Widely-followed stock picker Cathie Wood of Ark Invest, looking to bounce back as her funds continue to underperform, is using recent market volatility to buy the dip on big growth names like Tesla and Robinhood—both of which have seen shares struggle amid the wider sell-off in January.
The founder and CEO of Ark Invest purchased a total of 2.58 million shares of popular stock trading app Robinhood after the stock plunged to a record low of less than $10 per share on Friday following a dismal quarterly earnings report.
Wood purchased more than 2 million shares for her $12 billion flagship ARK Innovation ETF, with a total stake in Robinhood worth nearly $200 million, according to Morningstar data.
Robinhood is down nearly 70% since going public last year but Wood has continued to buy shares of the company since late October—when the stock plunged below its IPO price of $38 per share.
Another of Wood’s big trades in recent days: Adding to her position in Tesla for the first time since June 2021, buying roughly 55,000 shares—worth nearly $50 million—of the electric vehicle maker.
Tesla’s stock has fallen over 20% so far this year amid a wider selloff in growth and tech stocks, but Wood’s latest purchase may be a sign that she thinks shares are down to a more reasonably priced level.
Elon Musk’s electric vehicle outfit is Wood’s biggest holding in her flagship fund, making up about 8% of the ARK Innovation ETF—a position worth over $900 million, according to Morningstar data.
The Ark Invest founder also sold 70,000 shares worth of Spotify on Friday, amid the latest controversy surrounding the company. Several artists have boycotted the music streaming platform in light of false Covid-19 claims spread on Joe Rogan’s podcast. Wood still holds a sizable stake in Spotify—it is one of her flagship fund’s top ten holdings—worth almost $500 million, according to Morningstar.
Amid the wider sell-off in tech stocks, Wood told investors last week that “innovation is on sale,” though she remained unswayed by the recent market swings. “We use volatility to our advantage,” she said. “We concentrate towards our highest conviction names and that tends to work very well as we go through these corrections.”
After rising to fame in 2020, with her flagship fund surging nearly 150%, Wood’s performance has since gone downhill. The ARK Innovation fund fell 24% in 2021—losing over a fifth of its value–while the S&P 500 was up 27%. So far this year, the fund is down another 20%. With the Federal Reserve tightening its monetary policy and preparing to raise interest rates, investors have largely dumped riskier growth stocks, with shares of tech companies particularly hard-hit. The Nasdaq Composite index subsequently fell into correction territory in January, more than 10% below its record highs last November.
Robinhood Shares Plunge Amid Gloomy Revenue Outlook Just One Year After Meme Stock Mania (Forbes)
Cathie Wood Doubles Down On Growth Stocks After Fund Loses A Fifth Of Its Value In 2021 (Forbes)
Stocks Just Had Their Worst Month Since March 2020: January’s Wild Ride In 8 Numbers (Forbes)
Shares of popular stock trading app Robinhood tumbled nearly 10% after the company reported fourth quarter earnings that failed to impress investors, while also issuing a grim revenue forecast for the start of 2022 as trading activity continues to slow down.
Robinhood’s stock, which fell nearly 7% to around $11 per share on Thursday, plunged another 8% in after hours trading following the company’s quarterly earnings report.
The popular stock trading app reported earnings which came in slightly below Wall Street expectations: For the fourth quarter, revenue fell slightly from $365 million to $363 million, while Robinhood’s loss of 49 cents per share was wider than the 45 cent loss expected by analysts, according to Refinitiv.
The trading platform’s total number of accounts grew from 22.4 million last quarter to 22.7 million by the end of 2021—though monthly active users fell to 17.3 million from 18.9 million in the previous quarter.
What particularly spooked investors, however, was Robinhood’s gloomy revenue forecast for the next quarter: The company anticipates revenue of less than $340 million—significantly less than the nearly $450 million expected by analysts, according to FactSet.
Transaction based revenues on Robinhood’s platform fell slightly to $264 million in the fourth quarter, with revenue from cryptocurrency trading accounting for just $48 million of that figure and down slightly from $51 million last quarter.
As of Thursday’s close, the stock is down more than 70% off its initial public offering price in July 2021, with shares falling more than 30% alone this month.
Big Number: $22 Billion.
That’s how much Robinhood has lost in market value since going public at a $32 billion valuation in July 2021. After recent stock struggles, the company now has a market capitalization of just $10 billion.
