The IRS has released new guidance on the U.S. tax treatment of cryptocurrency for the first time since 2014. The guidance includes Revenue Ruling 2019-24, which provides guidance on the tax treatment of hard forks. The IRS also released a series of FAQs covering a variety of topics that expand on Notice 2014-21.
Revenue Ruling 2019-24
Revenue Ruling 2019-24 generally concludes on two scenarios involving hard forks. A hard fork occurs when a blockchain undergoes a protocol change resulting in a permanent diversion from the legacy or existing blockchain, which may result in the creation of a new cryptocurrency on a new distributed ledger in addition to the legacy cryptocurrency on the legacy distributed ledger. In the first scenario, the cryptocurrency blockchain experiences a hard fork but the taxpayer does not receive units of a new cryptocurrency, and in the second scenario, the taxpayer receives units of new cryptocurrency “as a result of an airdrop of a new cryptocurrency following the hard fork.” The Revenue Ruling concludes that the taxpayer does not have income in the first scenario. However, in the second scenario, the taxpayer has ordinary income because he has experienced an accession to wealth. The income arises at the time of the airdrop because the taxpayer is, at that time, able to exercise dominion and control over the forked cryptocurrency.
The Revenue Ruling’s analysis on this point appears to be based on some misconceptions about how units of a new cryptocurrency are accessed by holders of a pre-fork cryptocurrency, and confusion about the relationship between forks and airdrops. An airdrop is distinct from a hard fork – it is a means of distributing units of a cryptocurrency to the distributed ledger addresses of multiple taxpayers. Because of this apparent confusion, the Revenue Ruling does raise some practical issues:
- What is meant by the receipt of an airdrop of new currency following the fork? For example, does it apply when a custodial wallet provider permits access to the forked cryptocurrency? If the wallet provider does not permit access to the forked cryptocurrency right away (or at all), does the wallet provider have income?
- What if the taxpayer directly holds a private key associated with a wallet address on a blockchain that undergoes a hard fork?
- The value of the forked cryptocurrency may be initially high but quickly plummet in value if it does not gain wide acceptance. The effect of the Revenue Ruling appears to be that the taxpayer will recognize ordinary income with no cash to pay the tax, and then recognize a capital loss on the original cryptocurrency (to the extent the value has shifted to the forked cryptocurrency).
- In addition, it is not clear whether the guidance applies to airdrops of alt-coins to wallets to attract attention and a wider distribution for such alt-coins. Often such coins are airdropped to wallets whose owners have done nothing to receive them and, in fact, may not even be aware of the airdrop or want the airdropped coin.
Nevertheless, the guidance might be read as saying that a taxpayer will recognize income whenever the taxpayer gains dominion and control over the new cryptocurrency following a hard fork (i.e., the ability to dispose of the new cryptocurrency). Although the guidance does not technically apply to an airdrop without a fork (as neither of the fact scenarios involves such an airdrop), the reasoning would likely make that taxable as well.
FAQs for Investors
The IRS also released a series of FAQs that expand on Notice 2014-21. The FAQs apply only to investors holding cryptocurrency as a capital asset. Some of the significant points include:
- Cryptocurrencies are generally valued as of the date and time the transaction is recorded on the distributed ledger (for on-chain transactions) or would have been recorded on the distributed ledger (for off-chain transactions). For transactions occurring on a cryptocurrency exchange, the value is the amount recorded by the exchange. For peer-to-peer transactions, the IRS will accept the value as determined by a blockchain explorer that analyzes worldwide indices of a cryptocurrency and calculates the value of the cryptocurrency at an exact date and time. This valuation method seems to require the combination of two different services – that of a blockchain explorer that tracks transactions, and that of an index that calculates value.
- Taxpayers may specifically identify which units of cryptocurrency are deemed to be sold by documenting the unique digital identifier, such as the private key, public key, and wallet address, or by showing the transaction information for all units of a specific virtual currency held in a specific wallet. If the taxpayer does not specifically identify the unit sold, the units are deemed to be sold on a first-in-first-out (FIFO) basis. The provision of a cost basis assumption is welcome guidance, but the FAQ does not permit other assumptions, such as last-in-first-out (LIFO) or average cost basis. In addition, because specific identification is tied to a wallet and not a transaction identifier, if taxpayers want to use specific identification, they should hold cryptocurrency acquired at different times in different wallets.
