The Treasury Department and Internal Revenue Service (IRS) relented yesterday on a new tax rule and said that businesses “do not have to report the receipt of digital assets the same way as they must report the receipt of cash until Treasury and IRS issue regulations.” Read the press release.
At the beginning of the month, Coin Center’s Jerry Brito warned in a blog post about the onerous tax obligations created by a section of the 2021 Jobs Act for digital asset businesses such as miners and validators that became effective Jan. 1. Any transactions above $10,000 – such as staking – would have required a tax reporting submission to the IRS.
Adding fuel to the fire, Chamber of Digital Commerce followed up with a letter to Congressional leaders expressing the threat to the industry and promoted the need for the Keep Innovation in America Act [H.R. 1414] which would provide a legislative fix and was introduced early last year by House Financial Services (HFS) Chair Patrick McHenry (R, NC) and co-sponsored by Rep. Ritchie Torres (D, NY) among a bipartisan group of Members. See the letter.
But, in spite of the good news, Coin Center’s Brito was dumbfounded by the Treasury and IRS press release saying in a tweet thread, “Glad to see the IRS has belatedly listened to us and recognized the impossibility of complying with 6050I using crypto, but its statement on the matter is baffling. They state that the new crypto reporting obligations in the Infrastructure Investment and Jobs Act ‘requires the Treasury Department to issue regulations before it goes into effect.’ There is nothing in that law that says this and we are unaware of any legal reasoning that would have this be the case. For the time being it seems like they will not be enforcing the law, which is a practical win and I’m sure that is welcomed by many confused taxpayers. Still, the IRS has not explained how it’s capable of doing this.” Read more.
what you should know: Yesterday’s news would seem to put new momentum behind H.R. 1414. Or, maybe the IRS and Treasury can figure it out on their own? Expect HFS to make some noise (today?) reminding Treasury it needs Congress to make changes on the rule.
global growth – natsec, China
On Thursday, the Senate Banking Committee will hold a hearing titled, “National Security Challenges: Outpacing China in Emerging Technology.” See more. Given Chair Sherrod Brown’s (D, OH) apparent reticence to discuss digital assets in such a light, don’t expect them to make the agenda.
Nevertheless, China’s HashKey Group, which positions itself as the “Asia’s digital assets leader” and owns a crypto exchange and trading platform in Hong Kong, announced new funding yesterday. The company said that a new Series A funding round of $100 million would support its efforts in the Hong Kong market and claimed the company now held a market capitalization of $1.2 billion.
A press release said, “The newly raised capital will be used to solidify HashKey’s Web3 ecosystem, accelerate the product diversification of its licensed business in Hong Kong, and drive the Group’s compliant and innovative development globally.” Read it.
Oddly, the release only says that existing and new investors participated in the new round of capital but doesn’t identify any of them.
what you should know: HashKey is a subsidiary of Shanghai Wanxiang Blockchain, a shareholder in U.S. crypto securities broker Prometheum which was part of last summer’s Congressional fireworks related to digital assets. Worries about Wanxiang’s connections to the Chinese Communist Party had Republican lawmakers – such as Sen. Tommy Tuberville (R, AL) – wondering whether Prometheum perjured itself in Congressional testimony. It also raised questions about the Securities and Exchange Commission’s (SEC)’s approval of Prometheum’s special purpose broker-dealer license.
global growth – Dubai
OKX, a cryptocurrency spot market and derivatives exchange based in the Seychelles, announced that it has received a Virtual Asset Service Provider (VASP) license from the Dubai Virtual Assets Regulatory Authority (VARA).
In a statement, Rifad Mahasneh, OKX general manager for the Middle East said: “The future of digital assets and capital markets lies in the hands of regulated entities, and Dubai, along with VARA, has succeeded in establishing a distinctive environment that fosters the growth of Virtual Asset Service Providers.” Read the release.
what you should know: It was only last June that OKX’s government relations chief Tim Byun told Reuters about the Dubai plans saying, “We would like to get ahead of that [regulation] curve and be regulated in a sound manner.” Read that one.
Yesterday, there were several articles floating around in the media about “concentration risk” at Coinbase due to the amount of Bitcoin that the company will hold as it provides custody services to companies like BlackRock for its Bitcoin ETF. See Bloomberg on FA-mag.com.
what you should know: Missing in the media narrative is the effect of the SEC’s Staff Accounting Bulletin 121 (SAB 121). Some publicly-traded banks – such as BNY Mellon – wanted to offer crypto custody but backed away last summer due to SAB 121’s onerous rules. Read about it in American Banker.
Perhaps the GAO’s rebuke in November of the SEC’s rulemaking process with SAB 121 will foster change.
Senator Cynthia Lummis (R, WY) spoke with disbelief about SAB 121’s inner-workings with blockchain tipsheet last week saying, “It’s incongruous in its result with the way the world functions – you don’t put a custodied asset on the custodian’s asset list. It belongs to the the person who owns the custodied asset.” Read more.
regulators at war
The Consumer Financial Protection Bureau’s (CFPB) recent foray into digital assets oversight is reviewed by DL News calls it another example of the “turf war” between U.S. government regulators that only creates more confusion.
In its latest move, the CFPB has proposed on November 7 that digital wallets and crypto are part of its purview as the agency looks to press more rules on non-bank, payment companies. Crypto industry participants exploded with written comments in response.
DeFi Education Fund’s Miller Whitehouse-Levine says, “Regulatory agencies — the CFPB included — are trying to grab jurisdiction in a way that creates statutory contradictions.” Read more.
The Tokenized Asset Coalition (TAC), created by blockchain analytics firm RWA.xyz (Real World Assets) and launched late last summer, announced 15 new members including Solana Foundation yesterday. The Coalition claims to champion “the adoption of public blockchains, asset tokenization and institutional DeFi,” according to a release. Read about it.
still more tips
Cantor Fitzgerald CEO Howard Lutnick Says Tether’s Reserves Do Exist; Cantor Is A Custodian – Bloomberg
EU Banking Authority crypto AML rules penalize self hosted wallets, DeFi – Ledger Insights
AI fever takes over Davos pushing crypto aside as the new cool kid on the block – CNBC