With Robinhood shares at a new record low, cofounders Vlad Tenev and Baiju Bhatt both have both lost their billionaire status, according to Forbes. The pair first became billionaires in September 2020 after a private funding round valued Robinhood at $11.7 billion, by Forbes’ calculations.
“Robinhood’s awful results highlight the several challenges the trading platform company currently faces, mainly a slowdown in user growth, as well as weaker retail trading activity in stocks and crypto,” according to Jesse Cohen, senior analyst at Investing.com. “With a current valuation of roughly $10 billion, Robinhood’s market cap still seems high… they haven’t done a good job of justifying its sky-high valuation and the market has punished the stock accordingly.”
Shares of Robinhood have fallen nearly 40%—to less than $15 per share—so far in 2022, continuing a downward trend in recent months. After a blockbuster start to last year—when a wild rally in meme stocks like GameStop and cryptocurrencies like Dogecoin helped spur massive growth for Robinhood, trading activity and account growth has substantially settled down. Robinhood’s stock plunged 10% after reporting lackluster earnings in October, in which the company warned that lower retail trading activity “may persist” into the end of 2021. The popular stock trading app had reported a steep revenue drop in quarterly revenue—from $565 million to $365 million, in large part due to a sharp decline in revenue from crypto trading on Robinhood’s platform.
Robinhood’s Struggles Continue: Its Cofounders Are No Longer Billionaires, Shares Down 60% Since IPO (Forbes)
Robinhood Shares Plunge After A Decline In Crypto Trading Hits Earnings (Forbes)
The creative process of individuals, and the medium through which a Creator works, is constantly expanding, including digital assets such as Non-fungible Tokens. NFTs that are created, bought, sold or exchanged are considered property by the IRS, and so these are taxed like art buying, selling or exchanging art.
For the Creator of an NFT
For the Creator, the minting of the NFT is not a taxable event, but, where creating the NFT is due to their personal effort (or the effort of someone who is creating the NFT for them) or the NFT is part of the Creator’s trade or business, then the gain from the sale or exchange of the NFT is taxable as ordinary income.
A Creator can receive a percentage of the subsequent sale proceeds. When the Creator receives such a payment on a subsequent sale, that payment is also considered to be ordinary income, much like payments of royalties on copyrights, patents and other intellectual properties. Since those payments are perpetual, those rights cannot be depreciated.
Beyond the Creator: Investor, Hobbyist, Business Collector and Dealer
Once the NFT leaves the hands of the Creator, the owner is categorized as one of four types of owners: the Investor, Hobbyist, Business Collector or Dealer, each of which have different tax considerations. Which category a taxpayer falls into would depend on the facts and circumstances of that taxpayer’s case.
Following is a brief introduction to the four categories.
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An Investor is a person who buys, sells and collects NFTs solely as an investment with the hope the asset will appreciate to enable sale at a profit. For an Investor, generally the NFT investment when sold is taxable as a capital gain unless it falls outside the definition of capital asset. IRC § 1221 defines capital asset to include all assets except inventory for the taxpayer’s trade or business.
An Investor can be classified as a Dealer or a Hobbyist instead of an Investor based on the facts and circumstances in their case. Sometimes Investors want to be classified as Dealers when they have losses to be able to deduct the loss as ordinary income rather than as a capital loss.
An owner of NFTs is presumed to be a Hobbyist. A Hobbyist is a collector who buys NFTs without considering whether it will ever be a profitable investment. Because of the tax disadvantage of being a Hobbyist, the Hobbyist often tries to be classified as an Investor.
The Business Collector
A Business Collector does not buy the NFT for resale but rather for a business purpose such as office display or decorative logo used in the ordinary course of trade or business. Because the useful life of an NFT is not determinable, it is generally not subject to depreciation (unlike copyrights and other IP interests). Facts and circumstances need to be reviewed in each individual case to determine the categorization of the activity.
The Dealer is one who buys and sells NFTs as a trade or business. NFT Dealers are taxed in the same way as any other retail operation. As such all income including income from the sale of NFT is taxed as ordinary income. Expenses, if ordinary and necessary, are deductible. Dealers sometimes want to be classified as Investors because of the favorable capital gains rates versus being taxed on said gains as ordinary income. Additionally, Dealers can wear the hat of Investor in NFTs as well as Dealer in NFTs keeping the two as separate activities.
