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Bitcoin Consolidation Stutters, US Traders Take Stock

Bitcoin Consolidation Stutters, US Traders Take Stock

The weekend rally that many Bitcoin bulls were hoping to show up has so far failed to happen, and with only the US market now left to move the price on Sunday, emerging news related to American Bitcoin traders might just be enough to put them on alert.

After yesterday’s move just above USD 10,000, bears were held at arm’s length but only for several hours. At 9:45 pm UTC, as Bitcoin made its daily high at USD 10,089, price inexplicably crashed to USD 9,513, after which it traded in an extremely narrow range until now, going to a low of USD 9,306 but now at USD 9,489 at 8:50 am UTC (CoinDesk).

The 5% drop, after the 5% rise yesterday, will be seen as a blow to bull’s hopes for some consolation during a somewhat disappointing July. There are still three days left of course, and anything could happen in this volatile market to affect sentiment, but for now, the mood is distinctly turning to a bearish one for the immediate short term of one to two months.

The whisperings of US government contractions onto Bitcoin and other cryptocurrency have been seen as good news for Bitcoin in the long term by commentators such as Pompliano, as we have been explaining in recent analyses, but for the time being, the mainstream mood is one of fear and paranoia.

As US regulators continue to push exchanges in other jurisdictions to ensure that American nationals are not allowed onto the platform, US traders who used to be able to trade online virtually anywhere are now facing concerted blocks from the major exchanges with big volumes such as Bittrex and Binance. However, since these blocks are mainly technical, from a mere blanket blocking of US IPs, a simple fix can be for traders to access via VPNs or proxies, masking their true locations. Since these exchanges also allow a significantly high daily trading limit for unverified accounts — for Binance, non-verified accounts can withdraw 2 BTC or about USD 19,000 per day, for example — then American traders can still skip around these limits quite easily.

The long arm of US law is reaching out to try and ensure exchanges stamp out these errant citizens, with major platform Bitfinex now being accused of flouting regulations by allowing US users to access their platform to trade. Bitfinex insists that it is “trying super hard” to stop this from happening, according to a report today on Yahoo Finance.

In an attempt to be transparent, Bitfinex made an official announcement admitting that one trader had managed to bypass its restrictions. In their blog post, they explained how they were tricked and lied to by the alleged New-York based user with “this kind of ‘gotcha’ sting” showing “his and our other detractors’ true motivations”:

“We have now identified this user. We correctly flagged this user’s IP address as being in the US. Notwithstanding the US IP address — which may be used by Bitfinex customers, as appropriate — our system logs demonstrate that this user represented to us several times that he was not an individual resident in the US. This person has lied to Bitfinex on multiple occasions, deliberately and wrongly concealed his location, and flagrantly violated our terms of service.”

Will Bitfinex’s statement release them from every wrongdoing? Perhaps if they can demonstrate that they did their best to prevent it, but that’s a matter for the courts to decide, should the US pursue litigation against Bitfinex.

Nevertheless, this development may not force exchanges all around the world, especially those who allow unverified users to trade on their platform, to implement more aggressive measures to stonewall US traders from even being able to create an account.

At the same time, Yahoo also published an article it calls a Public Service Announcement, warning online Bitcoin traders that the US tax agency, Internal Revenue Service (IRS) is now increasing its monitoring of Bitcoin trades and under-reported tax obligations related to the trading of cryptocurrency.

Apparently, IRS is now pushing out “an avalanche of notices” to over 10,000 crypto investors suspected to have not been fully transparent about their crypto tax reporting. The mail campaign has been dubbed as resembling a “scattergun” approach by Forbes, although hints that IRS could actually be most interested in any Coinbase accounts with a transaction history exceeding USD 20,000.

But CCN believes that this could actually be a good thing in the end, as the IRS and the US government might see that with Bitcoin’s transparency and traceability on a public blockchain, tax monitoring and reporting could actually be facilitated, and not hindered, by crypto.

So are we back at full circle again when it comes to states’ approaches to Bitcoin, starting with suspicion first and then ending with acceptance? That seems to be the plot.

 

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Crypto Tax Loophole Due to US Trust Rule?

Crypto Tax Loophole Possible Due to US Supreme Court Trust Decision?

Tax lawyer Robert R Wood of San Francisco-based Wood LLP, has written an article that describes a possible crypto tax loophole for investors in the US, partially due to a US Supreme Court ruling on trust income.

This comes after the landmark case of North Carolina Department of Revenue vs Kimberley Rice Kaestner 1992 Family Trust, whereby the US Supreme Court came to a unanimous decision that said: “a state could not tax out-of-state residents on trust income without minimum contacts”.

All this relies on Bitcoin being treated by the Internal Revenue Service (IRS) as property, meaning that each transfer triggers a tax hit to both parties of the transfer. For crypto investors, some put them in legal entities as well as in trusts. Wood points out that there are several ways to tax a trust, depending on the type, and that living trusts, typically used to plan estates, were not taxed separately.

And here lies the crypto tax loophole. He wrote:

“So, if you transfer Bitcoin to your living trust, it usually isn’t a taxable transfer, since your living trust isn’t really a separate taxpayer. It is still you, so you still report the gain or loss on a later sale on your personal tax return. There are also nongrantor trusts, in which the transferor is not taxed on them. These are separately taxed, and a separate trust tax return must be filed.”

