White House Economic Report
Posted on by John Ebbert

White House Economic Report Pulls No Punches On Crypto; IRS Needs Comments On NFTs

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White House throws shade

In President Biden’s 2023 Economic Report released late yesterday, cryptocurrencies come under harsh scrutiny that seems to double-down on any previous criticism made by the White House. A section titled, “The Perceived Appeal of Crypto Assets,” (p. 239) begins, “This section reviews the potential benefits that crypto assets may offer, as often touted by their proponents, while the next section evaluates what they have actually achieved.” Not much, according to this report. Read more from Nikhilesh De at CoinDesk.

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IRS needs token comments

The United States’ Internal Revenue Service is looking for comments on tax treatment for non-fungible tokens (NFTs). According to the IRS, “Until additional guidance is issued, the IRS intends to determine when an NFT is treated as a collectible by using a ‘look-through analysis.’ Under the look-through analysis, an NFT is treated as a collectible if the NFT’s associated right or asset falls under the definition of collectible in the tax code. For example, a gem is a collectible under section 408(m); therefore, an NFT that certifies ownership of a gem is a collectible.” Read the release.

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event today

The inaugural meeting of CFTC’s Technology Advisory Committee (TAC) sponsored by Commissioner Christy Goldsmith Romero happens today. Among the topics, “Exploring Issues in Decentralized Finance (DeFi).” Commissioner Goldsmith Romero says in the press release: “The committee has an opportunity to look past labels and examine the issues presented by DeFi thoughtfully and holistically.” Read more – including the complete agenda.

A link to the livestream will be available on cftc.gov beginning at noon ET today.

sham audits

Senator Elizabeth Warren (D, MA) has partnered with Senate Finance Committee Chair Ron Wyden (D, OR) again and sent a letter to the Public Company Accounting Oversight Board (PCAOB), “calling on the regulator to take action to stop sham audits of crypto firms.”  Read the letter (PDF).

In a statement from Senator Warren’s office, “[T]he senators expressed their disappointment that PCAOB is unwilling to use its existing authority to rein in abusive practices in crypto audits by PCAOB-registered auditors, particularly in the wake of bank failures – some related to a heavy reliance on crypto firm depositors – at Silvergate Bank, Silicon Valley Bank, and Signature Bank.” It’s unclear from the statement on what data is informing the idea that Silicon Valley Bank had a reliance on crypto deposits.

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WSJ: regulators undermining

In a follow up to its March 17 op-ed, The Wall Street Journal’s editorial board “unleashed the hounds” yesterday saying it believes Signature Bank was shut down over crypto: “[R]egulators are undermining their ostensible goals. Their crypto crackdown will cost other banks and their customers. The FDIC says it ‘estimates the cost of the failure of Signature Bank to its Deposit Insurance Fund to be approximately $2.5 billion.’ If Flagstar had assumed crypto deposits, there would be no need for the insurance fund to guarantee them.” Read it.

PoW mining resolution

A new Congressional resolution focused on Bitcoin mining was announced by Rep. Pete Sessions (R, TX) at the DC Blockchain Summit yesterday. “The Resolution affirms that it is the sense of the U.S. Congress that PoW (Proof-of-Work) mining can help the U.S. achieve its energy goals. PoW mining involves using very powerful computers to attempt to solve complex computations that are necessary to create a new block in the Bitcoin blockchain.” Read more on Chamber of Digital Commerce’s blog.

The resolution fits well with Republican members of Congress in energy producing states who also skeptically view ESG initiatives by Democrats including recent climate disclosures for investors being pushed by Securities Exchange Commission Chair Gary Gensler, a Democratic appointee.

Tip: H.Res.238 – Expressing the sense of the House of Representatives regarding the importance of Proof-of-Work mining, used for certain cryptocurrencies such as Bitcoin, to the United States ability to achieve its energy goals and grow its economy.

the future of crypto

Calling it “The Future of Crypto,” Wired reports on the Ripple vs. SEC trial which could yield a decision in “days.” A victory by the SEC mean trouble for [U.S. crypto firms] with its multiple business lines. Wired quotes securities attorney Aaron Kaplan: “This would be very difficult for many crypto companies to accomplish. (…) As such, [they] could choose to move and operate outside the US … Those that don’t will need to evolve and come into compliance–or die.” Read more (subscription).

The article notes that a loss by Ripple would likely result in an appeal to the Second Circuit and then the Supreme Court. An SEC loss, on the other hand, would result in the Commission saying it was an “aberration.”

blockchain privacy

In an op-ed, Luke Hogg, a policy manager at nonprofit Lincoln Network, takes issue with recent privacy legislation – the American Data Privacy Protection Act (ADPPA) – currently pulsing in Congress. Hogg says the new legislation is to the detriment of the blockchain technology industry: “[T]he rise of blockchain technologies and the nascent decentralized web mean that these comprehensive proposals are already behind the times. Without major revisions, these legislative proposals risk strangling decentralizing technologies in the cradle.” Even the European Union’s GDPR is incompatible with blockchain tech, says Hogg. Read more on CoinTelegraph.

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DAO enforcement action

Decrypt reports that the SEC has served a subpoena to a decentralized autonomous organization (DAO), Sushi DAO, which supports SushiSwap which positions itself as a decentralized exchange. Is SushiSwap a security in the Commission’s eyes or is the reason for the subpoena something else? Nobody’s saying for now.

The DAO recently revealed a bit of its communication with the SEC and proposed to its members the funding of a legal defense says Decrypt: “The DAO proposal seeks to make $3 million available for the legal fund in the form of Tether’s USDT stablecoin. It includes a contingency that would make another $1 million worth of USDT available if the initial funds are depleted.” Read more.

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