Cryptocurrency transactions in the United States will now be subject to third-party tax reporting requirements for the first time, as the interest in digital assets grows due to increasing valuations. Analysts suggest that this change could drive investors towards decentralized platforms.
According to the final regulation published by the US Internal Revenue Service (IRS), starting in 2025, centralized crypto exchanges (CEXs) and other brokers will be required to report the sales and exchanges of digital assets, including cryptocurrencies.
The IRS aims to assist investors in accurately filing tax returns related to digital asset transactions and address potential noncompliance in the digital currency sector, as stated in their June 2024 report.
Some investors may view this as excessive regulation, which could lead to an increased usage of decentralized trading platforms. Anndy Lian, an author and intergovernmental blockchain expert, believes that there is a “real risk of pushing users towards decentralized platforms like Uniswap or PancakeSwap.” He further stated that “this shift could lead to a paradoxical situation where the IRS’s desire for tax revenue might drive more users towards environments where tax enforcement is currently unfeasible.”
The Blockchain Association, representing the crypto industry, filed a lawsuit against the IRS in December 2024, arguing that the rules are unconstitutional since they include decentralized exchanges (DEXs) under the term “broker,” thereby extending data collection requirements to them.
DeFi transactions, which occur on decentralized finance protocols, are more difficult for tax authorities to trace since these platforms do not involve central intermediaries. However, by 2027, advancements in blockchain analytics could make DeFi transactions more traceable, according to Lian. He mentioned that “while decentralized systems currently pose challenges for tax enforcement, advancements in blockchain analytics and potential regulatory developments by 2027 could change this landscape.”
To prevent a potential exodus, Lian proposes the need for specialized tax brackets in the crypto industry that account for high volatility and significant retail participation. He believes that “treating crypto gains the same as traditional capital gains may not always be fair.”
The increasing valuations of cryptocurrencies have attracted the attention of other jurisdictions as well. Dmitrij Radin, the founder of Zekret and chief technology officer of Fideum, a regulatory and blockchain infrastructure firm focused on institutions, stated that European retail investors should also prepare for taxation under the Markets in Crypto-Assets (MiCA) framework. He mentioned that “retail users will be obligated to provide information and data, which will be screened. They will be accounted for. Most Europeans will see taxation.”
MiCA is the world’s first comprehensive regulatory framework for cryptocurrencies, which came into full effect for crypto-asset service providers on December 30.