Installment sales are where you sell a highly appreciated asset in return for an installment agreement. In an installment sale, you only pay tax on the gains and the interest as they are paid out to you.
Trades involving NFTs
Trades are a common income issue. Trades occur when an owner trades NFTs for other NFTs or Cryptocurrencies. Trades are treated in one of three ways:
Recorded on the books as non-taxable. The basis of the new item received is the same as the item given up, plus any cash or property received to make the values equal (this amount to equalize the value is sometimes called “the boot”). Any such boot received would be reported as income.
Recorded as a taxable event. The basis of the new item is its fair market value, or cost.
A hybrid method using parts of both methods.
Despite clear law on the recognition of income from the exchange of inventory, trades are still often treated as non-taxable events, with the industry claiming they have always done it this way and/or that fair market value is hard to determine. Irrespective, an adjustment to a taxable event is required.
Charitable Contributions of NFTs
The computation of the amount of a charitable contribution, limitations that affect the amount of the allowable deduction and other aspects of charitable contribution are beyond the scope of this brief introduction. However, there are issues involving charitable contributions of NFT that the private taxable collector should be aware of. In many cases, the owner of an NFT partners with a charity to sell the NFT at auction, with the proceeds going to the charity, and using the net sale price as the value for charitable purposes.
There is currently relatively little case law specifically on the income taxation of the sale, exchange or donation of NFTs. The Treasury treats cryptocurrency as cash for reporting purposes, but the IRS treats transactions involving cryptocurrency, including NFTs, are to be treated as property. Until the rules are clearer, following the rules on the income taxation of art is the best insurance against possible penalties and interest.
Startups are supposed to specialize, but OpenSea’s founders thrived by building a wide-open market for creating and trading all manner of NFTs, whether art, music or gaming. Now that they’re centimillionaires and poised to become billionaires, they have other worries: competitors, fraudsters and the next crypto crash.
In March 2020, as Covid-19 began to spread, OpenSea founders Devin Finzer and Alex Atallah held a gut-check phone call. Their five-person startup had built a platform on which users could create, buy and sell all sorts of nonfungible tokens (NFTs)—computer files used to track ownership of unique digital assets like art and music on a ledger known as a blockchain. Yet 26 months after going live, they had just 4,000 active users doing $1.1 million in transactions a month, which translated (given OpenSea’s 2.5% sales commission) to a paltry $28,000 in monthly revenue. The NFT market had a “dead feeling,” recalls CTO Atallah, who conducted his side of the call from the basement of his parents’ Colorado home, where he had gone to work as New York locked down. Ominously, Rare Bits, a direct and better-funded competitor, had just announced it was folding. The pair set a do-or-die goal of doubling business by the end of the year—and met it in September.
Finally, in February 2021, the NFT market roused from hibernation—and went crazy. In July, OpenSea processed $350 million in NFT trades. That same month, in a round led by Andreessen Horowitz, it raised $100 million in venture capital at a $1.5 billion valuation. In August, as NFT hype (and FOMO) reached a fever pitch, volume spiked tenfold to $3.4 billion—an $85 million commission windfall for OpenSea in a month when it likely burned less than $5 million on expenses. Although transactions have since retreated to around $2 billion a month, the platform now has 1.8 million active users and a dominant share of the market. It’s up to 70 employees and is scouting for dozens more, including much-needed customer service reps.
Recently, there’s been talk of another round of venture investment at a valuation that could reach $10 billion. With a 19% ownership stake each, CEO Finzer, 31, and Atallah, 29, are centimillionaires on the cusp of becoming crypto’s newest billionaires.
Yet Atallah was humble as he chatted in November at a restaurant in New York’s kitschy new Margaritaville Resort Times Square, sitting near its 32-foot Statue of Liberty replica, which hoists a cocktail instead of a torch. He was there for the third annual NFT.NYC convention, which boasted 5,500 registrants with 3,000 on the waiting list. Young enthusiasts prowled the hotel wearing Bored Ape Yacht Club sweatshirts—a tribute to a collection of 10,000 simian NFTs whose owners treat it as a social club as much as a collectible or investment.
You might say humility was at the heart of Finzer and Atallah’s successful strategy. Some advisors had urged them to specialize in an NFT niche—say, art, gaming or music. But they opted to build a category-agnostic platform because they didn’t think they were prescient enough to predict which NFT types would catch on.
