Bipartisan members of the House are advocating for more clarity in the tax law as it relates to taxation of cryptocurrency.
First, on April 9, Representative Warren Davidson (R-OH), a member of the House Financial Services Committee, reintroduced legislation that would provide clarity on certain tax and securities law issues related to cryptocurrency. The bill, entitled the “Token Taxonomy Act of 2019,” resembles the original bill that Davidson introduced in the 115th Congress with Congressional Blockchain Caucus co-chair Darren Soto (D-FL). The 2019 version of the bill is co-sponsored by Representatives Soto, Josh Gottheimer (D-NJ), Ted Budd (R-NC), Scott Perry (R-PA), and Tulsi Gabbard (D-HI) (who has announced she is running for President).
Davidson said in a statement that “[t]he Token Taxonomy Act is the key to unlocking blockchain technology in America. Without it, the U.S. is surrendering its innovative origins and ownership of the digital economy to Europe and Asia.”
The bill would enact a number of new tax provisions. The new tax provisions apply only to “virtual currency,” which is generally defined as “a digital representation of value that is used as a medium of exchange,” and so would not apply to digital tokens that are not used as a medium of exchange. The tax provisions of the bill would:
- Expand like-kind exchanges under section 1031 to include virtual currencies. The tax legislation enacted at the end of 2017 limited like-kind exchanges completed after December 31, 2017 to exchanges of real property. However, taxpayers would still need to determine whether exchanged virtual currencies are treated as “like kind” in seeking to qualify for this tax-deferred treatment. As a result, the ability to conduct like-kind exchanges of virtual currencies would be uncertain, as it was prior to 2018.
- Create a de minimis exclusion from gross income for up to $600 (indexed to inflation) of gain from certain sales or exchanges of virtual currency for property other than cash or cash equivalents. This provision would help taxpayers avoid recognizing gain when they use appreciated virtual currencies for small consumer transactions. Under current law, a taxpayer who purchases even a small item—such as a cup of coffee—with appreciated virtual currency generally recognizes gain on the increase in the value of the virtual currency during the time that they held it.
- Authorize the Treasury Department to issue regulations providing for information returns on transactions in virtual currency for which gain or loss is recognized. It is unclear how current information reporting rules apply to many virtual currency transactions. Guidance from Treasury could be very helpful to taxpayers who want to ensure that they are compliant with tax reporting rules. However, in order to create an administrable system that is not overly burdensome to taxpayers, the guidance would have to be implemented in a way that is sensitive to the unique issues surrounding transactions executed via blockchain.
- Clarify that an IRA may hold virtual currencies under rules similar to those currently in place for certain metallic coins or bullion.
Although the bill has bipartisan support, the challenge will be to find a vehicle for passage. Possibilities include an extenders package or disaster relief, but including additional tax provisions will likely face opposition.
Second, on April 11, a group of 21 bipartisan members of Congress sent a letter to the IRS urging them to provide guidance on the tax consequences for taxpayers that use virtual currencies. While the letter acknowledges the 2014 guidance released by the IRS, it stresses that there are still many open questions. It identified three areas where there is an “urgent need” for guidance: (1) how to calculate the cost basis of virtual currencies; (2) how to allocate basis to particular lots of virtual currencies; and (3) the tax treatment of forks.
Although the IRS has been considering cryptocurrency guidance, it currently has its hands full with implementing the 2017 tax legislation. It is possible that the IRS will consider “informal” guidance, such as FAQs on its website, as previewed by Commissioner Rettig last November.
U.S. Treasury Targets Stablecoins in Latest Regulatory Risk Assessment
As regulatory pressure mounts in the U.S., policymakers are putting stablecoins at the top of their agendas.
Citing “people familiar with the matter,” Bloomberg has reported that officials are crafting a policy framework set to be released in the coming weeks. Their primary concern is ensuring that investors can reliably move money in and out of tokens, it added.
The anonymous insiders are worried that a “fire-sale run on crypto assets could threaten financial stability and that certain stablecoins could scale up dangerously fast.”
Strengthening Regulatory Efforts
The Financial Stability Oversight Council is also preparing a formal review into whether stablecoins pose an economic threat.
The officials are focusing on how stablecoin transactions are processed and settled and whether market conditions have an impact, it added. Tomicah Tillemann, global head of policy at a crypto fund run by venture capital giant Andreessen Horowitz, commented:
“It is significant and very consequential that we are witnessing early steps to create a regulatory framework around digital assets. That’s a big deal.”
The report, when released, will go to the President’s Working Group on Financial Markets. The body includes key agency heads such as Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, and Securities and Exchange Commissioner Chair Gary Gensler.
In late July, Yellen called for urgency in regulating stablecoins after stating that they are not adequately supervised. Gary Gensler echoed the sentiment in early August, stating that regulators must act to protect investors from fraud.
Also, in late July, Acting Comptroller of the Currency, Michael Hsu, said regulators are looking into Tether’s commercial papers to see whether each USDT token was really backed by the equivalent of one U.S. dollar.
