In light of Kik’s recent announcement of a crowdfunding campaign to bring about a new Howey Test for cryptocurrencies as well as a statement from SEC Director of Corporation Finance William Hinman regarding the possibility of ICOs being eligible for relief from enforcement, regulatory confusion abounds. What is clear is that regulations are suffocating development of crypto platforms and ambiguity only makes the situation worse. The question remains: what is the path forward for crypto regulations and how does the blockchain community arrive at an answer?
Here’s What We Know from the SEC
The SEC released a Framework for “Investment Contract” Analysis of Digital Assets that was to supposedly provide clarity as to how token projects would be evaluated. The problem is that according to this framework, just about any token should be categorized as a security. Circle reacted to this in a Medium blog post as follows:
“Since every project is likely triggering one of the factors [listed in the SEC framework], no project — and no exchange that decides to list the project’s tokens — can rely on the guidance to reduce the risk of enforcement. The foreseeable consequence of this is chilling innovation in the U.S. and nudging crypto projects toward jurisdictions with greater regulatory clarity — neither of which is good for U.S. business.”
Other leaders of token projects are feeling justifiably boxed-in by the SEC’s framework as well. It doesn’t seem right for every token to automatically be considered a security. Afterall, currencies such as USD are not securities. Hotel reward points are not securities. Virtual monies in games are not securities. The list goes on.
If we are to read into Hinman’s recent comments at the SEC’s FinTech Forum in Washington, D.C., we could interpret that perhaps the agency realized its error and is attempting to provide hope. Pointing to TurnKey Jets as an example of a project that secured a no-action letter, Hinman said, “even if some aspect of the project was not fully developed, the SEC may have still been willing to provide no-action relief.” Though his comment suggests that the SEC could be forgiving when it comes to evaluating crypto projects whose tokens initially appeared to be an investment contract before evolving into a token with a true use case, most token projects will be hesitant to take the SEC’s word for it.
So, What are Token Projects to Do?
The continued lack of clarity as to how token projects will be categorized by the SEC lead Kik to take drastic measures. The messaging app that raised $98 million in its 2017 ICO received a notice warning that the agency may seek enforcement action and now faces a lawsuit. Kik responded by initiating a campaign to crowdfund $5 million in crypto to fight the SEC in court, ideally resulting in the creation of a new Howey Test for cryptocurrencies. Though the optics of a project that already raised nearly $100 million now asking for more money to fight its own legal battles are a bit dubious, many token projects agree that something needs to be done.
Circle’s team believes, “Congress must pass laws to seize the unique opportunities created by the innovations in crypto and blockchain technologies and businesses.” The company and industry partners support “the Token Taxonomy Act, which among other things would exclude digital tokens from the definition of a security.”
To the positive, Montana passed a bill to exempt utility tokens from securities laws this May; hopefully other states may look to Big Sky Country as an example. Most important for the token economy is that the innovative spirit that brought bitcoin, ethereum, and so many other revolutionary concepts to life will not be held back by the bureaucracy’s lack of understanding and appreciation for the values of decentralization.
Contributed article by Gov van Ek, Co-founder of BitCar
The post With SEC Battles Brewing, What is the Path Forward for Crypto Regulations? appeared first on CryptoNewsReview.
Bullish? On-Exchange Bitcoin Declines While Whales Accumulate (Report)
A recent report suggests that the amount of Bitcoin stored on exchanges is declining while BTC whales increase their holdings and that’s bullish for Bitcoin’s price.
The paper also highlighted that investors have a much larger time horizon for their holdings now compared to previous years.
Bitcoin Stored On Exchanges Drop
In its latest report shared with CryptoPotato on Bitcoin investors’ behavior, the popular research company Digital Delphi explored the number of bitcoins stored on cryptocurrency exchanges. The document indicated that if the BTC stock on platforms increases, it could put sell pressure.
However, this isn’t necessarily the case during bull runs, as retail investors often “leave BTC on exchanges and traders use BTC as margin collateral.” Alternatively, in case the asset price rises while the stock on exchange decreases, this typically implies an accumulation trend.
The report indicated that Bitcoin stored on exchanges marked an all-time high of 2.96 million in mid-February. Since then, the trend has reversed, and the number has dropped to below 2.6 million.
Digital Delphi argued that the reason behind this decrease of BTC on exchanges is because investors are most likely preparing for a longer-term holding period. More importantly, though, the paper highlighted a substantial decline in speculative trading interest in Bitcoin, while the HODLing mentality has increased.
“Unlike the 2019 price uptrend, which coincided with BTC stock increasing, this current trend has seen a divergence between BTC stock and price. This suggests a more sustainable move upwards for BTC, in comparison to that of 2019, as data indicates a holder base with longer time horizons.”
Bitcoin Whales Haven’t Slowed Down Accumulating
Digital Delphi’s data reaffirmed previous reports that Bitcoin whales, meaning addresses containing between 1,000 and 10,000 BTC, continue to accumulate large portions. The company outlined that whales have been on a shopping spree since the start of 2020, as their holdings have increased by 9% YTD.
Moreover, the US Federal Reserve’s actions to print extensive amounts of dollars since the start of the COVID-19 pandemic have accelerated whales’ accumulations.
