The WORST Crypto Tax Rules Ever!

Remember the Infrastructure Bill? The one that was 2,700 pages long; proposed spending $1.2 trillion and tried to sneak in a whole load of provisions for the crypto industry? Well, dredge it up from the depths of your memory because those provisions are back to cause more mischief.

The part of the bill that raised the most hoo-ha related to its definition of the term ‘broker’ as applied to crypto. To quote from the text of the bill itself, a crypto broker is: “any person who… is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.” According to the bill, these brokers would have to comply with the IRS’s tax reporting rules, which state that they would be required to collect KYC data, both on their customers and on any crypto transaction worth more than $10,000.

Now, for entities like centralised crypto exchanges, this is easily enough done. The problem is, the term ‘broker’ can also be applied to crypto miners and validators; wallets; decentralised applications and DeFi protocols. It is all but impossible for these entities to collect that sort of data and that is a potentially enormous problem.

“Ah yes,” I hear you say. “I remember now. Why are you reminding me of this and spoiling my Sunday?” Well, it’s because the US Treasury Department has been beavering away on drawing up a proposal for a finalised set of tax reporting rules, which dropped just last week. Make no mistake, what it contains could have profound implications for crypto.

You know the drill: In today’s video, we chew through what the Treasury has been cooking up and digest it all for you. The ins and outs; ups and downs; the tasty bits and the gristle. There is lots of important info to feast on here folks, so get ready to tuck in.

You can chow down on watch that video here.

📈 Crypto Market Forecast 📈

September has arrived. If you’re wondering why that’s significant, consider that BTC’s monthly returns have been negative every September since 2016, with September 2019 seeing a 13% drawdown. And of course, because all cryptos are correlated to BTC, they’re likely to shed value too, assuming history repeats. So far, it seems to be doing just that.

What’s interesting is that this phenomenon isn’t specific to BTC or crypto. It’s called the September Effect, and it has had the same effect on other markets for almost a century (statistically speaking). Nobody really knows where this effect comes from. It’s believed that it could be due to traders returning from their summer holidays and taking profits before the autumn.

In crypto’s case, this year’s September Effect will be easy to explain (if it occurs). That’s just because there’s no shortage of crypto-specific factors that could take the market lower. Obviously, there are also a few that could take the market higher. The thing is that these latter factors are further down the road, namely the recently delayed spot Bitcoin ETF applications.

Over the next week or so, there is really only one crypto-specific factor that comes to mind, and that’s Binance. Some of you may have seen the news that the head of Binance’s Asian operations recently resigned, presumably because of regulatory scrutiny. Come to think of it, the crypto market started to crash shortly after this news came out. But of course, this could also be a coincidence.

It could also be a coincidence that Bitfinex decided to list perpetual futures for BNB the day before. For context, Bitfinex is very popular with crypto whales, particularly Bitcoin whales. The fact that it listed BNB suggests that there’s significant demand by these whales to speculate on BNB’s price, and probably not to the upside. Otherwise they’d just buy BNB.

On that note, there’s something else related to Binance which may or may not affect the crypto market this week. As you might have heard, the exchange will be gradually phasing out its BUSD stablecoin, starting this week. A lot of this phasing out involves deleveraging, such as removing BUSD as an asset that can be used in leveraged trading or for loans.

This could have unforeseen consequences for the crypto market, given that there’s still so much leverage lurking around. Recall that over 1 billion dollars of longs were liquidated the other week. I want to say that BUSD’s role in crypto leverage is minimal compared with USDT’s, but the reality is that none of us can know for sure until we cross that bridge, so to speak.

Meanwhile, Circle will begin deploying its USDC stablecoin natively on six new blockchains, apparently starting with Coinbase’s Base. Circle likely hopes the increased accessibility (and security) of native USDC will increase its demand and raise its declining market cap. From our perspective, the only way this will happen is if there’s an issue with another stablecoin.

Say, did you notice that all the major stablecoins seem to be having a hard time keeping their pegs? Crypto research firm analysts say it's a cause for concern.

Anyways, while there are a few silver linings to September’s storm clouds, it could still be a rough few weeks. Potentially not so much a Green Day as more a red month... sorry.

🏆 DeFi Legal Victory 🏆

This week, we celebrate another legal win for Defi. But, before we explore the ins and outs of the case, let’s look at the background to it.

Last year, a group of Uniswap users led by North Carolina resident Nessa Risley filed a class action lawsuit against Uniswap’s developers and investors. The suit alleged that the DEX’s lack of identity checks and security restrictions let fraudsters list “thousands of scam tokens” associated with rug pulls, pump-and-dumps and Ponzi schemes on the platform.

The suit further alleged that the Uniswap interface, by way of providing a platform that ‘facilitates’ these fraudulent activities, played a key role in these fraudsters' schemes.