Tether has repeatedly issued assurances that its reserves are fully backed but has yet to produce a full independent audit.
Stablecoin Ecosystem Update
Tether remains the market leader with a current supply of 69.4 billion, according to the Tether Transparency report. This is close to the all-time high for USDT, which tapped 70 billion earlier this week.
Of that total, 36 billion or 51.8% is based on the Tron network, with 33.8 billion or 48.7% running on Ethereum. USDT supply has grown by 232% since the beginning of the year.
Rival stablecoin, USDC, from Circle currently has 29.3 billion in circulation after gaining 651% in terms of supply growth so far in 2021.
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Cardano, Chainlink, MATIC Price Analysis: 19 September
Most altcoins in the market have been consolidating or recording losses over the last 24 hours. Cardano fell by 3% and inched closer to the support line of $2.20. Chainlink also depreciated by 5% and was trading closer to its three-week low price. Lastly, MATIC was seen moving closer to its one-week low price of $1.29 after registering a loss of 5% over the past day.
Cardano lost 3% of its valuation over the last 24 hours. The altcoin was priced at $2.33. Over the last few days, ADA has been consolidating. The nearest support line for the coin stood at $2.20 and then at $1.72.
On the four-hour 20-SMA the alt’s price was seen below it, indicating that the momentum belonged to the sellers. The Relative Strength Index was below the 50-mark. The Chaikin Money Flow also was seen below the half-line as capital inflows were low.
MACD witnessed a bearish crossover and flashed red bars on its histogram. If ADA moved on the upside, the first resistance mark stood at $2.49, toppling which it could retest $2.79. The other price ceiling stood at the multi-month high of $3.04.
Chainlink was priced at $27.80 after it recorded a loss of 5% over the last 24 hours. LINK’s nearest price floor was at $27.78. Falling below which the coin could trade near its three-week low of $24.45.
Parameters pointed towards negative price action. On the four-hour chart, LINK’s price was below the 20-SMA. This reading suggested price momentum was inclined towards the sellers. The Relative Strength Index was below the half-line.
Awesome Oscillator flashed red signal bars. MACD also displayed red bars on its histogram. On the flipside, once buying pressure revives, the altcoin could attempt to retest the $32.37 resistance mark and then revisit $35.83.
MATIC depreciated by 5% and was trading at $1.39. The altcoin’s immediate support line was at $1.29 which also is the one-week low price level. The other price floor was at its over a month-long low price point of $1.07.
Bollinger Bands converged, indicating that price volatility would remain low over the upcoming trading sessions. MACD was bearish with red bars on its histogram. The Relative Strength Index was also seen below the half-line.
MATIC’s movement on the upside could mean that the coin would meet with its first resistance at $1.42 and then at $1.54. Toppling over these levels, the coin could revisit its multi-month high of $1.76.
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The Crypto Mining Fight in China Is Not Over
It looks like China is still not done clamping down on the crypto mining space. Another region known as the Hebei province has agreed to comply with Beijing’s ruling that all crypto mining should be omitted from China’s workforce. The province is now claiming that the practice is illegal and must end within its borders no later than September 30.
China Is Still Kicking Miners Out
China shocked the world not too long ago when it decided that all crypto mining should cease. The idea was that energy used for crypto mining purposes was hazardous to the planet, and that it was setting humans on the wrong path. Thus, regulators stated that it was time to bring things to an official end.
What was most surprising about the ruling is that the country, at the time, was home to nearly 75 percent of the world’s total crypto mining operations. Thus, it stood to lose a lot of money and tax revenue by initiating the clampdown. In addition, the country is home to two of the world’s biggest developers and distributors of bitcoin mining equipment in Bitmain and Canaan Creative.
Nevertheless, China has moved forward in its decision. Many mining operators were forced to shut down their businesses and move elsewhere, and quite a few have popped up in countries such as Kazakhstan and in states like Texas and Florida. Both these regions in America have stated they are open to crypto mining projects given that they can potentially lead to healthier local and state economies, and they will create jobs for interested workers.
The Hebei province issued the following statement:
Cryptocurrency mining consumes an enormous amount of energy, which is against China’s ‘carbon neutral’ goal.
The arguments against crypto mining have become rather prominent in recent months. One of the most notable stemmed from Elon Musk, the South African entrepreneur behind billion-dollar companies such as SpaceX and Tesla. He stated early in the year that he was willing to permit bitcoin payments for electric vehicles. A few weeks later, however, he rescinded this decision, claiming that miners were not utilizing their energy correctly, and he could not condone bitcoin unless carbon emissions were brought down.
Too Much Bad Energy in the Air!
Another argument came from Kevin O’Leary of “Shark Tank” fame. The billionaire investor claimed that he would no longer be purchasing any BTC mined in China given that the country was not known to utilize green energy for mining purposes. China later took this issue to heart, it seems.
Starting in October of this year, bitcoin and crypto mining in China will be completely illegal. Regulators in the nation have stated that they will keep a close eye on the mining space and will work to punish all those who disobey the rules.
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