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The days of the IRS looking at crypto like it’s some new TikTok viral dance are over. Like Big Paulie in Goodfellas, the Tax Man wants its cut and it’s going to get paid. As we’ve written, the IRS has hired hundreds of new agents and are bringing a new focus specifically to crypto and digital assets.

Along with its substantial funding boost, the IRS created the Office of Cyber and Forensic Services, bringing together its digital asset investigation, cybercrime investigation, digital forensics, and physical forensics support divisions under one command. They claim they are able to trace essentially any crypto transaction.

From Beincrypto:

The US government, including the IRS, has become increasingly sophisticated when it comes to finding your crypto. Multiple agencies, including intelligence services, work with blockchain analysis firms like Chainalysis to track crypto associated with criminal behavior.

So if the IRS doesn’t have sufficient in-house crypto knowledge, someone else will.

You can see that the IRS is paying more attention to crypto on your tax forms. From 2023, Form 1040 will ask whether US taxpayers held any digital assets in the past year.

“The IRS knows about your crypto already,” says Talwar. “Crypto exchanges are compelled to share customer data with the IRS. In November 2022, the IRS confirmed it’s building hundreds of cases relating to crypto tax evasion.”

“It’s important to remember that data on public blockchains are inherently traceable, so it is important to be upfront when it comes to your taxes. The IRS can request powers to dig into exchange transactions and can use blockchain tracing technology to track crypto in audits and investigations.”

Losses and Theft Should Still Be Declared

2022 was a terrible year for the crypto markets, and this may be reflected in your portfolio. However, this can be a benefit for your tax bill.

“Many investors’ portfolios are currently in the red – particularly those who started crypto trading during 2021,” continues Talwar. “For those sitting on losses this year, they may believe that they have no tax obligations. However, declaring losses can be useful in order to carry forward these losses against gains over future financial years.”

Starting from 2023, crypto investors are not permitted by the IRS to report their lost or stolen crypto as a capital loss. This is due to the elimination of tax deductions for casualty and theft losses under the Tax Cuts and Jobs Act. As a result, if you have lost your crypto due to a scam, hack, or losing your private keys, you will not be able to claim a deduction on your taxes.

If in Doubt, Seek a Tax Expert

Crypto is notoriously complicated, and taxes can be even more so. Merging the two can be the stuff of nightmares if you’re not careful. If you’re someone who conducts a large number of transactions, it is advisable to call in the experts.

“The IRS has made it [clearer] over recent years what information is required in order to report crypto taxes. However, with potentially thousands of transactions across dozens of crypto wallets, blockchains, and exchanges – it can be time-consuming and messy.”

“Whilst the IRS has taken steps to issue crypto-specific guidance, the pace of innovation has led to tax authorities playing catch up to clarify complex tax treatment. That’s why it’s important to seek advice from a Certified Public Accountant.”

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The welcoming business environment is drawing Web3 and crypto talent and capital, while other businesses are broadly integrating crypto and blockchain technologies into their operations. Cointelegraph visited Dubai and explains how crypto and Web3 technologies are transforming business and retail in the emirate.

Ordering groceries with cryptocurrencies

Day to Day, one of Dubai’s most popular and affordable grocery chains, announced that it started accepting crypto payments last year. On Aug. 8, the local media outlet, Khaleej Times, reported that the hypermarket has started to accept crypto payments in their online store and several branches throughout Dubai. 

Cointelegraph recently visited the Al Quoz branch and tried to use crypto to buy groceries. However, despite the advertisements of accepting crypto displayed all over the store, the staff said in-store crypto purchases are unavailable and directed Cointelegraph to use the online store instead.

Despite the lack of support in one branch, the good news is that crypto users can still shop using crypto on the online store. The branch accepts Bitcoin, Ether, Tether and various other coins as payment for online orders.

Luxury cars in the real world and in the metaverse

Dubai appeals to many who want a taste of luxury, and one of the most popular ways to experience luxury is to drive expensive cars. Cointelegraph spoke with a luxury car club based in Dubai that found a way to utilize NFTs and various Web3 technologies in their business. 

A luxury project called Elchai Group is bringing luxury cars to the decentralized community through NFTs. Maria Xenofontos, Elchai Group’s chief marketing officer, told Cointelegraph that NFT holders who are also automatically members of their car club would be able to rent physical exotic cars from Elchai’s car collection. Xenofontos also explained that: 

“Our team is bringing a luxury car club to the metaverse. We’re already developing The Universe Eye, a metaverse project that will first replicate the city of Dubai. [...] The metaverse will facilitate private events, celebrity concerts, and a luxury supercars showroom.”

According to Xenofontos, the project is also bringing their luxury car club to the metaverse and gave Cointelegraph a sneak peek at their metaverse project that replicated one of Dubai’s most popular attractions, the Dubai Eye.

