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Crypto Lending in the United States

Ever wondered why crypto lending platforms exclude US citizens and residents? In this article we explore why that is, and how US residents can still get a cryptocurrency loan.
12 6 月 2020
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If you’re a resident or citizen of the United States, you’ve probably noticed that it is difficult to find a cryptocurrency platform that offers its services to you. Many crypto lending platforms purposefully exclude US residents and citizens from using their services, although the market is beginning to expand. 

In this article, we explore why the United States is often left out by great crypto lending platforms, and how you can still get a crypto loan as a US citizen or resident.

Is crypto lending legal in the US?

In short, yes! However, the complete answer is infinitely more complicated. Many crypto lending platforms purposefully prevent US residents and citizens from borrowing and lending on their platforms. The reason for this is a little complicated, but worth diving into.

First of all, cryptocurrency and related crypto activities are perfectly legal in the United States, though it is not considered to be legal tender. The main problem the US faces regarding cryptocurrency is the lack of regulation, and this is why many crypto lending platforms steer clear. 

At the moment, there doesn’t seem to be a consistent legal approach to cryptocurrency in the United States. Laws vary greatly state by state, and federal laws can’t seem to agree as to what cryptocurrency actually is. For example, the Financial Crimes Enforcement Network (FinCEN) considers cryptocurrencies to be money transmitters, while the IRS regards them as property.

Cryptocurrency exchanges and crypto lending platforms also face much uncertainty when it comes to regulation. Several different regulators claim jurisdiction, and there has yet to be a cohesive approach. Policies vary greatly, which makes it a confusing market for many crypto businesses.

As such, a large amount of crypto lending platforms prefer to not get involved in the US market because it is too confusing. Many are choosing to stay away until more concrete laws and regulations are in place. Even US-based crypto lending platforms face struggles because the regulations vary state by state. For example, SALT Lending, one of the most popular crypto lending platforms and one of the few registered in the US, only offers their services in 46 states and some states have limited services

While the United States is making progress when it comes to crypto, it is far behind most modern countries. Part of the problem is that there is currently no dedicated government agency that sets crypto regulations in the US. 

Cryptocurrency loan taxation in the US

Another “turn off” for crypto lending, specifically when it comes to those looking to lend out their crypto to make a profit, is the taxation involved. As mentioned earlier, cryptocurrencies are considered to be property by the IRS, which essentially means it’s taxed like a stock. If you buy cryptocurrency and keep it for a year, you are required to pay long-term capital gains when you sell. For federal taxes, this means that you pay 15% tax on any gains.

In terms of crypto lending, a crypto lender has to identify if they are a hobby (or “self-employed”) or business lender for taxation purposes. There are a number of factors that determine whether a crypto lender counts as a hobby or business, and the taxation differs between the two.

For crypto borrowers, the taxation is more favorable. Depositing collateral, the payout of a loan, and the repayment of the principal are all non-taxable events. If a loan is for business purposes, interest payments can be deducted as an expense. However, if the loan is liquidated, then it will be treated as a sale and will have to be reported as a capital gain/loss.

How to get a crypto loan in the US

The first step is finding a crypto lending platform that offers their services in your state. Naturally, some states are far more accommodating than others when it comes to regulation, and you have a leg up if you live in one of these states. 

The top five states when it comes to cryptocurrency regulation are:

  1. Wyoming - Somewhat surprisingly, Wyoming is the undisputed leader amongst the US states when it comes to crypto. In 2018, a bill was passed that defined “utility tokens” and exempted most of them from securities regulations. Digital assets have the same legal status as money, and banks are also allowed to store and administer digital assets.
  2. Colorado - Taking a similar approach to Wyoming, Colorado is very welcoming to crypto. Additionally, the state is one of the few to make use of blockchain technology. The state government has rolled out a number of initiatives aimed at protecting the identity and personal information of residents through the use of blockchain.
  3. Ohio - While not as advanced as the two prior states on this list, Ohio has made some impressive strides. The state legally recognizes blockchain data and has big plans to use it to protect the identity and personal information of residents. Ohio has made another impressive step in that businesses can pay taxes in cryptocurrency.
  4. Texas - The first state to publish a memorandum declaring that no money transmitter license is needed to sell digital currencies, Texas has made big strides but still has a long way to go. In fact, the state was on the verge of passing a bill that would have banned the usage of cryptocurrencies between unidentified parties earlier this year. Despite all of that, Texas is a hub for Bitcoin mining and is one of the most stringent when it comes to noncompliance.
  5. California - Amongst the first states to legalize crypto, California is home to some of the largest crypto companies such as Coinbase, Kraken, and Ripple. The state isn’t exactly at the forefront of crypto regulation, but is making big improvements. For now, the lack of regulation seems to be a bit of a blessing in disguise, as local businesses aren’t hamstrung by overly restrictive measures. 

If you don’t live in one of the above states, fear not. Crypto lending is on the rise, and many states do welcome it. Your best bet is to look for a crypto lending provider that is based in or operates out of the United States. Platforms such as SALT Lending, Unchained Capital, and BlockFi all allow US citizens to use their platform, although it may vary from state to state.

Once you find your preferred crypto lending platform, the process to get started is relatively simple. For borrowers, you will need to determine how much you want a loan for and how long you want the loan terms to be. Once you have selected your loan terms (on many platforms it’s completely customizable), your loan will be sent for review and then approved, sometimes within 24 hours. From there, typically you will be required to deposit some of your own cryptocurrency as collateral before receiving a loan. As a lender, the process can be even simpler. You will need to agree to the terms, deposit your crypto on the platform, and then start earning interest. 

Most crypto lending platforms will require that you verify your identity before getting started on their platform. However, most platforms do not require a credit check, which is part of what makes crypto lending so accessible.

As always, you should do your due diligence before committing to any platform and make sure you understand how the platform works. Any platform that is worth its salt will clearly outline the process and loan terms before you join. If you’re newer to crypto lending, check out our Introduction to Cryptocurrency Lending article to start your journey.

Conclusion - Crypto lending in the US

Crypto lending is on the rise, which is great news and gives hope that the United States will begin to catch up with the rest of the modern world. However, there is still a long way to go. In March of this year, a bill was proposed that aimed to provide a federal framework for cryptocurrency regulation, however it seems to be dead in the water. Additionally, part of the initial drafts of the CARES Act included the introduction of a digital currency, but the idea was ultimately shot down.

For US citizens, it's inevitable that the situation will eventually improve. Even without countrywide legislation, crypto lending is about to get a lot easier for US citizens and residents with the introduction of the SelfKey Loans Marketplace. The Loans Marketplace will grant SelfKey Wallet users access to the world’s most exciting lending platforms and users will be able to easily compare and register for crypto lending services. This is an exciting prospect for the SelfKey community and adds impressive new functionality to the Wallet.

If you want to start exploring the SelfKey Wallet now, download it here and keep an eye out for the launch of the SelfKey Cryptocurrency Loans Marketplace.

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