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Belgium’s financial watchdog has made an additional update to its blacklist of crypto-related websites associated with fraud.
Belgium’s Financial Services and Markets Authority (FSMA) has made an additional update to its blacklist of cryptocurrency-related websites associated with fraud.
On Oct. 29, Belgium’s financial watchdog updated its list of cryptocurrency trading platforms for which it has detected indications of fraud, by adding nine new suspect sites, bringing the total of suspected crypto scams to 131.
The financial authority said that it continued to receive new complaints from consumers who made crypto investments on those trading platforms, adding that cryptocurrency fraud continues to find new victims in Belgium, despite prior warnings.
The FSMA has issued previous warnings to Belgian crypto investors to be wary of companies that claim to hold authorizations from supervisory authorities, adding:
“This is a very frequently used technique. However, these are often cases of identity theft. Feel free to ask the FSMA to confirm the information you have received.”
Many of the blacklisted crypto firms purportedly offer financial services without complying with Belgian financial legislation. However, most of these crypto firms mentioned in the list operate outside the jurisdiction of the FSMA, which makes it near impossible for the agency to legally charge them.
Although the FSMA cannot charge the suspected websites of fraud, an alert could still minimize the risks for potential cryptocurrency investors.
The FSMA added that the blacklist is based solely on the findings of the authority and warns that it does not include all of the crypto companies that might be operating illegally in Belgium.
Raising awareness of risks associated with crypto investment
In June 2018, the Belgian financial authority FPS Economy (FPS) launched a website to raise awareness of the risks associated with cryptocurrency investments. Belgian investors reportedly lost about $2.5 million in crypto scams in 2017, which accounts for only 4% of overall crypto fraud cases, with the total losses estimated at $152 million.
The price of Bitcoin is holding above the $9,100 price mark as the market is mostly trading sideways today.
Thursday Oct. 31 — Cryptocurrency markets are largely trading sideways with most changes among the top-20 coins not exceeding 1% on the day.
Cryptocurrency market daily overview. Source: Coin360
Bitcoin (BTC) has been trading sideways for the better part of the day and continues to circle around the $9,100 price mark. The coin bounced off a local low of $8,960 earlier today before moving to its current trading price at $9,149, showing a small loss of 0.74% on the day.
BTC daily price chart. Source: Coin360
Bitcoin is fighting hard to hold on to its current trading levels, but traders apparently are starting to wonder whether or not last week’s so-called “Xi pump” to $10,540 was a fluke driven by Chinese President Xi Jinping’s call for China to accelerate the development of blockchain technology.
Bitcoin analyst and guest contributor at Forbes and CNBC, Jacob Canfield, just took to Twitter to point out that the “order books on Coinbase glitched out to be non existent” and that Bitcoin exchange Deribit suffered a BTC flash crash to $7,700. “Investigating what happened, but it is still unclear,” he tweeted.
Ether (ETH), meanwhile, is currently sitting at $182.5 per coin. The number one altcoin saw a small dip in sync with BTC and is showing a loss of around 0.75% at publishing time.
Cointelegraph contributor Rakesh Upadhyay recently said that Ether is facing strong resistance at $196.483. If the Ether’s price dips below the 20-day EMA, it may remain range-bound between $161.056 and $196.483 for the next few days. If Ether can pick up momentum above $196.483, it will likely move up to $235.70.
Ether seven-day price chart. Source: Coin360
XRP has been trading relatively flat for the better part of the day. The third-largest coin by market capitalization is currently trading at $0.295 per coin, down 0.47% at press time. The recent news that the daily XRP transactions are going through the roof, nearing an all-time high of 1.70 million, has had little to no effect on the price of XRP.
XRP seven-day price chart. Source: Coin360
Top-20 coins show mixed signals
The overall cryptocurrency market cap currently sits at $245.2 billion, with Bitcoin making up 67.5% of the total.
Do you have a diverse portfolio that contains digital currency? The United States Internal Revenue Service also wants to know your answer.
On Oct. 9, 2019, the United States Internal Revenue Service issued Revenue Ruling 2019-24 and a series of frequently asked questions, identifying rules governing U.S. taxation of digital currencies. Taxation in the U.S. is unbelievably complex, but the new IRS guidance takes a step-by-step approach to address some of the most common issues facing holders of digital currency.
