Stablecoin Breakthrough Will Add to Tax and Accounting Burdens

The crypto industry continues its ascent into mainstream financial circles, with the Senate’s passage of the GENIUS Act—a win for the Trump administration’s efforts to make the US the “crypto capital of the planet.”

On top of this being the first piece of comprehensive stablecoin legislation in US history, the bipartisan support the bill received (passing with a 68–30 vote) should put remaining crypto skeptics on notice.

Accounting professionals and investors should be aware of several implications for the crypto landscape as it continues to evolve after this decisive legislative victory, and while waiting for the House to make its next move on the bill.

Tax Clarity’s Catch

On the tax front, the GENIUS Act’s 1:1 backing rules could reduce or even eliminate capital gains and losses when stablecoins are redeemed. But without updated IRS guidance, everyday transactions—such as using stablecoins to pay for goods or services—could still trigger taxable events. That means millions of microtransactions may need to be reported, posing a massive compliance challenge for users and accountants alike.

This is especially concerning for certified public accountants who specialize in the crypto arena. With the traditional finance sector’s efforts to process crypto transactions, and issue native stablecoins of their own, the number of crypto users is set to skyrocket in the short term. With nominal stablecoin transactions already in the trillions of dollars, billions of US Treasuries already tokenized, and household names such as PayPal Inc. broadening the scope of crypto operations, stablecoins’ penetration into mainstream markets is virtually assured.

Despite these advances, every transaction involving crypto still creates a tax reporting obligation at the federal level, even as states such as Ohio are taking legislative action to exempt de minimis amounts from those requirements.

Form 1099-DA (with effective mandates for brokers beginning Jan. 1, 2025) also will capture stablecoin transactions, further muddying the waters for tax professionals and clients dealing with issues resulting from incomplete records and the pivot to universal wallet tracking. Matters will become even more complicated next year as IRS-mandated cost-basis reporting from brokers will be added incrementally to the 2025 reporting changes.

While stablecoins accelerate in terms of development, deployment, and policy actions, the tax ramifications of higher usage likely will generate significant tax reporting complexities under current guidance. Tax professionals must address these issues with clients as soon as possible—preferably before stablecoin adoption.

Treasuries in Demand

Because stablecoin issuers must now hold safe and liquid assets to back their tokens, the GENIUS Act is expected to funnel billions of dollars into US Treasury markets. Notably, Secretary Scott Bessent has said a $2 trillion stablecoin market is reasonable, which would mark a dramatic increase from current market capitalization of less than $300 billion. The Treasury clearly is welcoming any tool that will drive demand for US Treasuries given escalating US debt and interest payments set to rise just as fast.

Investors and policy advocates also will need to monitor the stablecoin market’s forecasted expansion. With incumbents such as Circle Internet Group Inc. already being a publicly traded firm, investors’ demand for returns also may increase.

Stablecoin issuers are, in essence, single-product companies via their tokens and have drawn comparisons to money market mutual funds in the past. As investors gain more insights into a growing stablecoin market, the temptation for revenue diversification will increase—which might undermine the very levers that have generated such broad-based support.

TradFi Circling Stablecoins

With the Act restricting issuance to licensed banks and approved nonbank entities, major financial institutions such as Bank of America Corp. and J.P. Morgan Chase & Co. (with its JPMD coin) are preparing to step in. Specifically, two items are worth noting with the launch of JPMD.

First, Coinbase Global Inc. is yet again securing a prominent role in a TradFi foray into crypto, building on its role in the launch of the much-celebrated bitcoin spot exchange-traded funds. Second, JPMD is advertising itself as the best of both stablecoins with the security and ability to pay interest and fungibility with existing account deposits and forms of money.

Much like how Blackrock Inc. rapidly assumed a leadership role in the spot ETF market following the Securities and Exchange Commission decisions to allow ETF issuance, TradFi banking institutions are looking to move quickly to capitalize on increased policy support.

Large retailers such as Amazon.com Inc. and Walmart Inc. are reportedly exploring their own stablecoins as well—setting the stage for increased competition with traditional card networks and a surge in fintech innovation.

With efforts underway at payment processors and traditional credit card issuers also making forays into the crypto sector in a substantive manner, it’s worth noting that Meta Platforms Inc. is back in the stablecoin arena, hopefully having learned lessons from its unsuccessful attempt as Facebook in 2019.

Audits for Giants

For stablecoin issuers managing more than $50 billion in circulation, the Act imposes a new requirement: annual independent audits and publicly available financial statements. This aims to build investor confidence by providing clearer insight into the liquidity and reserve holdings of major players such as Circle (USDC) and Tether Holdings SA (USDT).

The American Institute of Certified Public Accountants has issued multiple pieces of thought leadership on digital asset attestation and auditing, and the Digital Chamber of Commerce continues to refine proof of reserves as a path forward.

But pressure will increase on authoritative bodies such as the Financial Accounting Standards Board to take more decisive action, such as closer collaboration with the SEC to establish and enforce best practices for attestation and disclosure related to digital assets, including stablecoins.

Such efforts, although necessarily iterative in nature, would provide much needed authoritative guidance for the cryptoasset policy and investing sectors.

With TradFi, regulators, and policymakers turning to crypto, the accounting profession must move thoughtfully—yet quickly—to maintain their critical role as stewards of financial market information and trust.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Sean Stein Smith is an associate professor at Lehman College (CUNY), serves on the advisory board of the Wall Street Blockchain Alliance, and chairs its accounting working group.

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