- If a taxpayer donates cryptocurrency to a charity, he or she will not recognize income from the donation and generally will be able to deduct the fair market value of the cryptocurrency if it is held for more than one year.
- Taxpayers must retain records regarding their cryptocurrency transactions that document receipts, sales, exchanges, or other dispositions of virtual currency and the fair market value of the cryptocurrency.
In the press release that accompanied the guidance, the IRS warned that “[t]axpayers who did not report transactions involving virtual currency or who reported them incorrectly may, when appropriate, be liable for tax, penalties and interest. In some cases, taxpayers could be subject to criminal prosecution.” Because revenue rulings reflect the IRS’s position on how current law applies to a particular set of facts, they apply retroactively. Taxpayers who did not report income from prior hard forks should consider whether to file amended returns if the tax year is still open. This is true, even though many practitioners believed that there were reasonable analogies that would result in hard forks not giving rise to current income (e.g., stock splits, purchasing pregnant livestock, sale of extracted minerals or timber cut from land, division of trust, or sale of portion of larger property).
Kraken Daily Market Report for May 14 2021
- Total spot trading volume at $3.17 billion, 5.3% higher than the 30-day average of $3.01 billion.
- Total futures notional at $638.8 million.
- The top five traded coins were, respectively, Ethereum (+2.3%), Bitcoin (-1.4%), Tether (0%), Dogecoin (12%), and Polkadot (-0.6%).
- Strong returns from Dogecoin (+12%) and Synthetix (8.5%).
|May 14, 2021
$3.17B traded across all markets today
Crypto, EUR, USD, JPY, CAD, GBP, CHF, AUD
#####################. Trading Volume by Asset. ##########################################
Trading Volume by Asset
The figures below break down the trading volume of the largest, mid-size, and smallest assets. Cryptos are in purple, fiats are in blue. For each asset, the chart contains the daily trading volume in USD, and the percentage of the total trading volume. The percentages for fiats and cryptos are treated separately, so that they both add up to 100%.
Figure 1: Largest trading assets: trading volume (measured in USD) and its percentage of the total trading volume (May 14 2021)
Figure 2: Mid-size trading assets: (measured in USD) (May 14 2021)
Figure 3: Smallest trading assets: (measured in USD) (May 14 2021)
#####################. Spread %. ##########################################
Spread percentage is the width of the bid/ask spread divided by the bid/ask midpoint. The values are generated by taking the median spread percentage over each minute, then the average of the medians over the day.
Figure 4: Average spread % by pair (May 14 2021)
#########. Returns and Volume ############################################
Returns and Volume
Figure 5: Returns of the four highest volume pairs (May 14 2021)
Figure 6: Volume of the major currencies and an average line that fits the data to a sinusoidal curve to show the daily volume highs and lows (May 14 2021)
###########. Daily Returns. #################################################
Daily Returns %
Figure 7: Returns over USD and XBT. Relative volume and return size is indicated by the size of the font. (May 14 2021)
###########. Disclaimer #################################################
The values generated in this report are from public market data distributed from Kraken WebSockets api. The total volumes and returns are calculated over the reporting day using UTC time.
Ternoa Blockchain’s NFT-based data transmission project gets LVT Capital as a partner
Ternoa Blockchain has found a new partner as it introduces its NFT-based data transmission service to the market.
The company received an investment from Australia-based private equity firm LVT Capital to form a strategic partnership aimed at enhancing the sustainability, innovation, competitiveness, and dependability of Ternoa’s services that allow users to build time capsules for safely transmitting their memories and important data to their descendants even after death.
Building on LVT’s Expertise
With its focus on blockchain, crypto, and tech projects, LVT Capital has already proven its expertise in these areas with its numerous collaborations and investments. The company has already made investments in more than 40 top-caliber crypto, real estate, finance, education, and cybersecurity firms with 200 more under evaluation for potential collaborations.