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My statement on today's custody proposal. Looking forward to comments from the public. This one affects crypto, among many other issues: https://t.co/1eWT6P45Ya — Hester Peirce (@HesterPeirce) February 15, 2023

She says Gensler’s proposal isn’t workable or within the agency’s jurisdiction.

“This rule has broad implications for investors, investment advisers, and custodians,” Peirce wrote. “To get it right, we need the thoughtful input of commenters.”

We @SECGov just proposed to expand & enhance the role of qualified custodians when registered investment advisers custody assets on behalf of investors. Thru our rule, investors would get the time-tested protections—and qualified custodians—they deserve. What does this mean? ⬇️ pic.twitter.com/RerUGnpArI — Gary Gensler (@GaryGensler) February 15, 2023

According to Decrypt:

“This rule will require a lot of work, and a year seems too short to accomplish all of it,” Peirce said. “I appreciate the extended time for smaller advisers, but even eighteen months seems like an aggressive timeline for the changes contemplated here.”

Next, the SEC commissioner questioned the rule’s workability, saying that getting custodians to enter into written agreements to provide the required “reasonable assurances” may be difficult for advisers and costly for clients.

“The Commission “acknowledge[s] that an agreement between the custodian and the adviser would be a substantial departure from current industry practice,” she wrote, going on to say the proposal would expand the reach of custody requirements to include crypto assets while also shrinking the ranks of qualified crypto custodians.

Peirce went on to say that Gensler’s proposal runs the risk of “causing investors to remove their assets from an entity that has developed safeguarding procedures for those assets, possibly putting those assets at a greater risk of loss,” This would make customer assets more vulnerable to theft or fraud, not less, she wrote, citing language from the agency’s proposal.

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The latest news of SEC regulatory proposals has people in the industry sounding the alarm, and now no less than a former SEC Commissioner, John Reed Stark, is saying that the SEC is outright closing doors to traditional financing for crypto projects.

From UToday:

Former Securities and Exchange Commission (SEC) official John Reed Stark has urged cryptocurrency investors to "get out now" in response to a Bloomberg article detailing the increasingly aggressive U.S. regulatory stance toward the industry.

Stark, who now runs a cyber consultancy, tweeted that the "crypto-ecosystem is under siege" as a result of "relentless" regulatory actions that could see the industry "pushed to the fringes of finance."

The Bloomberg article cited by Stark claims that the collapse of FTX and the potential for the next "crypto disaster" to have even more severe consequences are the driving force behind the ongoing crackdown.

U.S. financial regulators are said to be closing doors to the traditional financial system, making it harder for crypto companies to secure banking partners. Reports are suggesting that they are creating a wall between crypto trading and the securities and banking markets in order to avoid another financial crisis.

In response to regulatory actions, investors are said to be exiting the crypto space, with Bitcoin declining for two consecutive weeks.

Binance, the world's largest cryptocurrency exchange, has already felt the squeeze, with stablecoin issuance being halted.

As reported by U.Today, Senator Elizabeth Warren, the leader of the progressive Democrats, is building an anti-crypto coalition with some Republicans.

The crackdown has prompted fears of a wider sell-off on the crypto market. Despite these concerns, U.S. officials have denied that they are trying to crush the industry, stating that responsible innovation will be supported.

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“Alright boss, let me break it down for you. Bitcoin is like this stash of cash we got hidden away, see. Only instead of being in a physical place like a safety deposit box, it’s all digital, get it? And just like regular money, you can use it to buy things, but there’s a few key differences.”

…

“First off, it’s completely anonymous. No one knows who’s makin’ the transactions, which makes it a pretty sweet setup for us. Second, it’s decentralized, which means there ain’t no one person or bank in charge of it, it’s all run by the people usin’ it, get it? And the best part? It’s completely untraceable. No government, no bank, no one can track where the bitcoins are comin’ from or where they’re going. It’s like we’re runnin’ our own little shadow economy.”

…

“Now, the value of a bitcoin can change just like the stock market, so you gotta keep an eye on it. But if you play your cards right, you could end up with a real nice payout. Just remember, it’s a risky game and you gotta be careful, or you could end up losin’ everything.”

It can shorten the learning curve and make it easier for individuals and businesses to get started with using crypto, thereby adding to the cryptocurrency adoption rate.

As its capabilities evolve further, ChatGPT could be able to help more advanced users code crypto trading bots and terminals, as well as aid them with smart contracts, thereby allowing them to actively participate in building the innovative industry, the Binance team said.

Within the post, Binance noted ChatGPT’s greatest advantage in “how easy it is to use,” and its “human-like responses,” at a rapid rate. Discussing those advantages in the crypto sphere, Binance noted a plethora of potential. Stating “In crypto adoption, the biggest benefit is how it can be used to answer questions about how to use crypto and the technology behind it.”

Moreover, the post stated, “ChatGPT has the benefit of being able to help clarify concepts in an interactive and conversational manner.” Additionally stated users can “keep asking it questions until they feel like they have fully understood whatever crypto-related to it it is they are interested in.”