“Since the USD M2 supply expansion in March, there has been a 7% increase in whale holdings.”
According to the document, this only emphasizes the narrative that Bitcoin serves as a hedge against dollar inflation, and “the smart money is clearly betting on this.” It’s worth noting that prominent US investor Paul Tudor Jones III purchased BTC earlier this year to protect himself against precisely the rising inflation.
US Crypto Tax Avoiders Beware: The IRS Updates 1040 Tax Form
The Internal Revenue Service (IRS) seems to have found a way to block crypto tax evasion, following an update of its tax form.
IRS: No Excuses for Crypto Traders
According to the Wall Street Journal on Friday (September 25, 2020), the IRS is planning to alter its 1040 tax form. The revised tax form will see cryptocurrency holders give a straight answer about their crypto activities.
The IRS has been relentlessly pursuing crypto investors to disclose transactions, as it suspects that many taxpayers were guilty of tax evasion. However, the tax administrator looks like it has found a way to make all Bitcoin holders accountable.
Presently, the tax form will mandate crypto traders to answer a” yes or no” to the following question:
“At any time during 2020, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?”
What makes the update interesting is the placement of the above question. Prior to the revised tax form, the question appeared in a section where taxpayers were not mandated to fill the answer. However, the question’s position in the altered tax form just below the taxpayer’s name and address leaves no room for excuses or oversight on the part of the crypto trader.
Reacting to the altered form of 1040 was Ed Zollars:
“This placement is unprecedented and will make it easier for the IRS to win cases against taxpayers who check ‘No’ when they should check ‘Yes”
There have been complaints in the past about the lack of a robust regulatory framework for crypto tax filings. In October 2019, the IRS published new tax guidelines that would supposedly make it easier for crypto investors to file taxes. The U.S. tax agency also sent reminder letters to crypto holders. Earlier in September, the IRS announced a payment of $625,000 to anyone who could crack Monero and Bitcoin’s lightning network.
Governments Keen on Crypto Taxation
While the IRS seems to have devised a means to trap crypto holders, more countries are introducing crypto tax laws and clamping down on offenders.
As reported by CryptoPotato in April, Spain’s tax administrator sent out notices to 66,000 crypto investors, as against the 14,000 notices sent in 2019. South Korea, on the other hand, has been unsteady about taxing cryptocurrency.
Earlier in 2020, South Korea’s Ministry of Finance and Strategy revealed that there were no intentions to tax crypto profits. However, reports emerged that the Ministry was considering imposing a 20% tax on profits from crypto trading. In June, the country’s Finance Minister called for the imposition of tax on cryptocurrency trading gains.
Australia’s tax agency, the Australian Taxation Office (ATO), sent out reminders to 350,000 crypto traders in March about their tax obligations. According to the ATO, crypto investors were to keep a comprehensive record of their trading activities for ease of tax payment.
Chinese State Media Report: Cryptocurrencies Are The Best-Performing Assets Of 2020
Although China still categorizes Bitcoin and other cryptocurrencies as illegal, several state-owned media outlets purportedly ran reports describing them as the best-performing assets since the start of the year.
Bitcoin And Crypto Run On Chinese Media
A popular state-owned media under the name Xinhua News Agency set the tone yesterday by citing a Bloomberg report titled “crypto is beating gold as 2020’s top asset so far.” Apart from summarizing Bloomberg’s narrative, Xinhua added that cryptocurrencies are “decentralized financial instruments” and concluded that they have become “the best performing asset class this year.”
Another digital asset coverage followed today on China Central Television (CCTV) – among the most popular broadcasting services in the nation. In a three-minute-long video clip, CCTV spoke about cryptocurrencies and emphasized on their year-to-date performance. More specifically, the clip focused on their 70% price increase this year.
According to a popular cryptocurrency commentator Dovey Wan, this “interesting propaganda” spread out among other outlets, being featured on all “avenues, newspapers, online media, and TV.” The advertised narrative was the same – that digital assets have been outperforming all other investment instruments.
Binance CEO Changpeng Zhao commented that people might not understand the significance behind this coverage, but “it is big.”
However, Wan raised a compelling question – what’s the real intention behind this move? After all, cryptocurrencies remain banned for official usage within the world’s most populated nation. She speculated that this coverage might have something to do with the Chinese central bank digital currency that’s reportedly being tested.
China Behind The Price Pump?
As CryptoPotato reported earlier today, green dominated the cryptocurrency field with the total market cap increasing by about $20 billion since yesterday.
Historically, news and announcements from China have undoubtedly impacted prices. As such, it wouldn’t be a surprise that the two-day media coverage promoting cryptocurrencies as the best-performing assets in 2020 has affected the market to some extent.
In late 2019, President Xi Jinping urged the country to accelerate its blockchain adoption. In the next few hours, the cryptocurrency field experienced some of its most impressive price pumps in history. Bitcoin alone skyrocketed by 42% in hours.
Less than a month later, country officials clarified that being pro-blockchain didn’t mean a positive attitude on cryptocurrencies. After reaffirming that digital assets are still illegal, their value plummeted in response.
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