Beyond casting a wide net, Finzer says, OpenSea has thrived simply by “being in the right place at the right time” and listening to users about what they want. The platform tracks NFTs on ethereum and other blockchains, and all purchases are made in crypto. Sellers can opt for a fixed-price or auction format. Artists can reserve a percentage of each resale price. Ultimately, Finzer sees the NFT ownership verification model working for anything from concert tickets to real estate—he’s just not sure what will succeed when. “I’ve always had a pretty gray view of the future,” he says.
Despite its sudden success, OpenSea faces big and varied risks—from fraud and another NFT market bust to new competition. In October, Coinbase, the nation’s largest crypto exchange and an original investor in OpenSea, announced it will launch its own NFT peer-to-peer marketplace. Within weeks, Coinbase had 2.5 million sign-ups for its waiting list, and CEO Brian Armstrong was predicting the new business “could be as big or bigger” than its core crypto trading business.
OpenSea’s open-market approach heightens the risk of counterfeits, scams and fraud—just ask Amazon or eBay. For example, a scammer can copy an image of someone else’s art and sell it as an NFT on OpenSea. Finzer says the site is working on an automated way to spot fakes and has moderators who investigate suspicious offerings. Still, people can present problems too. In September, Finzer requested the resignation of OpenSea’s head of product after Twitter users discovered a crypto wallet linked to that executive was buying NFTs shortly before they appeared on the price-moving OpenSea homepage—in other words, he was allegedly frontrunning his own employer’s decisions.
While they come across as humble, OpenSea’s founders are hardly low on ambition. Raised in the Bay Area by a physician mom and a software engineer dad, Finzer says he was “devastated” to be rejected by Harvard, Stanford, Princeton and Yale. (He settled for Brown.) After a short stint as a Pinterest software engineer, he cofounded his first startup, Claimdog, in 2015 and sold it to Credit Karma a year later.
As a kid, Atallah, the Colorado-born son of Iranian immigrants, made spreadsheets to compare the attributes of everything from birds to browsers. After graduating from Stanford, he worked as a programmer before teaming up with Finzer. In January 2018 they entered the Y Combinator startup accelerator with an idea for paying users crypto to share their Wi-Fi hotspots. But at that point, CryptoKitties—the cartoonish virtual cats whose ownership records were digitally inscribed on the ethereum blockchain—had captured the public imagination. “It was the first time people who didn’t really care about crypto were suddenly getting interested in it for reasons other than flipping a coin. I thought that was really powerful,” Atallah says. They quickly pivoted to OpenSea and later moved their operation to New York City.
Much like Beanie Babies, their cloth-and-stuffing ancestors, CryptoKitties turned out to be duds as investment-grade collectibles—the supply was too great to make most of them worth much. After spiking in early 2018, interest in both crypto and NFTs went into hibernation.
What awakened the market in early 2021 wasn’t OpenSea’s doing. Instead, platforms like the billionaire Winklevoss twins’ Nifty Gateway captured attention with curated, high-quality art. Last March, Christie’s auctioned the NFT for digital artist Beeple’s “Everydays: The First 5000 Days” for $69 million, the third-highest price ever paid for work by a living artist.
As NFTs fetched eye-popping prices, more and more ordinary folks decided they too wanted to become creators, collectors or speculators—and turned to OpenSea, with its anyone-can-be-an-artist ethos, built-in secondary market and handy features. For instance, the site has an advanced filtering system so users can find NFTs with the rarest—and theoretically most valuable—attributes. (Only 46 Bored Apes have solid-gold fur, and they command a hefty premium.) When a new NFT is created and recorded on ethereum, the site automatically spawns a webpage displaying it—a nice feature as NFTs became a status symbol, with people sharing their OpenSea pages and changing their Twitter profile pictures to an NFT they own. “It became this circular feedback loop, driven by envy and desire. And OpenSea really captured that market,” observes Richard Chen, a partner at VC firm 1Confirmation and an early OpenSea investor.
Dani, 27, a former fashion designer living in Georgia, has turned a $17,000 investment in NFTs like the World of Women into a portfolio worth $715,000. AJ, a 37-year-old former gaming company CEO from North Carolina, put less than $10,000 into NFTs and now values his digital assets at $1.3 million. He recently convinced his gastroenterologist brother to start buying NFTs. The brother, in turn, hooked his own buddies. “They’re pretty much doing colonoscopies and then checking their phones for new NFT drops,” AJ says.