Truthfully, the development of AI should be of vital importance to the educational industry for these reasons. In the realm of crypto, many who desire to learn more, are directed to various online channels. ChatGPT represented yet another potential outlet that can address specific concerns and points of misunderstanding in the digital asset space.

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According to Politico, Warren is positioning herself as the lead lawmaker on crypto oversight. Her proposals would have wide-ranging and negative implications for the crypto space, focusing on enacting onerous anti-money laundering restrictions and Know Your Client rules that would devastate the privacy that crypto users value. And she has support in some quarters on the other side of the aisle.

“I want to emphasize how good her office has been to work with,” said Sen. Roger Marshall, the Kansas Republican who co-sponsored Warren’s legislation.

Crypto advocates are resisting Warren’s push, and some dismiss her as an outlier. But her budding partnership with GOP lawmakers reflects broader forces that are poised to unite progressives and conservatives, watchdog groups and bankers, who share common cause in wanting to derail the unfettered growth of crypto.

That’s in stark contrast to last year, before the crypto market meltdown, when digital currency lobbyists had gained serious traction with lawmakers who drafted friendlier, bipartisan legislation with the industry’s input.

“It’s up to the crypto sector to prove at this point that they’re safe, secure and superior, and I don’t think they’ve made that case,” said Paul Merski, who leads congressional relations at the Independent Community Bankers of America.

The loosely aligned camps of crypto skeptics have been emboldened by last year’s collapse of the FTX exchange, which revealed extensive industry mismanagement and led to the arrest of former CEO Sam Bankman-Fried.

“What matters to me is [Bankman-Fried] spread money around Capitol Hill like it was dishwater, and nobody stopped at the time to ask any relevant questions about this company,” said Sen. John Kennedy, a Louisiana Republican who has joined Warren’s effort to investigate crypto-friendly bank Silvergate, which is under scrutiny for its ties to FTX.

Crypto advocates have tried to reject Warren’s anti-money laundering bill in the strongest possible terms, criticizing it as a broad, unconstitutional threat to privacy that could sweep in a range of software products beyond just finance-focused digital assets. Some former regulators are also taking issue with the bill.

The Treasury Department’s Financial Crimes Enforcement Network has already been policing illicit finance in crypto for years. Centralized crypto exchanges that register as money transmitters are required to verify their customers’ identities. Warren’s bill would extend those kinds of responsibilities to other entities, including digital asset wallet providers and crypto miners.

“It’s so vague and broad-reaching that just understanding and implementing its ramifications could take years,” said Hogan Lovells partner Liz Boison, a former federal prosecutor who also worked at the Consumer Financial Protection Bureau when Warren was launching the agency.

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The SEC’s plans would be Washington’s latest move aimed at curtailing risks crypto might pose to the broader financial system. Regulators have taken an increasingly aggressive stance after a series of spectacular failures in 2022 that included digital-asset exchange FTX and crypto broker Voyager Digital.

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Hedge funds and some venture-capital and pension funds are required to use qualified custodians to hold their clients’ assets. If finalized, the rule could mean that institutional funds that have delved into crypto might have to move their customers’ holdings elsewhere. They may also face surprise audits related to their custodial relationships or other ramifications. 

SEC staff said in 2020 that the agency was grappling with the question of who can be qualified custodians of cryptoassets and requested feedback from the public. 

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The SEC’s latest move against Kraken, one of the most compliant exchanges in existence, is making major waves in crypto, and the first direct regulatory attack on the major remaining crypto exchanges, industry advocates are saying, and we agree.

Kraken on Thursday agreed to shutter its US staking services and pay some $30 million in fines, after the SEC declared that its staking operations were no different than the sale of securities. Attorneys, consultants and even former regulators fear it’s the opening salvo in a new campaign against the industry.

From Coindesk:

The chairman of the SEC has made plain his intent to come for the cryptocurrency titans, doing everything short of announcing a schedule of enforcement actions, and his counterpart at the Commodity Futures Trading Commission (CFTC) is promising a big year. On the criminal side, the Department of Justice (DOJ) is unlikely to let other companies skate away from behaviors that warranted criminal charges in previous cases.

“We're in the early days of some major upheaval,” said Mick Mulvaney, a former acting White House chief of staff under former President Donald Trump, who is now advising a company in the digital-assets sector. “The industry is giving people that hate it a lot of ammunition."

As Jaret Seiberg – an analyst with Cowen – put it: “We expect the SEC to rely on enforcement over the upcoming year to shape the crypto sector. We see the greatest threat to trading platforms, which we suspect the agency will contend are illegal exchanges.”

With the Kraken, Coinbase and Binance headlines, the industry is bracing itself.

