Singh argues that while the Clarity Act is seen as a pivotal moment for U.S. crypto regulations, it overlooks a crucial aspect.

By Robin Singh|Edited by Betsy FarberUpdated May 26, 2026, 3:23 p.m. Published May 26, 2026, 3:19 p.m. 4 min read

A rising number of stakeholders view the Clarity Act as a shift away from the “regulation-by-enforcement” strategy of the Biden administration, aiming to implement a more defined regulatory framework for the U.S. crypto sector.

Indeed, the Clarity Act represents a significant advancement. It undeniably provides clearer definitions and a more organized regulatory landscape for the industry.

However, achieving regulatory clarity does not guarantee that adoption will follow. Even if Congress establishes a solid market structure, the current U.S. crypto tax regulations remain convoluted and problematic.

Form 1099-DA complicates matters for crypto investors

Form 1099-DA, which must be issued by any business classified as a crypto broker, is intended to enhance transparency, standardize reporting, and improve compliance.

This form requires crypto users to report asset quantities, acquisition dates, sale and disposal dates, along with specific sections for aggregated transactions involving stablecoins and NFTs.

Yet, it is proving to be more counterproductive than intended. Users often receive tax forms that list proceeds without a reliable cost basis, fail to accurately reflect holding periods, and exclude non-custodial activities, leading to an incomplete and fragmented understanding of their actual tax situations.

For retail investors, this means they must manually reconcile thousands of transactions spanning exchanges, wallets, bridges, and DeFi protocols, often with conflicting data that does not match the information the IRS receives.

Even within the industry, the challenges are substantial. When assets move between platforms, the cost basis can be lost, as the receiving exchange lacks a reliable method to reconstruct historical purchase data. Yet, the framework assumes crypto can be reported with the same accuracy as traditional securities held within a single brokerage.

This is not feasible. Consequently, the onus falls on individual taxpayers, who are expected to reconstruct their transaction histories, risking audit complications if errors occur.

The Clarity Act's audit trail and record-keeping stipulations are essential for regulatory certainty under the CFTC, but the operational challenges they create cannot be overlooked.

On a positive note, the strict requirements aim to ensure the clear segregation of customer assets, fostering trust and security for retail users and preventing the fund commingling issues that plagued early crypto failures.

Nonetheless, the technical hurdles associated with implementing these systems are formidable. Although the legislation smartly recognizes the need for tailored on-chain tracking solutions instead of outdated legacy reporting systems, the operational demands are high. Digital asset markets operate continuously, necessitating firms to develop and maintain audit trails that can instantly align real-time blockchain data with off-chain communications.

Contradictory U.S. policies become evident

For small and mid-sized investors, particularly, the compliance burden may outweigh the economic advantages. This poses a significant structural issue if the future of crypto relies on widespread participation.

Here, the contradiction in U.S. policy becomes starkly apparent.

The government promotes innovation, market expansion, and domestic leadership in digital assets while simultaneously imposing a tax reporting system that treats decentralized networks like traditional brokerage accounts with flawless data continuity.

These two positions cannot coexist effectively. We have already witnessed some regression, especially regarding the application of regulations to non-custodial or DeFi activities. While this is a start, it merely addresses surface-level issues.

The more significant challenge remains unaddressed. The IRS does not need to turn crypto exchanges into flawless record-keepers to enhance compliance. Instead, it requires a framework that acknowledges the fragmented ownership and cross-platform asset movements that characterize the crypto landscape.

Other countries are progressing in this direction. The Organisation for Economic Co-operation and Development’s (OECD) Crypto-Asset Reporting Framework (CARF) aims for standardized data collection across platforms without expecting intermediaries to recreate a perfect cost basis history for every user.

Exchange reporting should not serve as a definitive record; its role should be to highlight unreported activities rather than burden millions of users with impossible reconciliation tasks based on incomplete institutional data.

Within the U.S., early indicators suggest that there is recognition that the current approach is overly rigid. Conversations around de minimis exemptions and targeted relief for small transactions imply that policymakers are beginning to understand the importance of reducing friction.

While the act does include a de minimis exemption to protect low-volume brokers and dealers from these rigorous systems, it simultaneously creates a steep compliance barrier for the mid-market.

Established industry leaders can view these real-time surveillance systems as costly upgrades, but smaller businesses just above the de minimis threshold may face overwhelming complexity and expenses that hinder their ability to enter the market.

Gap between rhetoric and reform remains

However, at the federal level, reform continues to lag behind the rhetoric, and this gap is increasingly noticeable.

If the U.S. persists in defining “crypto-friendly” solely through regulatory clarity while disregarding the existing tax burdens, adoption is unlikely to accelerate significantly.

It will stagnate at the periphery. High-net-worth individuals and sophisticated funds will keep operating, and builders will continue their efforts. Yet mainstream retail participation, which many believe is essential for true growth, will quietly withdraw under the weight of compliance complexities.

The U.S. may not need to outlaw crypto to hinder its progress; it could effectively tax it into stagnation, while other countries develop systems that facilitate participation significantly more easily.

Note: The opinions expressed in this article are those of the author and do not necessarily reflect the views of CoinDesk, Inc. or its owners and affiliates.