Sounds like a bubble, all right, raising the question of how OpenSea will fare when it bursts. Responds Finzer: “We have a large amount of padding in case we need to weather a winter.”
Shares of Robinhood plunged below its IPO price from earlier this year, a day after the company reported third-quarter earnings that substantially missed expectations because of a sharp drop in crypto trading.
Robinhood’s stock was down nearly 10% to just under $36 per share late Wednesday morning, sinking below its $38 initial public offering price from late July.
The popular stock trading app reported earnings after the bell on Tuesday which came in well below Wall Street expectations: Revenue fell to $365 million from $565 million last quarter, while the company’s net loss of $2.06 per share was greater than analysts’ average expectation of a loss of $1.37 per share, as compiled by Refinitiv.
The huge earnings miss was in large part due to a sharp decline in revenue from crypto trading on Robinhood’s platform, which tumbled 78% to $51 million from the last quarter.
After a blockbuster start to the year—when a wild rally in meme stocks like GameStop and cryptocurrencies like Dogecoin helped spur massive growth for Robinhood, trading activity has settled down, the company’s earnings report showed.
Robinhood’s total number of user accounts dropped slightly to 22.4 million, while fees tied to stock and options trades also declined.
Revenue the company earns from selling customers’ trades to Wall Street’s high-speed trading firms, known as payment for order flow, was down 41% from last quarter to $267 million.
Big Number: Nearly $500 Million.
That’s how much the combined fortune of Robinhood cofounders Vlad Tenev and Baiju Bhatt fell by 11:00 a.m. ET on Wednesday, as shares of their online brokerage plummeted. Tenev and Bhatt are now worth $2.2 billion and $2.4 billion, respectively, by Forbes’ estimates.
“In [the third quarter], crypto activity came off record highs, leading to fewer new funded accounts and lower revenue as expected,” CEO Vlad Tenev said after the earnings release. “Historically our growth has come in waves—the surges have come during periods of increased volatility or market events,” added Robinhood’s chief financial officer, Jason Warnick. “Going forward, we expect to continue to see the ebb and flow of our growth with market conditions, as well as product launches.”
What To Watch For:
Robinhood anticipates that many of the same factors which impacted results this quarter will continue through the end of 2021. Lower retail trading activity “may persist” and affect fourth-quarter earnings, the company warned in its press release.
Despite Robinhood’s Rocky IPO, Each Cofounder Is Now Worth Billions (Forbes)
Robinhood Billionaire Cofounders’ Fortunes Nearly Double In Two Days Amid Stock’s Wild Rally (Forbes)
Robinhood’s Triumph: More Than A Billionaire Windfall (Forbes)
The price of a single Bitcoin may be around half of what it was just a few months ago, but that doesn’t mean crypto has run its course. The reality is, cryptocurrency has always been volatile in general, and Bitcoin has still shown an upward trend since inception, albeit with plenty of bumps along the road.
Many experts still project that Bitcoin will surpass $200,000 or more in value in the near-term. This includes billionaire venture capitalist and bitcoin investor Tim Draper, who recently told CNBC Make It that Bitcoin will reach $250,000 by late 2022 or early 2023 despite its dramatic swings.
This is good news if you’re slow to get started investing in Bitcoin, but it’s even better news if you want a way to grow your Bitcoin balance without even investing your own money. Over the last few years, an array of banks and financial institutions have created new ways for Bitcoin enthusiasts to get into the game via bank deposits and even credit card spending.
If you want to invest in Bitcoin while you bank or use a credit card, you have quite a few options to consider. Here are some of the Bitcoin-themed financial products you can explore right now.
PayPal And Crypto
While PayPal has been a popular payment method for a while now, this company is constantly innovating and adding new features. As of early 2021, PayPal users can now buy, sell, hold, and pay for purchases with cryptocurrencies (including Bitcoin) directly through PayPal.
This option is available for personal and Premier PayPal accounts, but not for business accounts. PayPal is also offering resources to help users learn about cryptocurrency and track crypto prices all within the PayPal app, they note on a PayPal FAQ page.