The basics are as follows: If you hold digital currency and you sell or exchange it, you are subject to U.S. tax. If you are granted digital currency in the form of salary or as a result of a hard fork, you have taxable income. If you receive digital currency as a result of a gift, there is no immediate tax.
U.S. taxation of digital currency is limited to U.S. persons. Who is a U.S. person? U.S. citizens, U.S. green card holders and individuals who spend more than 183 days in the country (measured using a formulaic three-year lookback). If that is you, a tax obligation may exist.
How do you measure your gain or loss from a sale or exchange of currency? It’s the difference between your digital currency cost basis and the fair market value of the property you received in exchange. How do you know what your cost basis is? The FAQs provide detailed guidance, but essentially, the IRS allows two methods for identifying your basis:
1) You can specifically identify the exact currency sold, traced to the ledger, and use the cost of that specific currency to determine your gain or loss.
2) Or you can use the “first in, first out” method, meaning your basis is computed based on the cost of the oldest currency acquisition in your wallet, moving forward in time as you continue to sell currencies.
What about digital currency provided as compensation for services? That type of distribution is treated as ordinary income, not a capital gain, similar to cash paid in the form of salary and wages.
What about cryptocurrency forks? The Revenue Ruling holds that when a taxpayer does not receive units of a new cryptocurrency as a result of a hard fork, the taxpayer also does not have gross income. That is the good news.
However, when units of new cryptocurrency are distributed (either as a complete currency replacement or split with the new currency being issued but old currency still valid), the Revenue Ruling holds that the taxpayer has accession to wealth and therefore has ordinary income. The amount included in gross income is equal to the fair market value of the new cryptocurrency measured as of the date that the distribution (usually via airdrop) is recorded on the distributed ledger.
While the IRS materials provide much-needed guidance, there are some concerns about unexpected hard forks. Many times you find out about a hard fork after the fact. Nevertheless, the IRS takes the position that taxpayers must track and account for hard fork transactions. Thus, it places the burden on individuals to watch their wallet and trace activity throughout the year.
Also, there is no “de minimis” exclusion. Meaning, every transaction involving digital currency must be reported. What about a purchase of a cup of coffee with crypto cash? This payment gives rise to a taxable exchange. The value of the coffee you just bought less the basis in your currency you provided must be computed and reported to the IRS as a gain or loss.
When did you have to start complying with these basis rules and coffee purchases? Forever. In July 2019, the IRS announced through a news release that it had begun sending “educational” letters to taxpayers with digital currency transactions that have either potentially failed to report income or did not accurately report their transactions. By the end of August, over 10,000 taxpayers had received these letters. There are three letter versions: Letter 6173, Letter 6174 and Letter 6174‑A.
Letter 6173 informs the taxpayer that the IRS has “information that you have or had one or more accounts containing virtual currency and may not have met your U.S. tax filing and reporting requirements for transactions involving virtual currency.” This letter requires the taxpayer to provide a direct response by taking one of three possible actions:
1) File delinquent returns, reporting any digital currency transactions.
2) Amend returns to properly report any digital currency transactions.
3) Provide a statement that explains why the taxpayer believes it is in full compliance, signed under penalties of perjury.
Letters 6174 and 6174-A inform the taxpayer that the IRS has “information that you have or had one or more accounts containing virtual currency.” Though neither of the two letters requires a direct response from the taxpayer, Letter 6174-A expressly warns the taxpayer that the IRS may pursue further enforcement activity in the future.
The three versions of the letters show that the IRS is mining the information it has in its possession and forming views about which digital currency holders it believes are noncompliant, and to what degree. Although the IRS stated in its announcement that “all three versions of the letters strive to help taxpayers understand their tax and filing obligations and how to correct past errors,” Letter 6173 seems to presume that the taxpayer in question already understands the digital currency reporting requirements and has chosen not to comply with them. Letter 6174-A is a step down from Letter 6173, but it still assumes a higher level of knowledge on the part of the taxpayer than Letter 6174 does.
