A growing number of people see the Clarity Act, which aims to establish clear and enforceable guardrails for the U.S. crypto industry, as a sign that Washington has firmly closed the door on the “regulation by enforcement” approach seen under the Biden administration to a more structured framework for the crypto industry.
And look, on paper, it’s a big step forward. There is no doubt that the Clarity Act provides clearer definitions and a more consistent regulatory scope for the industry.
But regulatory clarity does not automatically lead to its adoption. Because even if Congress manages to properly structure the market, the US crypto tax framework, in its current form, remains a bit messy and complicated.
Form 1099-DA is confusing for crypto investors
On paper, Form 1099-DA, which every firm defined as a crypto broker must issue, is about transparency, standardized reporting, and improved compliance.
Form 1099-DA asks crypto users for the number of assets, date of acquisition, date of sale and disposition, and specific sections for aggregated transactions for stablecoins and NFTs.
However, this becomes more counterproductive than expected. Crypto users now receive tax forms that often report proceeds without a reliable cost basis, fail to properly capture holding periods, and exclude non-custodial activities entirely. The result is a fragmented and incomplete picture of a user’s true tax situation.
For retail investors, this means manually reconciling thousands of transactions across exchanges, wallets, bridges and DeFi protocols, often with conflicting data that doesn’t match what the IRS receives.
Even within the industry, the problem has become immense. When assets are moved between platforms, the cost basis often disappears. The receiving exchange has no reliable way to reconstruct historical purchase data. Yet the system is designed as if cryptocurrencies can be reported with the same accuracy as traditional securities held in a single brokerage account.
This is not possible. The burden therefore falls on the individual taxpayer. They are now expected to reverse, reconcile and reconstruct their entire transaction history, or risk being audited if they get it wrong.
The Clarity Act’s audit trail and recordkeeping requirements represent a necessary compromise for regulatory certainty under the CFTC, but the operational hurdles they impose cannot be ignored.
It must be recognized that the underlying intention of these strict mandates is a massive victory for the industry. Forcing audit trails to definitively prove absolute segregation of customer assets injects a level of trust and security that will protect individual users and prevent the catastrophic commingling of funds that defined crypto’s early collapses.
However, the technical challenges linked to the implementation of these systems remain significant. While the Bill wisely recognizes that bespoke on-chain tracking solutions are needed rather than stacks of outdated reports, the operational requirements are high. Since digital asset markets operate 24/7, businesses must create and maintain continuous audit trails capable of instantly matching real-time blockchain ledger data with off-chain communications.
Contradictions in American politics become impossible to ignore
For small and medium-sized investors, in particular, the compliance burden may outweigh the economic benefits. And if the future of crypto depends on broad participation, this is a serious structural problem.
This is where the contradiction in American policy becomes impossible to ignore.
On the one hand, the government supports innovation, market growth and national leadership in the field of digital assets. On the other hand, it implements a tax reporting regime that treats decentralized networks as if they were traditional brokerage accounts with perfect data continuity.
These two positions cannot both evolve. We have already seen a partial rollback, particularly regarding how the regime applies to non-custodial or DeFi activities. It’s a start, but it only scratches the surface.
The deeper problem remains to be resolved. The IRS does not need to turn crypto exchanges into perfect, omnipresent recordkeepers to improve compliance. It needs a framework that recognizes the reality of fragmented ownership and the movement of assets between platforms.
Other countries are moving in this direction. The Organization for Economic Co-operation and Development’s (OECD) Crypto Asset Reporting Framework (commonly known as CARF), for example, moves toward standardized data collection across platforms without pretending that intermediaries can reconstruct a perfect cost baseline history for each user.
Exchange reports should not function as a definitive ledger. Its goal should be to flag unreported activity, not force millions of users to engage in impossible reconciliation exercises based on incomplete institutional data.
Even in the United States, there are beginning signs that the current approach is too heavy-handed. Discussions around de minimis exemptions and targeted relief for small transactions suggest that policymakers understand that frictions matter.
Although the law provides a de minimis exemption to prevent low-volume brokers and dealers from registering or maintaining these cumbersome systems, which will protect smaller startups, it simultaneously creates a steep compliance cliff for the middle market.
While established industrial giants may view these real-time monitoring pipelines as an expensive upgrade, growing companies just above the de minimis threshold face technical complexity and costs that could prove a huge barrier to entry.
Reform still lags behind rhetoric
But at the federal level, reform still lags behind the rhetoric, and this gap is becoming increasingly difficult to ignore.
Because if the United States continues to define “crypto-friendly” solely as regulatory clarity while ignoring the existing tax burden, adoption will not accelerate significantly.
It will stall at the edges. High net worth participants and sophisticated funds will continue to operate. Builders will continue to build. But participation from the traditional retail sector, the level many say is necessary for true scale, will quietly retreat under the weight of compliance complexity.
The United States won’t need to ban crypto to slow its growth, but it could friction tax it as other jurisdictions design systems that make participation much easier.
