Crypto tax questions: Most don’t know the answers


Good morning and welcome to Protocol Fintech. This Monday: Burning Questions About Crypto Earnings, Kraken Exiting SF, and Robinhood Crypto Wallet Crash.

off the chain

Are we in danger from a “financial gerontocracy”, as Peter Thiel He suggested in Bitcoin 2022 last week? He singled out Warren Buffett, Jamie Dimon, and Larry Fink in particular as members of this dangerous group. I don’t know all that, but when you look up Thiel’s age (he’s 54 versus Dimon’s 66), Google suggests asking the question “Is Peter Thiel a boy?” instead.

—Owen Thomas (E-mail | twitter)

The Crypto Tax Awareness Gap

Hardly any crypto investor is aware of all the situations in which their token trading activities are subject to tax, a poll conducted by Wakefield Research for tax preparation assistance firm CoinTracker, he says.

While the Internal Revenue Service issued specific guidance in 2014, and updated Once again in 2019, the rapid emergence of new crypto products and services has left the US government a few steps behind. But a large number of crypto investors are not even aware of the existing guidelines.

Ignorance of crypto taxes is widespread, and that is a problem for both taxpayers and the government. In the survey, when presented with a number of possible situations in which cryptocurrencies could be taxed, 97% of respondents incorrectly answered at least one.

  • In fact, there are seven types of taxable cryptocurrency transactions: exchanging cryptocurrency for fiat currency, spending cryptocurrency, exchanging one type of cryptocurrency for another, earning interest, receiving staking rewards, generating mining income, and receiving airdrops.
  • One of the biggest issues uncovered by the survey was that most cryptocurrency investors were unaware that exchanging one type of cryptocurrency for another is a taxable event, likely because they have not experienced similar transactions in the non-crypto world.
  • “It’s very rare that a US taxpayer has ever faced a scenario where they trade one stock directly for another, like no one trades Facebook stock directly for Google stock,” CoinTracker co-founder, Chandan Lodha.
  • Another factor: taxes become exponentially more complex when a user transacts crypto across multiple exchanges, which is common. The higher the number of exchanges, the more difficult it is to keep track of taxes across the board.
  • It doesn’t help that cryptocurrency exchanges don’t typically provide tax forms showing annual capital gains and losses, largely for the above reason. But starting in fiscal year 2023, they will have to figure it out.

People think they know what to expect, but most likely they don’t. Despite the obvious gaps the survey revealed, 54% of respondents felt confident in their knowledge of crypto taxes.

  • So while some cryptocurrency investors think they are tax-compliant and think they know how to file, emerging use cases can present roadblocks.
  • “The data suggests that it is not because users are trying to evade taxes or dodge taxes using cryptocurrencies,” Lodha said, as 74% of respondents said they wanted more information on how crypto exchange taxes work. that they use
  • Instead, it is more about the inherent complexity of crypto and some key differences from the savings and investment scenarios most taxpayers are familiar with. your bank they could have given your grandparents a toaster, but airdropped tokens are not covered by the regulations governing that kind of marketing gimmick.

Washington has a crypto tax agenda. As part of Biden’s 2021 infrastructure bill, IRS Crypto Reporting Requirements in 2023 it will be easier for crypto investors and harder for crypto businesses.

  • Under the new requirements, cryptocurrency exchanges, custodians, and other services must follow existing broker information reporting rules, which means they must issue Form 1099-B annually, detailing all transactions made.
  • Biden is also looking at crypto taxes as a way to close the budget gap in his new budget proposal, meaning there could be clearer rules in the future as the budget “seeks to modernize the rules for reporting digital assets.” . according Ernst and Young.
  • Some members of Congress have also drafted more crypto-friendly tax bills, such as the Virtual Currency Tax Fairness Act, which would exempt small transactions from being taxed. The tax equity proposal has already garnered bipartisan support.

As cryptocurrencies are growing, tax advice and crypto compliance are also growth fields. As a relatively new sector, cryptocurrencies are likely to encounter waves of new regulations and laws as the government tries to figure out how, or even if, digital assets fit into the existing tax system. It’s a good idea to get an idea of ​​what you’re hooked on for now, before it changes yet again.

—Lindsey ChooE-mail | twitter)



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in the money

Blockchain analysis led to the removal of “Welcome to the Video.” Cryptographic tracking techniques turned out to be crucial in the sexual exploitation case, where law enforcement traced currency flows on the blockchain to unravel a web of criminal ties.

Kraken closed its headquarters in San Francisco. CEO Jesse Powell said in a statement that “numerous employees were attacked, harassed and robbed on their way to and from the office”, and called the city unsafe.

The EU hit Russia with a fifth round of sanctions, including on “high-value” crypto transactions. In addition to the total ban on transactions and the freezing of four other Russian banks, the EU has moved to ban any “service of high-value crypto assets” to Russia.

Blockstream and Block are partnering for a bitcoin mining facility. Reportedly, the two companies planning to use Tesla’s Megapack technology to build a new solar and battery powered mining operation.

The Clearinghouse is increasing its overall transaction value limit to $1 million. Users can now transfer up to $1 million on the RTP network, increase of $100,000 previously.

Wen shareholder value?

Robinhood said it has given a crypto wallet to every user who wants one, with millions on a waiting list. But his shares fell on Friday after Goldman Sachs said the online brokerage faces a tough road ahead. The shares fell 8% in morning trading and have lost 39% of their value this year. The stock is 87% below the all-time high of $85 it hit in August shortly after its initial public offering, fueled by its growth in cryptocurrency trading revenue.

“We believe this lack of clarity on the path to profitability will prevent the stock from rating higher again,” Goldman analysts wrote. Analysts said the recent data pointed to user growth that “remained depressed” and pointed to concerns about a cryptocurrency slump, which could have a negative impact on Robinhood.


— Benjamin Pimentel (E-mail | twitter)

Going up

Earnings calls from JPMorgan Chase and BlackRock are scheduled for Wednesday. JPM’s Estimated Average EPS it is at $2.71, down 19% from last quarter. BLK Estimated Average EPS it is at $9.22, down 12% from last quarter.

Morgan Stanley and Goldman Sachs earnings calls are on Thursday. EM’ Estimated Average EPS it is at $1.80, down 13% from last quarter. GS’ Estimated Average EPS it is at $8.79, down 19% from last quarter.

Citigroup’s earnings call is also scheduled for Thursday. c Estimated Average EPS it is at $1.98, down one percent from last quarter.

New York Fintech Week 2022 begins next Monday, April 18. The five day conference It will feature prominent speakers from the industry, including BlockFi co-founder Flori Márquez and NovoPayment co-founder Anabel Pérez.

How is the infrastructure rollout going and what does it mean for the technology? Join Protocol’s Issie Lapowsky and a panel of experts on April 21 at 9 a.m. PT/12 p.m. ET to explore how implementation of the infrastructure bill is going and what it means for you.



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Thanks for reading, see you tomorrow!