John Doe summons
The letters followed the IRS’s issuance of a “John Doe” summons to Coinbase, one of the largest platforms for exchanging Bitcoin and other forms of digital currency. Through the John Doe summons, the IRS sought information regarding all Coinbase customers who conducted transactions on the Coinbase platform between 2013 and 2015. Coinbase resisted the summons and sought to narrow its scope.
In late 2017, the U.S. District Court for the Northern District of California ordered Coinbase to produce the taxpayer identification number, name, birthdate, address, records of account activity, and all periodic statements of account or invoices. Ultimately, Coinbase produced documents for approximately 13,000 customers. While it is widely speculated that the IRS identified the initial group of more than 10,000 taxpayers to receive compliance letters using the data provided by the Coinbase subpoena, any taxpayer with dealings in digital currency should anticipate increased IRS scrutiny.
Revised draft Form 1040
Following the issuance of the October Revenue Ruling and FAQs, the IRS also released a draft Form 1040, Schedule 1 — which, if adopted, will require taxpayers to answer whether at any time during the year the taxpayer sold, sent, exchanged or otherwise acquired any financial interest in digital currency. The change in Form 1040 would place taxpayers in the position of having to think about their digital currency holdings and inquire whether there have been taxable events that need to be reported and taxed.
Methods of coming into compliance
In light of increased enforcement and compliance efforts on the part of the IRS, it is especially important for taxpayers who have held digital currency in the years preceding 2019 to seek advice from a competent tax professional to determine if there have been any taxable transactions associated with the acquisition or disposition of digital currencies. If there was a reportable transaction left off an income tax return, the IRS could impose significant penalties and interest charges. The IRS is also reviewing income tax returns to determine if the noncompliance was due to willful conduct. Such review can result in criminal referrals and prosecutions for filing false tax returns.
There is good news in the face of the potential enforcement of noncompliance. Most taxpayers can take advantage of the IRS’s voluntary disclosure policy, which mitigates penalties. And for those taxpayers who received letters directly from the IRS, options for taking affirmative action are outlined in the letter. The bottom line is this: If you have held digital currency at any time, you should contact a qualified tax professional to assist you in evaluating your tax situation.
The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
James N. Mastracchio is a partner resident in New York and Washington, D.C. and heads Eversheds Sutherland’s federal tax controversy and criminal tax practices.
Sarah Paul is a partner at Eversheds Sutherland who practices in the firm’s litigation, federal tax controversy and criminal tax groups. Prior to joining Eversheds Sutherland, Sarah was an assistant United States attorney in the Southern District of New York, where she supervised all of the district’s criminal tax cases.
Katie Sint is an associate in the tax practice of Eversheds Sutherland’s Washington, D.C. office. She counsels clients in an array of federal income tax matters, including domestic and international tax planning, mergers and acquisitions, accounting and controversy.
Futures trading volumes creep up on spot trading in crypto, with futures now amounting to half of the value of more traditional buy-sell trades.
Crypto futures trading volume now reportedly amounts to nearly 50% of the value of spot trading on crypto markets, according to Bloomberg.
13 exchanges analyzed
Citing volume data from 13 major global crypto exchanges, Bloomberg reported on a massive growth of cryptocurrency futures markets Oct. 31.
The analyzed exchanges include institutional digital asset platform Bakkt, the Chicago Mercantile Exchange Group (CME), Binance, Bitfinex, the Huobi Derivative Market (DM), Kraken, FTX, Bitz, Deribit, CoinFlex, Bybit, OKEx and BitMEX.
First ever Bitcoin futures launched in late 2017
Spot trading is simply buying or selling a commodity or, in this case, a crypto asset at the moment of the trade. Prior to the launch of the first Bitcoin (BTC) futures platform back in 2017, spot trading was the principal option available for crypto trades. The Chicago Board Options Exchange (CBOE) launched the first trading of BTC-based futures contracts on Dec. 11, 2017, just a week before the launch of a similar product by the Chicago Mercantile Exchange (CME).
The Bloomberg report follows a new Bitcoin futures volumes record on major digital asset platform Bakkt, which launched its service on Sept. 22. On Oct. 26, Bakkt traded 1,183 Bitcoin futures contracts worth of $11 million after hitting a previous all time record of 441 Bitcoin futures on Oct. 23.