Specifically, the lawsuit used two primary arguments to demonstrate its case.

The first argument related to Uniswap being liable in its capacity as an ‘unregistered securities exchange and broker-dealer’ that uses smart contracts to interact with the unregistered securities tokens.

In response to this argument, District Judge Katherine Polk Failla ruled that it was the third-party token issuer who was liable for securities law violation, rather than Uniswap.

To substantiate this reasoning, the judge drew a distinction between Uniswap’s core and router contracts and the third party’s token pair contracts.

She stated that the core and router contracts (which execute trades, determine price, charge and distribute fees, and issue LP tokens) developed by the Uniswap devs serve as a single foundational base that is neutral and consistent in its functioning, no matter the tokens traded.

She stated that they were similar to user agreements found on websites and that it “defies logic” to hold a “drafter of computer code underlying a particular software platform” liable for a third party’s misuse of the platform.

Specifically, she held that the third-party token pair contracts deployed by the token issuers served to function as the actual purchase agreement since they contained the token-specific terms drafted by the token issuer.

The judge demonstrated this point by giving two analogies.

The first compared the Uniswap lawsuit to a suit attempting to hold an application like Venmo or Zelle liable for a drug deal that used the platform to facilitate a fund transfer.

The second compared the Uniswap lawsuit to a suit that attempts to hold a developer of a self-driving car liable for a third party’s use of the car to commit a traffic violation or to rob a bank.

In essence, third-party human intervention causes the harm, not the underlying platform.

However, the second argument put forth by the plaintiffs sought to further strengthen the first argument by using the ‘transfer title theory.’ In essence, Uniswap is the statutory seller for every transaction that takes place on the protocol, since the platform provides services that “transfer the title” of the tokens between the buyer and seller.

In response, the judge held that Uniswap contracts are similar to "the sort of tangential activity that falls outside of the scope of securities law" held in previous court cases. Specifically, that the plaintiff's argument of Uniswap providing tangential and professional services similar to lawyers and underwriters is insufficient for this claim.

Notably, the Judge commented that “these are precisely the types of individual roles that decentralised exchanges (and the smart contracts that form the basis thereof) were designed to eliminate."

The court noted that if it allows this claim to pass, then nothing is stopping investors from suing the NASDAQ or NYSE for the fraudulent activities of issuers whose stock purchases were facilitated via those platforms.

In summary, the judge directed the plaintiffs to approach Congress, highlighting the inability of the courts to act as a proxy legislator, to draft appropriate legislation that would allow them to identify and seek claims against the true culprits.

While the Uniswap ruling may not set a precedent, the findings, in this case, highlight the sensible legal treatment that we expect to be referenced as support in other current and future litigations involving decentralised protocols; including the Treasury’s case against Tornado Cash. Watch this space.

🇸🇬 TOKEN2049 in Singapore 🇸🇬 

A quick reminder that Guy and some of the team are heading to Singapore next week for one of the crypto industry’s showpiece events.

TOKEN2049 is scheduled for 13th - 14th September 2023, at Marina Bay Sands.

If you're interested in attending TOKEN2049, we have an exclusive ticket offer available. We've secured a 10% discount on conference tickets for the Coin Bureau community. You can sign up here 👉 TOKEN2049 Discount

Guy and the team will be meeting and talking with some of the biggest names in crypto while at the conference. If you’re going to be there and you happen to see them around, please come and say hello. It’s always lovely to meet crypto’s best community™ IRL. 

We hope to see you there.

📊 Personal Portfolio 📊

BTC 36.16% | ETH 30.20% | USDC 18.89% | USDT 7.56% | USD 3.82% | ATOM 2.28% | DOT 1.09%

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🔮 Video Pipeline 🔮

• The Bitcoin War: Has the takeover begun?
• BRICS Countries & Crypto: What do they think?
• SEC NFT Lawsuit: What you need to know!
• Ark Invest Glassnode Report: Interesting findings…
• BIS Crypto Adoption: What to expect?

🏆 What's New at CoinBureau.com This Week? 🏆

✅ Binance Earn Review 2023: Exploring the Benefits and Risks
✅ Crypto vs. Stocks Investing: An Evolving Investment Paradigm
✅ TOKEN2049 - Closing Event Rooftop Party

📖 Quote of the Week 📖

Ask anyone in the crypto space what the price of Bitcoin is and they would likely be able to tell you what it’s trading for to the closest cent. However, ask them about why we have Bitcoin and many would struggle to give you a concrete answer. We need to make sure that more emphasis is placed on its value.

“The stock market is filled with individuals who know the price of everything, but the value of nothing” - Phillip Fisher

Team Coin Bureau

Disclosure: Authors may own cryptoassets named in this newsletter. These are unqualified opinions, and a Coin Bureau newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor.