A recent survey reveals that many American cryptocurrency investors are apprehensive about new IRS tax regulations that mandate automatic reporting of transactions. Conducted by the crypto tax platform Awaken Tax, the poll of 1,000 individuals indicates that over half are concerned about potential penalties as these rules come into effect.
The shift in tax reporting practices is largely driven by the introduction of Form 1099-DA, titled “Digital Asset Proceeds From Broker Transactions.” This form requires brokers, including major exchanges like Coinbase, to report all sales and exchanges of digital assets conducted in 2025 to the IRS. The intention is to enhance transparency and reduce tax evasion by providing tax authorities with a clearer view of investors’ gains and losses.
For the first time, customer data from crypto exchanges will be accessible to the IRS, allowing for a comparison between reported earnings by brokers and what taxpayers declare. However, this new approach has raised concerns among industry experts. Andrew Duca, founder of Awaken Tax, describes the regulations as a “blunt instrument” that fails to account for the complexities of cryptocurrency transactions.
“It means crypto is being treated like stocks, but it doesn’t behave in that way,”
Duca explains. He highlights that many crypto users frequently transfer assets between various wallets and engage with decentralized finance (DeFi) protocols, which often involve intricate trading strategies.
One significant limitation of the new reporting system is that platforms like Coinbase can only provide information on the proceeds from sales, not the tax basis for specific digital assets. The tax basis, which includes the purchase price and associated costs, is essential for accurately calculating capital gains or losses when an asset is sold.
Duca points out that Coinbase cannot accurately report this information. For example, if a user transfers Bitcoin from a cold storage wallet to Coinbase for sale, the exchange lacks knowledge of the original acquisition price. Consequently, the 1099-DA forms submitted to the IRS may contain inaccuracies, as they only report proceeds without the necessary tax basis.
As a result, the responsibility falls on crypto holders to rectify any discrepancies regarding their acquisition costs using the IRS’s updated Form 8949. Duca notes that compliance with tax regulations in the crypto space is alarmingly low, with fewer than 20% of holders reporting their earnings appropriately.
“It’s really not been thought out well and is kind of horrible for crypto users,”
Duca states. He suggests that the new regulations were implemented hastily to increase compliance rates from 20% to 80% within a year.
In a related development, the mortgage provider Milo has emerged as a significant player in the crypto-backed mortgage market, closing a record $12 million deal and surpassing $100 million in total crypto-backed mortgages. Milo allows crypto holders to use their Bitcoin or Ether as collateral for loans up to $25 million without needing to liquidate their assets.
- Milo requires 100% of the property’s value to be secured in crypto collateral, which can be held with qualified custodians like Coinbase or BitGo, or through a self-custodial option.
- The loans, starting at an interest rate of 8.25%, can be utilized for various purposes, including land acquisition, home improvements, and business investments.
The introduction of new IRS rules requiring automatic reporting of crypto transactions has left many American investors anxious about potential tax penalties. Industry experts criticize the regulations for their lack of nuance in addressing the complexities of cryptocurrency trading.