Canada’s volatile history of mainstream adoption and fraud is directly impacting the future of cryptocurrency in the country.
Recently, Canada’s central bank has been leading working groups with global partners exploring a blockchain future. Their crypto presence has soared with Ernst & Young’s announcement that it is using Toronto to test its public government expenditure blockchain. But what is the cryptocurrency landscape currently like in Canada?
The history of crypto in Canada may seem as volatile as a token with a small market cap, yet mainstream use and adoption have been on a consistent incline since 2013, when Canadians started pushing mainstream adoption. Now, the Canadian government is leading working groups. What else has the country been up to in the blockchain space?
The first thing that comes to everyone’s mind when it comes to the Great White North is that the founder of Ethereum, Vitalik Buterin, grew up in Canada — but Etherum isn’t all the country has provided to the crypto space. Here are some more notable stories from Canada’s blockchain history.
The world’s first Bitcoin ATMs
Canada contributed to Bitcoin’s (BTC) mainstream use early on by opening the world’s first Bitcoin ATM at a coffee shop in Vancouver in 2013. The ATMs were released by Bitcoiniacs and Robocoin. Bitcoin was trading at around $200 at the time and, during the first day, the kiosk performed 81 Bitcoin transactions equaling around 81 BTC.
The ATM is considered a strong driver for attracting new people to cryptocurrency, with around a third of its users new to Bitcoin. In an interview with Cointelegraph back in 2013, Robocoin CEO Jordan Kelley marveled at how easy it was for people to get started with Bitcoin. According to industry monitor CoinATMRadar, there are at least 715 cryptocurrency ATMs in Canada, with 85 in Vancouver and 227 in Toronto.
It is easy to agree that the initial coin offerings (ICOs) craze produced more losers than winners, as many took advantage of the hyped-up funding method to conduct scams. In response, state and provincial securities regulators in the United States and Canada launched probes into potentially fraudulent crypto investment programs as part of the North American Securities Administrators Association’s Operation Cryptosweep in 2018. The initiative is reportedly the largest coordinated investigation held by state and provincial officials targeting suspicious crypto investment products, and has resulted in over 200 investigations of ICOs and crypto-related investment products.
Operation Cryptosweep has issued at least 77 actions against crypto programs, including the infamous BitConnect, which has gone down in history as one of the largest cryptocurrency scams.
Vancouver mayor suggests a ban on Bitcoin ATMs
The mayor of Vancouver, Kennedy Stewart, suggested a complete ban on Bitcoin ATMs in the summer of 2019 due to Anti-Money Laundering (AML) issues associated with the ATMs. The associated police report claims that criminals could purchase a Bitcoin ATM for their own needs for a few thousand dollars, and then deposit their cash into that ATM “as many times as required” to profit from or eliminate the transaction fees.
While many Canadian governing bodies have already taken steps against cryptocurrency, British Columbia’s review into the alleged money laundering activities is ongoing. Canada saw the amount of money laundering claims triple last year to 2,466 claims.
When speaking to Cointelegraph, Andrey Peshkov, the CEO of money transfer app USDX Wallet, dismissed the concerns surrounding money laundering using cryptocurrency in Canada, remarking:
“I do not think that cryptocurrency holders try to laundering money in Canada because they are obligated to pay taxes. Many countries do not require holders to pay taxes from their crypto income making them more attractive to bad actors.”
Flexa and Coinsquare integrate physical retail payments for Canada
However, not all news surrounding Canada recently has been negative.The Winklevoss-backed cryptocurrency payments service Flexa, which allows merchants such as TopGolf to accept cryptocurrency, has seen strong acceptance around the country.
Current estimates show that over 7,500 businesses have signed up on the platform to offer crypto payments to their customers, indicating that business owners in Canada see a need to provide payment solutions in crypto.
Canada audits QuadrigaCX exchange
A review of Canada in cryptocurrency would not be complete without talking about QuadrigaCX, a defunct Canada-based exchange. The company began grabbing headlines ever since its CEO Gerald Cotten was declared dead in India without ever having revealed the keys to access the company’s cryptocurrency reserves. When these reserves were discovered inaccessible, the business became insolvent, declaring bankruptcy.
