Tag: Regulation

Although many can agree that blockchain technology has the ability to change our world forever, there are many governments that do not seem to accept the cryptocurrency world as legitimate. These include governments that either want to outright ban cryptocurrency, or simply do not seek to clarify a regulatory framework surrounding it. There is some evidence that this will eventually change, as evidenced by a statement from the G20 summit recently.

For those that are unaware, the G20 summit is an international forum where government officials from 20 of the most powerful nations in the world gather to discuss commerce, trade, climate, and other issues. Its members represent the vast majority of economic power globally, and includes countries/regions such as The United States, the European Union, India, China, Japan, and more. The G20 summit recently ended on December 1, and took place at Buenos Aires, Argentina.

Picture Taken At 2017 G20 Summit In Hamburg, Germany

A statement from the G20 leaders actually referenced cryptocurrency directly. Here is the official statement: “We will continue to monitor and, if necessary, tackle emerging risks and vulnerabilities in the financial system; and, through continued regulatory and supervisory cooperation, address fragmentation. We look forward to continued progress on achieving resilient non-bank financial intermediation.”

The most direct statements regarding cryptocurrency follows:

We will step up efforts to ensure that the potential benefits of technology in the financial sector can be realized while risks are mitigated. We will regulate crypto assets for anti-money laundering and countering the finance of terrorism in line with FATF (Financial Action Task Force) standards and we will consider other responses as needed.”

Although there are sure to be some countries that move faster with regards to cryptocurrency regulation than others – regulatory frameworks go a long way towards helping blockchain-based companies determine where to relocate and pursue expansion. Time will tell whether the G20 statement will come to fruition or not.

The United States Congress has begun introducing new legislation regarding how taxpayers should report their cryptocurrency profits.

Congressman Tom Emmer who is co-chair of the Congressional Blockchain Caucus headed up the discussion, with a call for the government to enable the US private sector to benefit from the innovative technologies like blockchain.

Emmer proposes that a resolution to support cryptocurrencies should be introduced, providing a consistent and simple legal environment, and called for a ‘Blockchain Regulatory Certainty Act’ that allows blockchain companies that don’t use consumer funds to avoid having to register as money transmitters. He also requested the formation of an act that provides a ‘safe harbor’ for taxpayers that are not covered by clearly defined laws. This will restrict fines for individuals who are unable to declare assets if the IRS doesn’t have appropriate guidance regarding them.

The most recent guidance on cryptocurrency from the IRS is from 2014 and has become somewhat outdated. It defines the exchange, receipt or spending of digital tokens as taxable events even when no fiat currency is involved. This includes ICO’s, airdrops and mining of coins but is currently almost impossible to track and monitor except when a traditional bank is involved. As a result, individuals suffer fines when trying to cash out certain assets as it is near impossible to correctly declare them in the currently unregulated market.

In some cases where the IRS have judged that tax fraud was intentional, victims have received up to a 75 percent civil penalty and criminal charges with potential jail time.

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Cryptocurrency continues to receive a lot of interest in South Africa, especially considering recent news of land expropriation and government corruption. Citizens are understandably concerned about the future of South Africa’s economy and are looking for other means to store wealth.

Due to the level of perceived investment in cryptocurrencies, the South African Revenue Service (SARS) is worried it may not be getting it’s cut of the pie. While transactions on a blockchain are technically transparent, it’s easy to hide them if nobody is looking.

As a result, SARS is investigating a blockchain technology solution that will help it to ensure citizens are paying tax on their cryptocurrency income. Even though SARS has stated that it does not recognize digital assets like Bitcoin as real currency it still wants citizens to pay tax on them as if they are.

Until now it has been relying on citizens to honestly disclose their cryptocurrency earnings but evidently, the service has decided it doesn’t fully trust South Africans to do this. The new system will come as a double-edged sword though, as it means investors can also declare their losses and as such potentially get a tax break.

SARS Commissioner Mark Kingon mentioned this when he spoke of the new system.

The key thing is identifying people who are trading because it’s easy to say cryptocurrency gains must be deductible, but there are also those who lose,” he said.

Richard de Sousa from South African cryptocurrency exchange AltcoinTrader spoke of his views on the matter.

“If SARS knew the Bitcoin address that you started from, they could track every single transaction that goes out of that address.” he pointed out. “Crypto is not secretive it is extremely transparent.”

A number of countries have already looked into implementing blockchain technology as a solution to tax and other financial services, with varying degrees of success. Considering the troubles SARS has already faced this year in relation to internal management, it will be interesting to see how this pans out.

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Tuesday saw the United States Department of Justice (DoJ) announce some damning results that arose from their “year-long, coordinated national operation” targeting illicit goods vendors transacting on the Darknet. Notably, one of the many listed outcomes was the seizure of almost “2,000 Bitcoins and other cryptocurrencies” – valued at over $20 million – and Bitcoin mining equipment, as well.

Let’s Be Clear

So as not to cause confusion, below are the direct, relevant Bitcoin (BTC) and crypto-related quotes from the DoJ’s press release.

The operation, which “culminated in four weeks of more than 100 enforcement actions around the country, resulted in the following:”

Seizure of nearly 2,000 Bitcoins and other cryptocurrencies, with an approximate value of more than $20 million; [and]”

Seizure of Bitcoin mining devices, computer equipment, and vacuum sealers.”

The DoJ’s report details seven instances whereby their coordinated operation led to federal charges. Of these, Bitcoin and/or cryptocurrency feature in six of these ~150-word case summaries.

The phrases “Bitcoin,” “crypto,” “Ethere[u]m,” and “Komodo” were used in 12, 5, 1, and 1 instance(s), respectively.