LVT Capital has the market and technology expertise as well as the resources to enhance Ternoa’s unique service and promote it to boost the company’s competitiveness. For instance, LVT Capital has its own media & marketing services and an online publishing arm focused on blockchain, technology, and business, which makes the firm a perfect fit for Ternoa.
Ternoa Blockchain Offers Customizable Time Capsules
Ternoa Blockchain found a new way to use NFT and blockchain technologies to help people handle their data storage and transmission needs, which is one of the reasons for LVT Capital’s decision to invest in its business. With its Polkadot-powered, NFT-based customizable time capsules, people can securely transmit their memories such as photos, videos, and other important data to future generations or simply use the platform as a secure storage solution.
Ternoa’s platform is flexible enough and gives users several options on how they wish their data to be retrieved by their intended recipients. The available transmission protocols are Safe Protocol, Consent Protocol, Death Protocol, D-day Protocol, and Countdown Protocol.
- Safe Protocol – Data owners can retrieve data at any time, which makes use of Ternoa as a secure and portable storage solution.
- Consent Protocol – Recipients can access the time capsule as long as the original owner does not use his veto option.
- Death Protocol – The time capsule will be delivered to the beneficiaries upon the death of the creator based on local death registries APIs.
- Countdown Protocol – Introduces a countdown feature which can be set to1 month, 1 year, or 10 years. The time capsule will be delivered to the recipient if the countdown reaches the limit. The creator can reset the countdown at any time.
- D-day Protocol – Time capsule can only be accessed on a specific date, which is set by the creator.
While the loss of data is always an issue for other data storage solutions, Ternoa eliminated this risk by making copies of the files inside the time capsule, which are stored in other dex storage blockchains. At the moment, Ternoa sends these copies to Aerweave, Sia, and Storj while keeping the original version in its network. To learn more about the project, click here.
IMPORTANT NOTE: This is a paid press release, which BitcoinerX has posted as part of a commercial agreement. BitcoinerX is not responsible for producing this content and does not endorse the products or services mentioned. It is the responsibility of the company posting the press release to ensure the material is credible and accurate. BitcoinerX is not responsible for any damage or loss caused to anyone who chooses to use the company, product or services mentioned in the press release. BitcoinerX does not recommend using the information in the press release to form the sole basis of investment decisions.
Altcoins pop while Bitcoin looks for support near $50,000
Bitcoin (BTC) continues to look for direction but as this occurred, Ether and altcoins bounced higher from the May 13 sell-off. Dogecoin shocked investors with its 47% rally that kicked off after Coinbase announced that it would list (DOGE) in the coming months. Doge price also rallied after Elon Musk tweeted that he was “Working with Doge devs to improve system transaction efficiency. Potentially promising.”
While many altcoins have seen double-digit gains during the recovery the price of Bitcoin (BTC) has continued to languish near the $50,000 level as whale wallets containing at least 1,000 BTC have declined by 4.7% compared to the previous month, indicating possible profit taking or a rotation into different assets.
Data from Cointelegraph Markets and TradingView shows that while the Bitcoin recovery has been muted, demand for Ether (ETH) led to an 18% rally as the altcoin notched an intraday high at $4,173 on May 14.
Gains in the top altcoin come amidst mixed fundamental developments, with data from Glassnode showing that wallets holding at least 32 ETH have been steadily declining in recent months suggesting that fewer people are interested in becoming “full validators” for the network’s upcoming proof-of-stake blockchain.
Altcoins rally higher
While the debate about whether or not the market is officially experiencing an altseason rages on, one of its trademark characteristics is a sideways trading Bitcoin that leads to traders refocusing their attention on the altcoin market and leading to a decline in Bitcoin dominance.
One of the breakout stars of 2021 is Polygon (MATIC), which has seen its price rally 60% over the past 24-hours to reach a new record high at $1.75.
Another project whose price surged 45% from the lows on May 13 is iExec RLC (RLC), a decentralized cloud computing network that got a boost of adrenaline earlier in the week after Coinbase revealed that it would list the token.
Other notable performances include an 80% increase in the price of Ergo (ERG) and a 48% increase in the price of Sora (XOR) which lifted the token’s price back above $800.
The overall cryptocurrency market cap now stands at $2.307 trillion and Bitcoin’s dominance rate is 40.3%.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.
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