The Canadian company’s bankruptcy trustee was Ernst & Young, a Big Four accounting agency. A bankruptcy trustee oversees the exchange’s insolvency proceedings focusing on auditing from a tax and creditor perspective.
Recently, the widow of QuadrigaCX Founder Gerald Cotten, Jennifer Robertson, paid $9 million in assets to the users of QuadrigaCX through EY. Robertson wrote in a personal statement, “The vast majority of my assets and all of the Estate’s assets are being returned to QCX to benefit the affected users.”
While the widow may not have been aware of her husband’s alleged malfeasance, what happened suggests that Canada is determined to rid cryptocurrency of fraud to protect both investors and holders. According to EY, Robertson’s late husband created fake accounts under several pseudonyms and used them to trade users’ money on the QuadrigaCX platform to show artificial income. The auditor also said that much of the funds were eventually transferred to personal accounts that he controlled.
High-paying employment in Blockchain Consensus report
The Blockchain Consensus report was released on Oct. 4, 2019 by the Chamber of Digital Commerce Canada, exploring the blockchain ecosystem in Canada. The report takes a closer look at Canada’s blockchain ecosystem, breaking down insight by region and company size. The report also states that government commitment is desperately needed to move this highly innovative technology sector forward by providing legal clarity.
Further, the report includes statistics that highlight the average annual blockchain salary in Canada sitting at more than $98,000 Canadian dollars, making blockchain careers among the highest-paying in the country. The CEO of Shortex, Vladimir Prosvirkin, remarked on this report to Cointelegraph:
“Canada is one of the leading countries adopting blockchain technology on a corporate level. Every second company is invested in blockchain somehow last year. Due to the country’s low energy cost, high internet speeds, and favorable regulations, blockchain and cryptocurrency industries have always prospered here.”
Piloting government spending tracking in Toronto
In an effort to increase transparency, EY started tracking how public funds are spent in the capital city of Toronto. As reported by Cointelegraph on Oct. 16, the system can track the government’s public funds as they move through different state agencies, providing transparency to the public.
According to EY, data provided by the platform can potentially be used to better inform future decision making on policies. Upon the pilot program’s launch, EY issued a statement, “Blockchain technology can positively impact processes from tax collection to open data to public spending.” A Bitcoin-conscious and highly functioning city like Toronto may benefit from greater transparency in government spending and provide an important use case.
G-7 working group on stablecoins
On Oct. 13, 2019, the Bank of Canada released results from the G-7 working group on stablecoins that was tasked with “investigating the impact of global stablecoins” as a whole. While much has been written about the strong language in the report, such as “Stablecoins pose a threat to financial security,” it also outlines ways in which governments and digital securities can work together. Participants included the Bank of England, the Bank of Canada, the Bank of France, the European Central Bank, the Bank of Italy, the Bank of Japan and the United States Department of Treasury.
On the eve of the G-7 working group, Anthony Pompliano, co-founder and partner at Morgan Creek Digital, noted that it has taken only a decade from Bitcoin’s creation for the “decentralized digital currency to go from basically the fringes of the internet to now being discussed at the G-7 and other regulatory offices.”
Challenges lie ahead for stablecoins
The report goes on to outline the challenges that stablecoins need to overcome in order for them to remain in compliance. Focusing on private stablecoins, the report highlights that stablecoins, regardless of size, pose some major risks such as regulatory, security, and those relating to financial reporting and misconduct.
Further, the paper addresses challenges and risks that globally adopted stablecoins like Tether (USDT) pose to monetary policy, financial stability, the international monetary system and fair competition. Jude Regev, the founder of Element Zero, an open-source network that provides branded stablecoins and a fee-free on-chain SmartSwap, noted to Cointelegraph:
“Private stablecoins will need to be more similar to a shield that protects purchasing power and provides security against hacking. When Central Bank’s like Canada issue their own digital currencies and other countries do the same, being able to create stable interoperability between each countries’ fiat onboarding will add the most value to the ecosystem.”
Based on international conversations and the working session led by Canada in conjunction with other countries, it is clear the country sees both value and risk in stablecoins. The working document shows a future where digital currency will utilize banks only as a means for fiat onboarding. The document seems to address two known stablecoin protocols, an algorithmic stablecoin like DAI and asset-backed stablecoins like Tether.