Binance and its executives have reportedly been in the Justice Department’s sights for potential criminal money-laundering charges. But it may draw SEC attention, too, because when the U.S. regulator went after its rival, FTX, the SEC named that exchange’s native token FTT a security, potentially meaning Binance’s BNB is similarly vulnerable.

Most recently, Binance admitted that it accidentally kept some of its own funds in the same wallet as user assets – the kind of commingling that often draws severe sanctions for regulated companies, even if the company discloses the breach itself.

The industry’s high-profile lapses over use of customer money – conjuring the specter of the collapse of MF Global for Washington’s regulatory community – has spurred a push to segregate crypto customers’ money as one of the main drives for lawmakers seeking to set up regulatory fences around crypto.

A lack of walls around investors’ crypto assets also sparked one of several run-ins another prominent exchange, Coinbase, has been having with the SEC.

A Coinbase statement created an uproar last year over how customer assets are maintained at the exchanges when the company disclosed investor money could be tied up in a hypothetical bankruptcy, and it accused SEC guidance for forcing it to make the statement. The company has also reportedly been dealing with an SEC investigation into a number of its business practices, including staking. As with Kraken, staking has been a significant service offered to Coinbase customers, though the company argued Thursday that Kraken was essentially offering a yield product while Coinbase isn’t.

“Coinbase’s staking services are fundamentally different and are not securities,” said Paul Grewal, chief legal officer, trying to head off the perception that the SEC is signaling that these common crypto services could be targeted at other companies.

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Now two high-ranking lawmakers say they want the SEC to share details around its communications with disgraced FTX founder Sam Bankman.

Reps. Patrick McHenry, R-N.C., and Bill Huizenga, R-Mich., called into question the SEC’s cooperation with the US Department of Justice in a Friday letter to SEC Chair Gary Gensler. 

McHenry is chair of the House Financial Services Committee, while Huizenga leads a House subcommittee that focuses on government oversight and related investigations. 

The congressmen gave the regulatory agency a Feb. 24 deadline to share all communications between employees of the SEC’s division of enforcement — as well as Gensler’s staffers — related to charges filed against Bankman-Fried. 

McHenry and Huizenga are also requesting related records of correspondence between the SEC and DOJ.

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“Presumably, the SEC’s Division of Enforcement did a complete investigation into the actions by Sam Bankman-Fried and presented the findings to the Commission for its review and to authorize the charges,” McHenry and Huizenga wrote in a Friday letter to Gensler. “Yet, the timing of the charges and his arrest raise serious questions about the SEC’s process and cooperation with the Department of Justice. The American people deserve transparency from you and your agency.”

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The letter comes after Rep. Ritchie Torres, D-N.Y., in December called for the Government Accountability Office to look into the SEC and its “failure to protect the investing public” from FTX — saying Gensler was “singularly responsible.”

On Twitter, tech venture capitalist Adam Cochran charged the SEC was outright colluding with FTX while cracking down on two of the most high-profile, SEC-compliant exchanges.

“So the SEC got buddy-buddy with SBF and almost gave them an exception to offer more services in the US. But then goes after Kraken and Coinbase, the two most compliant US exchanges for services that the SEC previously refused to provide guidance on?”

“2/2 Gensler is not a regulator. He is an agent of an anti-crypto agenda, who only aims to wield his power as cudgel for those he doesn't agree with. So the big question then, is why didn't FTX get this treatment? Whose pocket is he in?”

Things are heating up for the SEC right at a time it wants more power and primary regulatory aegis for the digital assets and the crypto space.

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Access to and use of financial services, known as financial inclusion, is crucial for economic growth and development. Unfortunately, a large portion of the population, particularly in developing nations, still lacks access to basic banking services. The World Bank estimates that 1.4 billion adults worldwide are without access to these services, which limits economic opportunities and perpetuates poverty.

Cryptocurrency, with its decentralized and digital nature, may provide a solution to this issue by advancing financial inclusion. Cryptocurrencies can be stored and transferred digitally and do not require physical banking infrastructure. This enables individuals living in remote or underserved areas to access and use cryptocurrency without the need for a traditional bank branch, providing an alternative solution for those who may not have access to traditional banking or prefer to maintain their privacy.

Beyond providing access to traditional banking services, cryptocurrency can also offer a range of other financial services. For example, cross-border payments can be made more efficient using cryptocurrency, making it an attractive option for migrant workers sending money to their families. Furthermore, it enables access to alternative financial services, such as loans, savings and insurance, without the need for intermediaries, making it more cost-effective for those who use it.

Cryptocurrency can also help improve financial transparency and reduce corruption by creating a decentralized and transparent ledger, which can help to increase trust in financial systems globally. The use of smart contracts can help automate the execution of financial agreements and reduce the need for intermediaries.

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As CoinDesk notes:

Staking, the process of locking native blockchain tokens to secure the network and receive rewards, has become a major business line for centralized exchanges looking to diversify their revenue streams away from transaction fees. Coinbase is the second-largest ETH staker, though competitors like Kraken and Binance have moved into the business. In many ways, if the SEC is successful in banning staking programs, decentralized alternatives like Lido and RocketPool, the largest and third largest ETH-based platforms by value, will benefit.

