Up until now, businesses that accept bitcoin payments have had a free ride compared to businesses that accept cash. If Tesla sold a car and the customer paid with bitcoin, Tesla didn't have to fill in any special government forms. But an auto dealer who sold a car for cash had to notify the government.

That's about to change. As part of its American Families Plan, the Biden administration just announced that any business that accepts cryptocurrency as payment for goods and services will have to report purchases over $10,000 to the Internal Revenue Service (IRS).

This obligation has been required for cash transactions going back to the 1980s. For instance, if a real estate broker sells a property for over $10,000 and the buyer pays in cash, the broker has to submit a Form 8300 to the government. The form includes the buyer's name, address, taxpayer ID number and other details.

The Form 8300 requirement applies to car dealers, jewelry stores, boat dealers, pawn brokers and any other cash-intensive business.

The information gleaned from these Form 8300s gets collected in a database by the Financial Crimes Enforcement Network (FinCEN), the U.S.' anti-money laundering authority, and used along with currency transaction report (CTR) and suspicious activity report (SARs) to help catch money launderers. And because the form includes a taxpayer ID number, the IRS can cross-reference it against a taxpayer's stated income to catch tax evaders.

We don't know yet if bitcoin and other cryptocurrency transactions will be subject to the exact same Form 8300 reporting as cash. But it's likely that the Biden plan envisions something along those lines.

I suspect Tesla's recent foray into accepting cryptocurrency may have helped spur the Biden administration’s $10,000 reporting requirement. Recall that on March 24 Tesla CEO Elon Musk announced on Twitter Tesla would allow customers to buy cars with bitcoin. (This offer has since been rescinded.)

If you work through the implications of businesses accepting large bitcoin payments, you can see why the government might have been concerned by Tesla’s move.

Regular law-abiding folks were never going to buy their Tesla with bitcoin. The company's punitive return policy for cars bought with bitcoin ensured that. Compounding matters is the fear factor involved in making non-reversible bitcoin payments. Bank-mediated payment methods are a lot friendlier. Most importantly, bitcoiners hold bitcoin because they are expecting to get rich. Offloading bitcoins to buy a Tesla means not becoming a millionaire.  

If there was one group of buyers who may have flocked to buy Teslas with bitcoin it was people willing to put up with all these inconveniences. Motivated folks, like money launderers and tax evaders.

Would-be money launderers have strong motives for using businesses that accept bitcoin as a "money mules.'' The IRS has become more active about gathering personal trading data from cryptocurrency exchanges. And so bitcoin owners with large gains and a preference for avoiding taxes must find lightly-surveilled off-ramps to liquidate their holdings.

At the same time, anti-money laundering (AML) measures at cryptocurrency exchanges are improving, which means it is getting tougher for anyone who earned their bitcoin illicitly to launder them that way.   

Tesla's decision to accept bitcoin may have made it the target of these high-risk clients. To convert illicit bitcoin into legitimate dollars, buy 10 Teslas with bitcoin, accept delivery then resell the cars for dollars in a bank account. Voila, Tesla has unwittingly helped launder dirty money.

Money laundering doesn't scale well with small-ticket items, say buying pizzas or T-shirts. But cars are a particularly convenient way to launder money. Reselling 10 new Teslas is much easier than selling 50,000 T-shirts.

In its now-deleted bitcoin policy, Tesla said it would be conducting due diligence on buyers. "You authorize us to make inquiries, whether directly or through third parties, that we consider necessary to verify your identity or protect you and/or us against fraud or other financial crime."

But a would-be launderer may not have taken Tesla's threat very seriously. What does a car manufacturer know about setting up AML controls?  

Tesla removed its bitcoin payments option last week. Elon Musk cited concern about "rapidly increasing use of fossil fuels for Bitcoin mining and transactions." (Incongruently, Musk hasn't sold Tesla's bitcoin investment.) But it's also possible that the risks of attracting every money launderer and tax evader in America led Tesla execs to advocate for closing down the bitcoin payments window.

Of course, I'm just speculating about their motivations. But the key point remains: Accepting large bitcoin payments can be risky for a company.

Back to the Biden administration's proposed $10,000 reporting requirement for purchases consummated with cryptocurrency. If it requires something like a Form 8300, it will add an extra layer of paperwork for companies like Tesla that want to accept bitcoin.

But it may also make bitcoin acceptance easier. If companies have balked up until now at the idea of accepting bitcoin payments (because of the risk of attracting shady customers), the $10,000 reporting requirement provides a government-sanctioned way of doing so. A company need only be sure to fill in an IRS form for each purchase and they'll be onside. So a Form 8300 requirement for cryptocurrency might make Tesla more willing to restart bitcoin payments, not less.

If more and more businesses decide to accept large cryptocurrency payments, will bitcoin finally become a popular medium of exchange?

Perhaps not. This gets us back to the original problem. Regular people were never going to buy Teslas with bitcoin, for the reasons listed above. And now with a proposed $10,000 cryptocurrency reporting requirement on the way, money launderers and tax evaders won't bother buying cars, either.

Unfortunately, that leaves no one willing to use bitcoin to buy Teslas.