Clear Chains, Fair Gains: How Transparency Shapes Tax Policy Effectiveness in Crypto Markets

As cryptocurrency continues to evolve from a niche asset to a mainstream financial instrument, governments around the world face pressure to develop effective policies to ensure compliance. 

Vicki Wei Tang, associate professor of accounting at Georgetown’s McDonough School of Business, explored this issue in a research paper recognized with the Best Paper Award at the National Business and Economics Society Conference in March 2025. Her paper, titled “How Transparency Shapes Tax Policy Effectiveness in Market Transitions: Evidence from Cryptocurrency Price Disparities,” examines how transparency influences the effectiveness of tax policies in cryptocurrency markets.

Tang’s research expertise focuses on predicting future earnings using current financial and non-financial information, earnings quality, and fair value accounting. She has also worked with the House of Financial Service Committee on cryptocurrency-related policies. 

Here, Tang discusses the research process and key findings, explores the global implications for investors and regulators, and explains how coordinated oversight could reshape the future of crypto markets.

What inspired you to pursue this research topic?

Tax compliance is extremely low in cryptocurrency markets. For instance, only 1% of tax returns in 2020 reported crypto sales — far lower than the estimated 10 to 20% of adults in the United States who own cryptocurrencies. The Internal Revenue Service (IRS) further estimates that 55% to 95% of crypto holdings go unreported. Furthermore, the fiscal impact of cryptocurrency taxation is substantial, with global value added tax and income tax liabilities estimated at $118.5 billion and $10 billion, respectively.

What is one surprising or unexpected finding from your research?

One surprising and unexpected finding is that cryptocurrency prices respond more strongly to tax policies when Know-Your-Customer (KYC) policies — designed to verify identities and combat financial crime — are in place. This interplay between KYC regulations and tax policies highlights the need for coordinated oversight as the cryptocurrency market transitions from unregulated to increasingly more regulated environments.

What were some of the biggest challenges you faced during your research process?

The biggest challenge we faced during our research process was locating a reliable data source to proxy for trading activities among investors from different jurisdictions at various cryptocurrency exchanges. However, the pseudo-anonymity of cryptocurrency transactions makes it difficult to link trades to specific individuals or entities. Therefore, we need a reliable data source that provides the geographical distribution of web traffic of a given exchange to estimate the jurisdictional breakdown of trading activities on a given exchange. 

What are some practical implications of your work that professionals or businesses can use?

This study contributes to the evolving regulatory landscape of cryptocurrencies by empirically demonstrating that tax reporting transparency is a critical determinant of tax capitalization in cryptocurrency markets. As cryptocurrency markets transition from unregulated to increasingly regulated environments, our findings support recent legislative initiatives to enhance crypto tax transparency, including the Infrastructure Investment and Jobs Act in the United States and the Platform Tax Transparency Act (PTTA) in Germany.