The SEC cannot block users from posting 32 ETH to become an Ethereum validator, or from pledging coins to other hosts, even if they can put serious restrictions around the activity for crypto economy on-ramps like Coinbase. That message seems to have moved the market: Lido’s governance token has surged following tweets from Armstong and Coinbase itself. As my colleague Sam Reynolds put it: “As a decentralized protocol, it's unlikely [Lido] will have the same compliance with securities rules as a U.S.-domiciled centralized entity like Coinbase.”

If the SEC does move to restrict staking, I’d expect for the crypto industry to put up a major legal challenge – much in the way diverse participants collaborated to prevent the Trump Administration’s eleventh-hour ban on “unhosted wallets.” In just a few years, staking has gone from a theoretical security mechanism to the backbone of many high-valued blockchains – comprising about a quarter of the industry’s market cap. And while Armstrong may be a bit bold in calling staking a “national security” interest, it is a growing economic activity regularly tracked by firms like JPMorgan.

For all I know, the SEC could be right in saying that staking – which incentivizes people to secure a crypto network through payments – does satisfy the “Howey Test” to determine if an asset is a security. But that shouldn’t be up to the SEC to decide alone. It’s also worth noting that staking is not really like “crypto lending,” which requires exchanges to seek out yield to pay to depositors like the shuttered Gemini “Earn” platform or Coinbase’s DOA offering the SEC shut down. Staking has its risks – protocols could be compromised, companies can cheat – but it’s part of an open source process baked into a blockchain’s security, making it far less risky than rehypothecation-driven yield programs.

All that said, the recent staking rumors seem to be part of a widespread crackdown against the crypto industry. As venture capitalist Nic Carter wrote, nearly every financial watchdog seems to be working towards detaching crypto from the real economy – in particular by using the private banking sector as a cudgel. If this speculation is true, what Carter deemed “Operation Choke Point 2.0” after the Obama-era campaign to debank legal-but-morally-dubious businesses, crypto has bigger problems at hand. Staking should stay open, even if Coinbase went down.

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On the PirateWires podcast, Carter said crypto firms are finding it increasingly difficult to obtain access to onshore banking systems due to unfriendly government regulations.

“Specifically, the Biden administration is now executing what appears to be a coordinated plan that spans multiple agencies to discourage banks from dealing with crypto firms,” Carter said.

For context, anti-crypto lawmaker Elizabeth Warren reportedly issued a letter to Silvergate on Dec. 6, reprimanding the firm for providing banking services to FTX.

From CryptoSlate:

Barely 24 hours later, the crypto-friendly Signature bank informed its customers that it would shut down their crypto accounts and return their money. As a result, Binance announced that it would only process fiat transactions worth more than $100,000.

In a similar move, Metropolitan Commercial Bank announced a total shutdown of its crypto-related services.

Furthermore, the Federal Reserve reportedly denied crypto bank Custodia’s application to become a member of the Federal Reserve System due to high risk.

From a policy perspective, the Fed, the FDIC, and the OCC released a joint statement on Jan. 3 stating the risks banks face by engaging with crypto firms. Banks were strongly discouraged from doing so, citing “safety and soundness” risks.

Although the authorities did not openly ban banks from dealing with crypto clients, Carter said that the stringent policies and the DOJ’s recent investigations against Silvergate serve as a deterrent to other banks.

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But the good news is that despite the trust index decline, retail use of cryptocurrencies is still strong.

In 18 of 42 countries surveyed, at least 20 percent of adults said they used cryptocurrencies in the second half of 2022. Low and lower-middle-income countries saw the highest adoption rates in 2022, with 35% of the general population in countries in those categories reporting retail use. This increasing adoption rate and concurrent drop in trust could mean increased regulatory scrutiny in the coming year, but we shall see. 

Full details of the Morning Consult survey are available here.

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-The Beatles, “Taxman”

Nothing says success like the tax man wanting his cut. The IRS has updated its taxation and reporting requirements and broadened its scope to everyone who has dealt with digital assets, according to Forbes. The report says that now all investors who “received, earned, transferred, or sold digital assets” in 2022 with the purpose of generating revenue are subject to the new requirements.

The document states:

“At any time during 2022, did you: (a) receive (as a reward, award or payment for property or services); or (b) sell, exchange, gift or otherwise dispose of a digital asset (or a financial interest in a digital asset)?”

Crypto gains earned from purchases held less than a year are subject to regular income tax, which varies between 10% to 37%. Revenue generated from digital assets held longer than a year is taxed between 0% to 20%, depending on the income level. The IRS also changed the term “virtual currencies” to “digital assets” in all its dealings, and the update also includes NFTs among the digital assets.

