must file. And you have access to a single unified ledger to prove your compliance.
This material has been prepared for informational purposes only and should not be interpreted as professional or legal advice. Please seek independent legal, financial, tax, or other advice specific to your particular situation.