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Bitcoin Rewards Credit Cards
There are a dizzying array of rewards credit cards that use cryptocurrency or dole out cryptocurrency as rewards. Since they all work so differently, it’s important to understand how each one operates, what is required of you, and any fees involved before you sign up.
One of the most popular crypto credit cards right now is the BlockFi Bitcoin Rewards Credit Card, which is currently on a waitlist. This Visa credit card comes with no annual fee and no foreign transaction fees, yet it doles out 1.5% back in Bitcoin on all purchases, then 2% back in Bitcoin once you have spent at least $50,000 on your card within a calendar year.
New cardholders also earn 3.5% back in Bitcoin for the first three months. Other benefits include a 2% APY bonus in bitcoin on stablecoin holdings, a 0.25% trading bonus in bitcoin on all eligible trades, and a $30 bonus in bitcoin for referrals to the card.
Then there’s the SoFi Credit Card, which lets users earn 2% back in rewards with no annual fee. While you can redeem rewards earned with this card for cash back, you can also use it for crypto deposits into a SoFi Invest account, loan payments toward SoFi student loan or personal loan balances, or as fractional shares into your SoFi Invest account.
The SoFi Credit Card is also a World Elite Mastercard, so it comes with perks like cell phone protection worth up to $1,000, three months of free DashPass membership, free ShopRunner membership and more.
Other credit cards that let you earn Bitcoin include the Brex Card, the Gemini Credit Card, and the Unifimoney Visa Credit Card, to name a few.
Bitcoin Debit Cards
There are also debit cards that dole out Bitcoin and other cryptocurrencies on spending, the most popular of which is the Crypto.com Visa Rewards Card. This prepaid debit card lets you earn 1% to 8% back on spending depending on the “tier” of card you have and the amount of crypto you’re able to stake.
For example, the highest level Obsidian card offers 8% back on spending with a staking requirement of $400,000, yet the basic Midnight Blue version of the card offers 1% back with no staking requirement. The second tier up, Ruby Steel, requires users to stake $400 and offers 2% back on all spending.
The Crypto.com Visa Rewards Card doesn’t charge an annual fee, and each tier of card allows a certain amount of free ATM withdrawals each month and other perks. However, this card issuer is pretty vague about other fees they charge on this prepaid debit card. On the product page, Crypto.com says the following:
“Information about fees and limits (i.e. free ATM withdrawals, interbank exchange rates, top-ups, etc.) can be found in the ‘Fees & Limits’ section under ‘Settings’ in the Crypto.com App. Fees vary by card tier, so be sure you’re checking the correct one.”
Another new choice in the debit space is Quontic Bank’s Bitcoin Rewards Checking, which offers 1.5% back in Bitcoin on eligible purchases.
Bitcoin Bank Accounts
There are also quite a few crypto savings accounts that let customers earn Bitcoin on their deposits. The downside of these accounts is the fact that, unlike traditional bank accounts, they are not protected by FDIC insurance.
Still, crypto savings accounts can be profitable if you’re willing to take the risk. For example, the BlockFi Interest Account lets users earn up to 7.5% APY on their crypto deposits, although returns on Bitcoin are lower than that. This account also comes with no hidden fees and no account minimums, and you receive an interest payment every month.
Also check out Outlet Finance, which lets users earn up to 9% APY on their deposits. This financial institution lends money to people buying cryptocurrency, and it is able to offer a higher rate of return as a result. You can add money to your account and earn interest in USD, so you don’t even have to deal with cryptocurrency on the backend.
Other crypto savings accounts are out there, so make sure to check out options from Linus, Gemini, Coinbase, Crypto.com, and more.
The Bottom Line
Bitcoin rewards banking is making it easier than ever to earn Bitcoin and other cryptocurrencies through credit card spending or secure a higher rate of return on your savings than you would with a traditional bank account. The fact there are so many options to choose from is mostly a good thing, although you should definitely read the fine print and know what you’re getting into ahead of time.
At the end of the day, you should know that Bitcoin banking products come with risk, mostly because cryptocurrency itself is largely unregulated and you won’t get any FDIC insurance. If you educate yourself and understand the potential downsides, these accounts could help you grow your Bitcoin balance or your savings over time.
China’s central bank has ordered Ant Group and four state-owned banks to step up their clampdown on cryptocurrencies as Beijing intensifies its efforts to eradicate transactions involving bitcoin and other digital currencies.