The report also says the IRS ramped up its Criminal Investigation division, onboarding hundreds of new agents for its digital assets and cybercrime division.

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We may not agree with everything they’re seeing, but perception is the reality we have to operate in. All their points bear consideration, but here are a few of the most important perspectives to take up:

'Crypto and blockchain are here to stay.'

This group's confidence was not shaken by the crypto-related events of the 2022 "pullback" of bitcoin (BTC), ether (ETH), and other coins, the crypto credit crisis or the ensuing contagion. Their reactions to these events ranged from sanguine ("the events of 2022 … do not mean much to me or crypto") to fatalistic ("it [crypto] will bomb a few more times before it becomes institutional before we can trust actors know what they are doing") to gleeful ("I'm all for the crash"), with several others viewed the events as a "necessary capitulation" that would result in a better, healthier ecosystem. More generally, none thought 2022 spelled the death of crypto. On the contrary, they generally agreed with an endowment chief investment officer (CIO) that "crypto and blockchain are here to stay." However, they all agree that for them to commit meaningful capital to crypto, the future of crypto must look much different from the past.

'Cryptocurrencies are a solution in search of a problem.'

The future of crypto will not include investments in cryptocurrency trading strategies, according to the allocators. The managing director at a large family office forcefully pointed out that "we have no interest in crypto as a currency." The head of alternatives at a corporate pension plan added that he viewed crypto trading as "degenerate gambling."

The group also uniformly rejected the usual economic arguments for a core allocation to cryptocurrencies (it's an uncorrelated asset, a store of value, or an inflation hedge). One large endowment characterized these arguments as "hypothetical."

'It's time for crypto to put on big boy pants.'

The future of crypto will be good crypto businesses, not good crypto products.

For these investors, 2022 was a watershed year for crypto. While this group views crypto writ large as a transformative technology that could lead to genuine and much-needed innovation, to date, these investors view the crypto ecosystem as "a giant crypto circle jerk that incentivizes people who contribute very little value creation." An investment consultant described the ecosystem prosaically as a "hobbyist industry consisting of a limited group of technically sophisticated users. … What's hot in crypto is not what institutional investors care about."

…

'We need a generational change for crypto and the underlying technology to be adopted.'

The future is far away. Allocators identified several structural barriers that will impede their deployment of capital, including the difficulty and time it will take to build sustainable, scalable crypto businesses and the opposition of legacy institutions that benefit from centralized structures.

Several also identified a less obvious but more formidable barrier: institutional investors' current worldview. These allocators assert that broad-based crypto investing will require a two-part "generational shift." For decades, TradFi allocators' investment worldview has been circumscribed by the canon codified in CFA and MBA curricula, which, as the CIO of a public pension plan said, "do not support crypto-related investments … If we get rid of these ideas, in five years, we'd have innovation, the innovation we desperately need."

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“It's disappointing,” she told CoinDesk. “I've been here for five years now and I've seen very few proactive steps toward trying to [in advance] set up a regulatory regime that makes sense…You can't have this system where everyone is unable to move forward because everything is so ambiguous.”

Watch the video here.

“If we had a better framework in the U.S. [for crypto], I think you would see more activity happening [here]. But now people have so many questions that a lot of stuff ends up happening outside of the United States. And that means that when U.S. persons participate, they won't have the protection of the U.S. regulatory framework,” she said.

The SEC’s mandate is to protect U.S. retail investors and regulate fair and orderly markets. But last year a string of collapses led to the bankruptcy filings of FTX, Celsius Network, Voyager Digital, BlockFi and CoinDesk sister company Genesis – leaving their millions of customers in the lurch.

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The commissioner has complained about the way the agency regulates in the crypto sphere since her term began during the presidency of Donald Trump. In 2020 she told Decrypt, just after being sworn in for a second term, that patchy SEC guidance made things even more complicated for crypto companies.

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Regulation hasn’t moved along a whole lot since then. When Peirce’s new boss, Gary Gensler, became the SEC chair in April 2021 under President Joe Biden, he continued the agency’s longstanding policy of “regulation through litigation,” where companies learn of their infractions when the SEC sues them for breaking the law.

Last year, the regulator sued BlockFi for $100 million over its interest-bearing crypto account, and just last month lodged complaints against Genesis and Gemini for selling unregistered securities. Gensler told Yahoo Finance in December that the SEC has brought over 100 crypto enforcement cases against crypto-related companies.

But while Peirce, who declined to comment on Gensler’s tenure, said enforcement actions are “important work,” she said the agency has not created “an environment within which good activity can flourish.”

Some of the complications of trying to write a regulatory policy through enforcement actions are apparent with the BlockFi settlement, she said. “If we had simply been more proactive in a regulatory way on crypto lending, we could have had a framework in place that would have applied to everyone,” she said.

Such a framework could have “taken into account a wide range of views about what the right approach was there.”