Toward the future
Canada’s blockchain history is marked by triumph and struggle. The Crypto Canucks are constant drivers and mass adoption is incoming through all the perceived barriers. From the first Bitcoin ATM to considering banning Bitcoin ATMs to leading the international community toward adoption, the Great White North has been at the forefront for both cryptocurrencies’ benefits and risks.
While adoption continues to increase, inappropriate regulation could potentially hinder some projects in the country. Guidelines may end up forcing private stablecoins to comply with securities laws in big countries or to even become banks, significantly raising the barrier to entry. Alternatively, countries may turn to outlawing private stablecoins altogether for fear of harm coming to their existing banking systems.
Here are the basic steps to success when making your first cryptocurrency investment.
Investing in Bitcoin (BTC) can be quite intimidating if you’re only just learning about its existence now. In fact, taking the plunge and entering the cryptocurrency sphere is a risk for anyone, with or without investment experience. This is because the crypto space has no centralized authority to guide investors. Rumors, hype and horror stories dominate the internet, and separating fact from hearsay can be difficult at times.
Like any other business venture, you should never get your feet wet until you have all the facts straight. Many Bitcoin investors who have taken losses will agree that they didn’t do their own research. Riding on rumors and hearsay is setting yourself up for failure.
However, the cryptocurrency community does come in handy for inquiries. You’re better off talking to people who are already in the crypto space. As a college student, you’ve got all the time and resources to find out all there is to know about investing in Bitcoin. As you find ways to invest, don’t forget to keep an eye on your academic performance, but if it does begin to suffer, online writing services like WriteZillas help ensure you maintain above-average performance.
The crypto space has existed for quite a number of years now, which means that so much has changed since its advent. If you’re just getting wind of Bitcoin now, you need to do your homework. You’ll make better investment choices when you understand what you’re getting yourself into. Even though cryptocurrencies offer a unique investment opportunity, that doesn’t mean they come without risks.
Treading accordingly ensures you miss all the potholes along the way. Dive into Bitcoin’s underlying technology and figure out how the whole system works. A strong grasp of how the blockchain stores secure data will help you understand everything pertaining to Bitcoin investments.
Don’t go through a few articles on the internet and conclude that you know enough about Bitcoin, because knowing it like you know the back of your hand takes time. Find a mentor in the crypto space who is resourceful and trustworthy. Ask as many questions you can, so that by the time you’re investing, you are doing so in a safe environment.
Ignore the hype and dig deeper to find out the truth. Otherwise, if you rely on the success stories as your guide, you’ll end up risking money you cannot afford to lose. Even though Bitcoin opens up an exciting world, the horror stories are proof enough that it can be complex and confusing, as well.
Knowing everything about the crypto world doesn’t mean you should dive into the deep end. Risk is inherent in every investment, and the crypto space is no exception. You need to proceed with caution, because digital currency is still in its early stages of development. There are extremely high risks involved, which means you can either win big or lose everything you have.
Start small and see how it goes before putting in more money. Instead of chasing Bitcoin prices, let the prices come to you. Timing is key when it comes to investing in cryptocurrency. Once you decide on an entry point, don’t change your mind just because someone told you otherwise.
Once the price gets to where you want it to be, don’t use all your capital to buy the coins. Buy in small quantities, investing a little at a time. The right way to invest in Bitcoins is synonymous with summoning a genie — one wrong move and you lose it all.
Broaden your horizons
Ideally, no investor should put all their eggs in one basket. When investing in the crypto space, you need to diversify effectively. This way, a decline in one component can easily be offset by an equal gain in another.
Aside from Bitcoin, you can also invest in Ripple (XRP), Ether, Bitcoin Cash (BCH), and Litecoin (LTC). Investing equally across different components maintains a balance, as all these components are within the crypto space, and if one drops by a given percentage, another is bound to rise by the same amount.
Be aware of all active cryptocurrencies and invest in them with caution. A cryptocurrency can easily fall because they’re like startups within the crypto space. Researching and keeping up with the crypto market is crucial because a currency can crash to the ground overnight.