The People’s Bank of China (PBOC) said in a statement on Monday that Ant Group’s Alipay, Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank and Postal Savings Bank of China were among the financial institutions summoned for a meeting where they were urged to block payment services for any client accounts thought to be involved in cryptocurrency transactions. They were also told to cease offering other services such as account opening, registration and trading for any cryptocurrency-related activities.
“Cryptocurrency transactions and speculative activities have disrupted the normal economic and financial order,” the PBOC said in a statement. “They increase the risks of crimes such as illegal cross-border transfers of assets and money laundering, which severely infringe upon the property safety of the general public.”
Alipay said in a separate statement that it would set up a monitoring system to identify cryptocurrency-related transactions, and any merchants who engage in such activities will be banned from the platform.
The four state-owned banks also vowed to strengthen their efforts to monitor cryptocurrency transactions, and prohibit the use of their accounts in such activities.
The value of major cryptocurrencies, including bitcoin, ether and dogecoin, plunged after the news. The price of bitcoin sank to two-week low on Tuesday, trading as low as $31,196 at around 8:20 a.m. Hong Kong time, according to CoinDesk.
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China had accounted for as much as 70% of the global cryptocurrency supply, according to some estimates. The PBOC’s move marks the latest efforts by authorities to rid the country of crypto mining and trading.
China’s Sichuan province recently joined the list of jurisdictions seeking to push out crypto mining enterprises, along with Inner Mongolia and Xinjiang. Authorities in the province have ordered the closure of 26 companies suspected to be involved in crypto mining activities, state-run tabloid Global Times reported on Monday. Officials have also requested local electricity companies to cut the power supply to crypto mining projects, the report said. Sichuan, which has abundant hydropower, has been one of China’s biggest crypto mining bases.
Last month, China blocked a batch of crypto-related accounts on the country’s Twitter-like Weibo platform. It also banned the search of some popular crypto exchanges such as Binance and OKEx.
Depending on the month, day, hour, or minute you check the news, you might think investing in cryptocurrency or being paid in cryptocurrency is the greatest idea since sliced bread or the worst possible use of your money, ever. Whether you agree with Warren Buffett that cryptocurrency has “no value” or think Bitcoin’s value will rise to $300,000 in 2022, there’s one thing about cryptocurrency that isn’t up for debate: getting it right on tax returns has never been more critical.
The IRS is aggressively working to identify and root out United States taxpayers who are required to report cryptocurrency transactions, but either incorrectly report or omit cryptocurrency entirely from their tax returns. Understanding the tax implications of buying, selling, exchanging, or earning cryptocurrency has never been more important. We’ve identified ten common mistakes made when reporting (or not reporting) cryptocurrency transactions to the Internal Revenue Service, and will detail how to avoid each mistake in its own article. Finally, we will end the Top 10 Crypto Tax Mistakes To Avoid series with suggestions for the IRS on how to better reach out to taxpayers who are making Crypto Tax Mistakes, and how to bring those taxpayers back into compliance. As a tax litigator, it is my job to Monday-Morning Quarterback how taxpayers and their tax professionals did the first time around. This series aims to help folks get it right from the beginning, or identify possible mistakes that may need to be addressed.
Number 10: Improperly Reporting Cryptocurrency Received From Air-drops, Forks, and Splits
“Air-drops, forks, and splits” may be foreign terms to rookie cryptocurrency investors, but it’s important for anyone even dabbling in this area to become quickly familiar with them as they have tax implications. Revenue Ruling 2019-24 specifically addresses these thorny issues, and we will help you work through the complexities of these events and how they impact your tax reporting requirements.
Number 9: Failing to Report Crypto-to-Crypto Transactions
It is common for crypto investors to exchange one cryptocurrency for another in a coin-to-coin transaction. It’s important to understand these are taxable events and how they should be reported.
Number 8: Using the Wrong Form to Report Cryptocurrency Transactions
Are you being paid in cryptocurrency? Did you exchange a car for crypto or vise versa? Are you simply investing in crypto? Are you mining crypto? Each one of these potential transactions may require a different IRS form to accurately report the transaction and calculate the tax consequences.
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Number 7: Improperly Reporting Cryptocurrency Received as Earned Income
Cryptocurrency received in exchange for performing services is not taxed the same as the sale of cryptocurrency held for investment. We will explore and explain proper tax treatment of cryptocurrency as income.