Peirce pointed a finger at her colleagues who “don’t think that any clarity is needed.” Her peers “think there’s plenty of clarity” – and do not see much point in regulating crypto, a technology they do not consider useful.

Pierce’s own efforts include a proposal to give three years to development teams to decentralize their projects before the SEC can sue them. The bill, sometimes called the token safe harbor, was introduced in February 2020, revised in 2021 and never gained traction within her own agency.

However, its spirit was contained within the Clarity for Digital Tokens Act of 2021 introduced in Congress by Rep. Patrick McHenry (R–N.C.), a longstanding advocate of crypto regulation who in December was became chairman of the House Financial Services Committee. But that bill died last month after little fanfare.

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The shame is the United States isn’t taking the initiative in a similar way. American regulators arbitrarily enforce rules that derive from older standards established for the more ossified world of traditional finance. In fact many of the regulatory agencies and bodies in America deliberately appear to select younger, smaller companies for “regulation by enforcement” which don’t have the financial resources to mount a proper legal defense.

The Cryptonomist surveyed nations around the world and identified those with the most convenient regulations for crypto owners and traders. We hope American lawmakers will follow suit, because on this trajectory the United States could start losing capital, talent and investment to these forward-minded nations.

Portugal

Until 2022, profits from selling crypto assets were not subject to capital gains tax. Under the new 2023 budget law, capital gains from the sale of cryptocurrencies held for less than a year will be subject to a 28 percent tax rate. However, profits realized through the sale of crypto assets held for more than one year will remain exempt from capital gains tax.

Germany

In Germany, similar to Portugal, if you buy cryptocurrencies and hold them for more than a year when you later decide to sell you will pay no tax. If, on the other hand, you buy your assets and sell them before the one year mark, making a profit of at least €600, then your capital gains will be taxed. In addition, Germany includes income taxes for those who engage in mining and staking.

Malta

“Electronic money” and “utility tokens” are not considered capital assets and therefore are not subject to capital gains tax (unlike “security tokens”). However, if the trading activity is repeated over time and is carried out in a professional manner, there is a tax on the income from such activity. The rate applied in such cases is 35% but can be reduced to 0% to 5% depending on one’s income level.

Switzerland

In Switzerland, profits from the sale of cryptocurrency are exempt from taxation for small non-professional investors. However, there are income taxes for professional traders and those who engage in mining activities. There is also an assets tax that is levied annually on net worth and whose rate varies depending on the canton in which an individual resides.

Georgia

Individuals residing in Georgia are exempt from paying any tax on income from the sale of crypto assets. In addition, cryptocurrencies are not subject to capital gains tax. In contrast, for crypto-assets held by legal entities, profits are taxed at 15 percent through a corporate income tax (CIT).

Belarus

In March 2018, Belarus legalized cryptocurrency-related activities and exempted all individuals and all legal entities from paying any tax on crypto assets until 2023. This measure affects not only investors but also miners, who are precisely involved in the process of cryptocurrency mining. These operators are also exempt from paying capital gains and income taxes. Although Belarus is currently a tax haven for cryptocurrencies, things may change in the coming years: the law that grants the implementation of these tax-free measures will be subject to review during 2023.

El Salvador

The first country in the world to adopt bitcoin as legal tender, now exempts also foreign investors from paying any tax on gains from bitcoin investments. By doing so, El Salvador wants to attract more investment into its economy. In addition, in 2022, this country has prepared a bill to issue Bitcoin Bonds, bonds issued on blockchain to raise USD 1 billion for the creation of Bitcoin City. This new city aims to become “The Mecca” of bitcoin users, a place where they can buy anything with bitcoin and where no resident will ever pay any capital gains tax.

Puerto Rico

Puerto Rico is an unincorporated territory of the United States and sets its tax laws independently. The local residents pay a much lower territorial income tax than the U.S. federal income tax. As for cryptocurrencies, assets purchased while residing in Puerto Rico are completely exempt from capital gains tax.

Singapore

Singapore does not have a capital gains tax, so neither individuals nor businesses are subject to it. Not surprisingly, Singapore is home to many of Asia’s largest exchanges and wallets. In addition, cryptocurrencies are defined as intangibles for tax purposes, so spending one’s cryptocurrencies is seen as barter and not payment. As a result, cryptocurrencies in Singapore are exempt from goods and services tax (GST). However, companies that accept cryptocurrency as a method of payment, will be subject to income tax. Companies that engage in trading as their main business must also pay an income tax.

Malaysia

As for individuals, profits made by trading cryptocurrencies are not taxed, as long as the trading transactions are not repeated and numerous. Thus, if you operate as a day trader, your profits will be subject to taxation. On the other hand, as for crypto companies (mining, staking, trading), profits are subject to income tax.

Cayman Islands

The Cayman Islands is a true tax haven for cryptocurrency holders as the country’s authorities impose no corporate tax on companies and no income or capital gains tax on residents. It is no coincidence, therefore, that the Cayman Islands is the headquarters of several companies in the crypto sector including Binance.