Keep your coin in wallets
Since you’re investing within a digital space, you should keep an eye out for cybersecurity. Cybercriminals are all over the crypto space. Use exchanges to buy currencies and move your coins back to your wallets as soon as you’re done. Holding your assets in exchanges exposes you to cyberattacks.
Many exchanges have been hacked before, and this trend is not likely to change. Consider investing in cold wallets, which is another name for offline wallets. These are much more secure than hot wallets (online wallets).
Buckle up, it’s going to be a wild ride
There is nothing as volatile as the digital currency market. As a new investor, you need strategies to help you manage price fluctuations. Aside from diversifying, you should buy and hold Bitcoin — this means resisting any temptation to get into short-term bets. In the crypto space, passive investment has a better chance of succeeding than an active one.
Now that you know the best way to go about investing in Bitcoin, you can enter the crypto space armored with information. When it comes to investing, making informed decisions is key.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, you should conduct your own research when making a decision.
Natalie Crawford is an author and blogger in marketing, education and other fields. The aim of her articles is to bring benefits and useful knowledge to readers.
Understanding the new IRS guidance for cryptocurrency.
The United States Internal Revenue Service (IRS) is continuing to focus its efforts in cryptocurrency. After sending a recent enforcement letter, the IRS has released two new pieces of guidance for taxpayers who engage in transactions involving digital currency.
The new guidance includes Revenue Ruling 2019–24 and FAQs, including guidance for using the specific identification method. Additionally, the IRS has published a new draft for form 1040 Schedule 1, including a broad declaration regarding crypto holdings or trade.
Here is a breakdown of these publications.
Revenue Ruling 2019–24: airdrops and hard forks
So, what are airdrops and hard forks, and what do they mean for the tax obligations of crypto holders?
In short, an airdrop occurs when a company distributes its tokens to a user’s wallet, free of charge, in order to raise funds, and in certain other cases, such as after hard forks. A hard fork is when nodes of the newest version of a blockchain creates a permanent separation from the previous version, creating a “fork” in which one path follows the new and upgraded blockchain, while the other follows the old path.
In Bitcoin (BTC), a hard fork is the result of changes in the blockchain rules, sharing a transaction history with Bitcoin up to a certain time and date. The most famous hard fork occurred in August 2017, when some Bitcoin developers and users decided to initiate a hard fork known as Bitcoin Cash (BCH).
The new IRS guidelines distinguish between hard forks and airdrops, stating that not every hard fork should be treated as an airdrop. Those who received new currencies in a hard fork are considered as having received them through airdrop and should report it to the IRS as gross income.
The new ruling also acknowledges the possibility that a taxpayer did not receive an airdrop, detailing that if a taxpayer receives new currency from an airdrop into a wallet managed by an exchange that does not support the airdropped currency, the taxpayer is off the hook. But, if the exchange later ends up supporting that airdropped crypto, the taxpayer is considered to have received the new currency at that time and is therefore liable to taxation.
While the IRS has made significant steps in regulating crypto, the new guidance raises questions about the request to tax airdrops when the crypto holder receives them as gross income, unlike regular crypto which it’s taxable events occur only on selling or exchanging.
Frequently asked questions
Back in 2014, the IRS issued Notice 2014–21, which describes how existing general tax principles apply to transactions using digital currency. This notice contained 16 Q&As, which have now been amended and added to the 2019 ruling, resulting in a whopping 43 questions and answers that cover the entirety of crypto taxation issues.
These are the main issues you should know:
1. Understand what Fair Market Value is:
Fair Market Value (FMV) is typically defined as the selling price for an item to which a buyer and seller can agree.
Cryptocurrency value is determined by the cryptocurrency exchange and recorded in U.S. dollars. However, when it comes to peer-to-peer (P2P) transactions or other transactions not facilitated by an exchange, the FMV is determined according to the date and time at which the transaction was recorded on the blockchain.
2. Determine the cost basis:
Cost basis is the original value of an asset for tax purposes. For digital currencies, the cost basis is the amount you spent to acquire the digital currency, including fees, brokerage commissions from exchanges, and other acquisition costs in U.S. dollars.
Your adjusted basis is your basis increased by certain expenditures and decreased by certain deductions or credits based on marital status, income, etc. To calculate an accurate cost basis, you must first determine which units of currency were sold, exchanged, or disposed of and match the buying cost for every unit sold.