Also of relevance to the crypto industry, were the following comments made by an assistant director of the U.S. Secret Service (USSS), who, along with the U.S. Immigration and Customs Enforcement (ICE), the U.S. Postal Inspection Service (USPIS) and the U.S. Drug Enforcement Administration (DEA), worked with the DoJ on the year-long breakthrough investigation:

The Secret Service is proud to work with our law enforcement partners to help combat one of the largest threats to the U.S. financial infrastructure, money laundering with virtual currency.” – Kenneth Jenkins

Maryland Pair Make (Then Lose) $22M+ in Bitcoin, Crypto

Almost all of the Bitcoins and other cryptocurrencies that were seized as part of the nationwide investigation appear to be borne out of federal charges laid upon two Maryland residents, Ryan Farace and Robert Swain.

The indictment, made by the U.S. Attorney’s Office for the District of Maryland, alleges “that Farace distributed [alprazolam tablets] through sales on the dark web in exchange for Bitcoin, and that Farace and Swain laundered the drug proceeds through financial transactions designed to conceal the source and ownership of the illegal funds.”

The two men’s case summary continues, revealing that “to date, law enforcement has seized various crypto currency, to include bitcoin, valued at over $22 million at the time of the seizures, and over $1.5 million in cash.”

Tellingly, the DoJ details that “as part of the indictment, the government seeks the forfeiture of no less than $5.665 million, plus the value of 4,000 Bitcoin believed to be the proceeds of the illegal drug sales, two residences, and a vehicle used to facilitate the drug distribution.”

Sliding Doors Moment?

Somewhat poetically, news of today’s sizable crypto-confiscations come just one day after leading VC firm Andreessen Horowitz hired Katie Haun to co-lead their new crypto fund, ‘a16z crypto’.

Of course, Haun spent over a decade with the Department of Justice as a federal prosecutor. In this position, she led investigations into the Mt. Gox hack and the task force responsible for investigating one of the Darknet’s most notorious drug marketplaces, Silk Road.

With the crypto ecosystem now blessed with Haun’s invaluable expertise on matters relating to technological-regulatory overlap, is this a sign that the sector is maturing?

Indeed, many would agree that the public still – rightly or wrongly – associate the Bitcoin movement with underground culture, where its usage pertains exclusively to criminal activities. Today’s results from the DoJ certainly attest to this use case, given the operation saw over $20 million worth of Bitcoins seized; far more than their seizure of $3.6 million-plus worth of USD and gold bars.

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Japan’s Financial Services Agency (FSA) is yet again preparing to hand down punishment to several major cryptocurrency exchange operators in the country, including prominent exchange bitFlyer.

The move represents the third time in just one year that the FSA has had to reproach digital asset exchanges, indicating that tough new rules on internal control mechanisms are yet to be adhered to in a manner deemed satisfactory by the regulators.

While specifics are yet to be revealed, it is understood that the latest round of actions is related to on-the-spot inspections of registered cryptocurrency businesses conducted in February. Around half of the operators in the country were reviewed during this round.

The case for rigorous improvements being required by Japan’s exchanges is nothing short of warranted: January saw the biggest cryptocurrency theft in history when native exchange Coincheck was the target of an enormous crypto-heist worth US$534 million.

A theft of such magnitude, combined with a 20-fold increase in digital currency transactions in the 2017 fiscal year alone, has been enough to draw the continued attention of the FSA.

It was recently reported that Tokyo’s GMO Coin and Osaka’s Tech Bureau Corporation were both issued business improvement orders related to their cryptocurrency operations.

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Today has seen improvement across the board for the majority of cryptocurrencies following yesterday’s announcement by the SEC that Ethereum (ETH) will not be considered a security.

The past few weeks saw significant distress amongst various cryptocurrencies, particularly Ethereum and Ripple (XRP), over whether or not they are to be considered securities and what that means for the future of trading digital assets.

Ethereum, in particular, was under scrutiny for failing to register its Initial Coin Offering (ICO) with the SEC back in 2014 and risked being considered ‘noncompliant’. Bitcoin (BTC) has never seriously been considered at risk of such regulations since it was mined from inception and acts as a replacement for sovereign currencies.

Yesterday, the Securities Exchange Commission (SEC) Finance Director William Hinman made his position on the matter clear at Yahoo Finance’s All Market Summit in San Francisco:

Based on my understanding of the present state of ether, the Ethereum network and its decentralized structure, current offers and sales of ether are not securities transactions.”

Whether or not Ripple (XRP) is considered a security or not is still unclear. Continuing in his speech, Hinman went on to state that:

Central to determining whether a security is being sold is how it is being sold and the reasonable expectations of purchasers,”

A large part of the law hinges on the whether or not investors are looking for a return on their asset. Ripple is currently subject to a class action lawsuit claiming it is a security, the outcome of which remains to be seen.

Market Rebound

Since the announcement the price of almost every cryptocurrency on the market has enjoyed positive upward movement, with some coins, including Ethereum, seeing as much as 10% gains. Ethereum has corrected slightly back to around $500 now but was as high as $518 earlier today.

Bitcoin (BTC) is up 5.89 percent trading at $6,623 at time of writing, down only slightly from $6,680 earlier this morning. Trading volumes have increased to $5.1 billion, a significant improvement from this weeks low of $3.8 billion.

The bullish trend follows comments yesterday by crypto’s own Dr Doom, Nouriel Roubini, who took shots at the crypto market while voicing his opinions on Twitter about venture capitalist and Bitcoin enthusiast Tim Draper:

Draper is indeed a lousy investor. After Theranos he became a crypto-evangelist… he will lose on his shitcoins even more than he lost in Theranos https://t.co/NczK9G0M8W

— Nouriel Roubini (@Nouriel) June 13, 2018

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