Kraken, one of the largest cryptocurrency exchanges in the world, is pushing back against the United States Internal Revenue Service (IRS) and its demand for user information. The exchange claims that the demand is an “unjustified treasure hunt,” and has requested a federal court in San Francisco to intervene in the issue.
Kraken’s move comes in response to the IRS’s February summons, which demanded additional user information in order to identify Kraken accounts that had conducted at least $20,000 of cryptocurrency trading in any single year between 2016 and 2020. The exchange, however, believes that the agency has gone far beyond the rules set by U.S. District Judge Jacqueline Scott Corley in the Coinbase case from 2017. In that case, the IRS scaled back its initial demand after continuous pushback from Coinbase, but Judge Corley decided that the summons sent to more than 14,000 customers of the exchange was not too intrusive since the IRS had a valid reason to investigate taxpayers who might not be disclosing their Bitcoin gains.
Kraken’s lawyers argue that the IRS has gone “far beyond” its intrusive summons, and that its demands for customer information are not justified. The exchange has joined Coinbase in pushing back against growing regulatory scrutiny by American regulators. Coinbase is currently battling with the U.S. Securities and Exchange Commission over offering crypto staking services, which the SEC alleges violate securities law.
Radical Regulatory Scrutiny
The growing regulatory scrutiny has become a concern for crypto companies in the U.S. The likes of Coinbase CEO Brian Armstrong and USD Coin issuer Circle CEO Jeremy Allaire have warned that the growing pushback from regulatory bodies will force budding crypto companies to move offshore.
Coinbase has submitted a petition to explain to the SEC that staking is not securities, while Kraken settled with the SEC for $30 million for offering staking services. Kraken has nevertheless decided to head to court for its IRS battle.
In a magazine article titled “Crypto regulation – Does SEC Chair Gary Gensler have the final say?,” industry experts weigh in on the future of cryptocurrency regulation in the U.S. Amid the current regulatory crackdown, they believe that the industry needs a regulatory framework that accommodates innovation, fosters growth, and protects investors.
Crypto companies operating in the U.S. are grappling with heightened regulatory scrutiny, but the industry remains resilient. As Kraken and Coinbase fight their battles against the IRS and SEC respectively, industry observers are watching with keen interest to see how these cases could shape the future of crypto regulation in the country.