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Businesses are constantly finding new and innovative uses, driving forward enterprise blockchain adoption in ways that weren’t even conceived a few years ago.

Daniela Barbosa, general manager of blockchain and identity and Hyperledger executive director at The Linux Foundation, tells TechCrunch the biggest demand over the past two years has been “hybrid use cases,” where businesses use layer 1 blockchains and permissioned distributed networks to meet existing and emerging business demands.

Hyperledger is an open source platform, derived from The Linux Foundation, that aims to help traditional industries like finance to use and deploy blockchain technology. It works with almost 150 organizations including crypto-native firms, traditional financial institutions, technology companies and retail businesses. Some of the foundation’s members include JP Morgan, IBM, American Express, CVS Health, Cisco, Visa, ConsenSys, Walmart and T-Mobile.

Businesses find the technology valuable “because they’re building networks, sometimes with competitors or peers, and using a distributed ledger helps facilitate business processes they have,” Barbosa noted.

Businesses can perform instant settlements and transact with privacy by showing third parties that a transaction occurred while omitting the internal details. “Distributed ledgers allow companies and competitors to work together in a trusted environment and still have that privacy element as well,” Barbosa added.

And the technology doesn’t just help big companies, but smaller businesses, too, Barbosa noted. Supply chains using blockchain technology can benefit anyone from farmers to major businesses, she added.

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This committee is widely viewed as a bottleneck for regulatory efforts, which have made more progress in the House Financial Services Committee and Senate Agriculture Committee.

If new Banking Committee Chair Sen. Tim Scott, R-SC, and committee minority leader Sen. Sherrod Brown, D-OH, find common ground, the body could become a key venue for what Congress produces on crypto regulation, Coindesk argues.

Brown is an outright crypto skeptic, while Scott is still a blank page, though he has signaled concerns over the worst crypto headline issues from 2022, as we mentioned earlier today. Still, there are plenty of reasonable voices emerging in the new Congress who are pro-crypto, even as the industry lost a few key supporters, like Sen. Pat Toomey, R-PA, who retired last year.

The crypto industry’s 2022 dramas will again fall under the U.S. Senate’s microscope this month when the Senate Banking Committee holds a Feb. 14 hearing to examine financial system protections from the dangers seen in digital assets.

The panel is calling the Valentine’s Day hearing “Crypto Crash: Why Financial System Safeguards are Needed for Digital Assets,” according to a hearing schedule released Friday, and its position as one of the first issues to be addressed by the lawmakers demonstrates the urgency of crypto issues in Congress.

Chairman Sherrod Brown (D-Ohio) indicated in a November letter to Treasury Secretary Janet Yellen that he wants to begin a serious effort toward U.S. government oversight of crypto, and the committee’s new ranking Republican, Sen. Tim Scott (R-S.C.) said in a statement on Thursday that the members “should work to facilitate a bipartisan regulatory framework.”

The framing of the new committee’s first crypto hearing leading off with “Crypto Crash” doesn’t really bode well.

Consensus Magazine says the conventional wisdom emerging boils down to Republicans and Democrats taking sides in a way that may not be helpful for any regulatory efforts.

In the room where it happens (to borrow the earworm from "Hamilton") there’s a stench of crypto’s misdeeds. And the industry won’t have to wait long before getting the first sense of where it now stands in Washington.

“It‘s going to come a lot sooner than folks think,” said Ron Hammond, director of government relations at the Blockchain Association, who expects the relevant committees to get back into investigating the FTX debacle within the next few weeks. “They’re ready to hit the ground running.” Crypto is among topics getting the most immediate attention in the House Financial Services Committee and the Senate Banking Committee. The industry is finally earning the priority status it desperately wanted, but for the wrong reasons.

Headline-conscious lawmakers – many of them recipients of those FTX dollars – will get some early messaging off their chests before legislating begins in earnest. And the political party divide will become starker, dulling the conspicuous joy the industry once felt from how nonpartisan the work was.

The new Republican line: Blame crypto’s missteps on the humans. Don’t indict the innovative technology!

From Democrats: Crypto is an untamed beast that steals people’s life savings and doesn’t seem useful for anything.

"The collapse of FTX definitely has an impact on the way people in the Congress think about this,” Rep. Jim Himes (D-Conn.) told CoinDesk TV earlier this month.

U.S. lawmakers have so far produced no significant laws to establish crypto oversight, despite a number of legislative efforts last year that fizzled out. To change that in this newly divided Congress, the Republicans will have to acknowledge their House majority is razor-thin, and they’ll need some cross-party partnership to move anything in the next two years.

“Nothing is going to happen unless it’s bipartisan,” said Parker Hamilton Poling, a former executive director of the National Republican Congressional Committee who was once chief of staff for Rep. Patrick McHenry (R-N.C.), the new chairman of the House Financial Services Committee.

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