3. Choose the calculation method carefully:
Here is the big news: For the first time, the IRS has clarified the preferable method of calculation for cryptocurrency, advising to use the “specific identification” method. This means identifying the exact unspent output Bitcoin transaction (UTXO) you have sold out of all the Bitcoin you had in your wallets, and then calculating your tax liability based on the sale of the actual Bitcoin UTXO.
If you are not using it already, you should use the first in, first out (FIFO) method. This method does not take real-time user activity into consideration. Basically, to calculate in the FIFO method, you need to make a list of all purchases and another list of all sales. Then, to do the matching, take the first item in the purchase list and calculate the tax results as if you sold it at the same price and on the same date as the first sale in the sales list. FIFO results can cause overtaxation, especially if you bought your first Bitcoins in the early years.
To get a complete and accurate report, taxpayers are encouraged to use the specific identification method. This method is used to track individual units of virtual currency. It is applicable only when individual units can be clearly identified to provide a complete report of crypto-asset movements, including addresses, wallets, exchanges, etc.
Taxpayers can identify specific units by unique digital identifiers such as private and public keys and addresses, or with records showing the transaction information for all units of a specific digital currency (such as Bitcoin) held in a particular account, wallet or address. Specific identification must exhibit the date and time each unit was acquired, the cost basis and FMV of each unit at the time of acquisition, as well as the date, time, FMV and sale value or price of each unit when it was sold, exchanged or disposed of.
4. Save all your documentation:
When compiling a report and filling out the appropriate documentation, taxpayers must report all income, gains and losses incurred by all taxable transactions, regardless of the amount. IRS codes and requirements are to maintain thorough documentation on receipts, sales and exchanges in order to establish validity on their tax returns.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Or Lokay Cohen is the vice president at Bittax, a crypto tax calculation platform. Or has 10 years’ experience with regulation, managing a leading tax consultant firm. She holds a LL.M. law degree, a B.A. in communications and an M.A. in management and public policy. In her work at Bittax, Or promotes the goal of bridging the gap between cryptocurrency and the taxation reality to enable tax reporting under a clear, regulatory framework and specific identification methods.
Bitcoin price fell 2% overnight on Wednesday, bringing to an end its several-day stint above $9K, which failed to deliver a return to five figures.
Bitcoin (BTC) fell below $9,000 for the first time in almost a week on Oct. 31 as rumors of a correction intensified among analysts.
Cryptocurrency market daily overview. Source: Coin360
BTC short-term outlook could call for $8.2K
Data from Coin360 showed BTC/USD dipping below the $9,000 mark in Thursday trading — a level that has acted as support since last weekend.
At press time, the largest cryptocurrency was circling $9,050, having bounced off a local low of $8,960.
BTC broke support after three days of slow grind down from an area closer to $10,000. 24-hour losses currently total 2%, while compared to a week ago, Bitcoin is still up more than 20%.
Bitcoin seven-day price chart. Source: Coin360
Now, traders were eyeing the coming days potentially delivering lower prices in a consolidatory period to even out the recent volatility.
“Something like this,” regular Cointelegraph contributor filbfilb told subscribers of his Telegram trading channel on Thursday, forecasting a dip to just below $8,200.
Fellow contributor Michaël van der Poppe was more upbeat, arguing that a drop to the mid-$8,000s would not constitute a bearish signal. The influential 200-day moving average (MA) price was still in play.
“Still hanging on the 200-Day MA. Even a retest of $8,600 or $8,800 wouldn’t be bearish after a $3,000 candle. Stuck in this trend, but overall ranging it is,” he summarized on Twitter.
As Cointelegraph reported, Thursday marked the eleventh anniversary of the publication of the Bitcoin whitepaper. On its tenth birthday, BTC/USD traded at $6,600.
Altcoins continue downward trend
Altcoin markets saw largely negative performance on the day. Out of the top twenty tokens by market cap, most fell by around 3%.
Ether (ETH), the largest altcoin, shaved 2.5% off its price to fall below $180.
Ether seven-day price chart. Source: Coin360
The overall cryptocurrency market cap was $241 billion at press time, with Bitcoin’s share at 67.5%.