He does warn that trusts still have to pay taxes itself, and US persons shouldn’t assume they can avoid US taxes via foreign trusts, although it could be possible to arrange for a lower corporate tax rate of 21%, rather than individual tax rates.

And that doesn’t even take into account state taxes! State taxes differ by state and some are more favorable than others. California, for example, has a pretty high 13.3% state tax but a new trust set up in Nevada or in Delaware could be a lot more agreeable. Nevada’s Incomplete Gift Non-Grantor Trust (NING) and Delaware’s DING and even Wyoming’s WING ensures that donors make incomplete gifts to the trust, and there is an independent trustee for the trust.

 

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Could Bitcoin Benefit from Italy’s Proposed Tax on Bank Stored Cash?

Could Bitcoin Benefit from Italy's Proposed Tax on Bank Stored Cash?

A Reuters story reports that Italy’s Deputy Prime Minister has proposed the country now tax the cash and other valuables stored by Italians at safes in banks. Should this proposal to tax hidden wealth go into action, it could be yet another factor driving people to seek an alternative to store their wealth. And that alternative could very well be Bitcoin.

This news comes at a convergence of other economic uncertainties: the ongoing trade war between the world’s largest economies, rising geopolitical strains between other investment markets and increasing signs of yet another global economic crisis.

Matteo Salvini didn’t sound like he was joking when he made the proposal live on Italian TV late last night, saying that he had just been informed that cash and other valuables stashed in safety deposit boxes all around Italy amounted to hundreds of billions of euros. Described as “substantially hidden” wealth, he implied that the state had a divine right to be aware of this wealth, and threatened to tax those who withheld the information with a higher rate than those who were more open about the extent of their savings.

One market analyst, Holger Zshaepitz, posted a chart showing an all-time high of retail deposits in Italy, prompting analysts to say that this development “could be the best thing to ever happen to bitcoin”.

This is bullish for bitcoin 🚀

Italy could end up being the best thing to ever happen to bitcoin.

H/t @Ray94609549 https://t.co/TmkS7FZICl

— Alex Krüger (@krugermacro) June 12, 2019

It could be too soon to say, however. Although Bitcoin could be much harder for states to chase, and it is a market that is generally unaffected by the slumps of traditional markets, the volatility of Bitcoin and its cyclical tendency to shed up to 90% of its value could still prevent people from diving in. A collapse of fiat and traditional banking systems, however, would leave a void quickly filled by Bitcoin.

 

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IRS Issues Reminder to Report Crypto Earnings

The US Internal Revenue Service (IRS) has published a document ahead of a 17 April deadline to report all income derived from virtual currency transactions, including from cryptocurrencies.

Referring to the IRS Notice 2014-21, which is a guidance on general tax principles, the revenue agency views all virtual and digital currency transactions as taxable, just as any other transactions on properties would. It also warned citizens against withholding such information, noting the privacy features of major cryptocurrencies such as Bitcoin:

“Virtual currency, as generally defined, is a digital representation of value that functions in the same manner as a country’s traditional currency… because transactions in virtual currencies can be difficult to trace and have an inherently pseudo-anonymous aspect, some taxpayers may be tempted to hide taxable income from the IRS.”

Taxpayers who fail to report related earnings can be subject to IRS audits and can be liable for penalties and interest. The reminder states that the tax agency could also resort to criminal prosecution “in more extreme situations”, targeting crimes such as tax evasion and falsification of tax returns. Convictions for tax evasion could result in harsh prison terms of up to five years and a fine of up to $250,000, while false returns could be subject to prison terms of up to three years and a fine of up to $250,000.

Under the same notice, this means that even salaries paid by employers in virtual currency must be filed by employers on the regular Form W-2 and subject to federal income tax withholding and payroll taxes. Freelancers and remote workers classified as independent contractors who get paid in virtual currency are not exempt, either, with self-employment tax rules applying.

However, under current laws, virtual currency is not treated as currency that could generate forex gains or losses and are, therefore, such gains or losses will not be subject to US federal tax.

IRS eyes trained firmly on cryptocurrency

The IRS has been increasingly active in pursuing tax revenue from US citizens involved with virtual currency, especially since 2016 when the combined market capitalization of cryptocurrencies hit USD 8 billion, before racing past USD 600 billion by the end of 2017, with Bitcoin leading the way to an all-time high approaching USD 20,000.

In November 2016, a US federal court ordered cryptocurrency exchanger Coinbase to hand over some 13,000 customer records to the IRS as part of a bid to recover missing revenue from tax evaders who bought Bitcoin from 2013 to 2015.

Despite bitter resistance on the part of Coinbase, they eventually caved in, issuing a statement on their blog last month notifying that Coinbase would hand over data to IRS as per the court summons. It claimed a “partial” victory, after fighting the summons in court “in an effort to protect its customers, and the industry as a whole, from unwarranted intrusions from the government.”.

The data requested includes taxpayer IDs, names, dates of birth, addresses, and transaction records from the period of 2013 to 2015.

 

 

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