Number 6: Failing to Report Cryptocurrency Exchanged for Goods and Services
Thinking of paying for your new outdoor furniture from overstock.com in Bitcoin? As more and more retailers accept cryptocurrency, taxpayers need to understand the tax implications and reporting requirements associated with paying in crypto.
Number 5: Failure to Prepare and Maintain Adequate (or any!) Records Reflecting Crypto Transactions
As with any taxable sale or exchange of property, taxpayers must be able to establish basis in an asset, including cryptocurrency, in order to calculate the gain or loss and resulting tax due. Taxpayers who don’t keep good records may find themselves paying tax on the sale of crypto as if they had no basis at all in the asset. Taxpayers should resist the urge to be lulled into laziness and assume all records will be available electronically come tax time.
Number 4: Failure to Properly Calculate Cryptocurrency Gains and Losses
Did you lose money on cryptocurrency? Losses can and should be reported to the IRS just like gains, and losses may completely offset any tax consequences of gains. But if they do, taxpayers still need to report the transactions. Cryptocurrency investors are not uniquely required to only report and pay taxes on gains, and should include losses and gains when calculating tax due.
Number 3: Using Like-kind Exchanges to Report Crypto
In all fairness, this isn’t really something that I have seen any of my clients do. But because crypto held as investment is required to be reported as property, it makes sense that crypto exchanges for property, like a Tesla or exchanging Bitcoin for Ethereum should qualify for a like-kind exchange under section 1031 of the Internal Revenue Code. Unfortunately, it doesn’t.
Number 2: Failure to Take Proper Steps to Pass on Your Cryptocurrency in the Event of Your Death or Disability
Do your loved ones know how to access your cryptocurrency accounts? If you die or become disabled, the value of your cryptocurrency may well be included in your taxable estate, even if your loved ones can’t actually access or unlock the value of that asset. We will explore best practices for how to ensure your loved ones are not left cleaning up your crypto mess without any access to the value of the asset.
Number 1: Failure to Report Cryptocurrency at All
By far the worst error – whether intentional or unintentional – taxpayers make when it comes to taxes and cryptocurrency is failure to report crypto transactions at all. Carolyn Schenk, the National Fraud Counsel & Assistance Division Counsel for IRS Office of Chief Counsel put it this way when addressing crypto investors who are not reporting income, “We see you.”
Putting it all Together
Since I’m not the Commissioner of the Internal Revenue Service, I don’t get to decide how the IRS is going to handle increasing and improving outreach to taxpayers who should be reporting cryptocurrency transactions on their tax returns, and I don’t get to decide how the IRS is going to bring those taxpayers into compliance. But as a tax litigator, I have a lot of ideas on how I think the IRS should be accomplishing these goals. We will finish our series with a close look at how the IRS has been handling outreach and enforcement so far, and what we’d like to see in the future.
Sports, hip-hop and digital art have collided with Jay-Z and Serena WIlliams investing in Bitski, an NFT marketplace that aims to simplify creating, buying, and selling non-fungible tokens. Bitski, refers to itself as the “Shopify for NFTs just closed its $19 million Series A funding round led by Andreesen Horowitz. With NFT sales up 55% since 2020 from $250 million to $389 million, the NFT market fancies a kinda digital gold rush for creators in the hip hop and sports industry alike.
The Breakdown You Need To Know:
Quick background on NFTs: the non-fungible token is one-of-a-kind and is being used as a digital collectible. CultureBanx reported that digital currency like Bitcoin or Litecoin is fungible, so if it’s traded for another, the end result is exactly the same thing. Not with NFTs though; once traded, an NFT is unique to its buyer. Bitski offers a free trial, until you publish an NFT and three tiers of plans after that, which range from $99 to $1,499 per month.
These digital collectibles have become big business in the music industry this year, with tens of millions of dollars being generated by the sale of these collectible digital assets. The roughly $6 billion hip hop industry is going all in on the NFT arena. For example, during this year’s NBA All Star Weekend Quavo, Lil Baby, 2 Chainz and Jack Harlow teamed up with Bleacher Report to release an NFT collection. The collection featured “four custom-designed basketballs that mix music, culture and sport with innovation.” They each received their own individual gold NFTs that sold for more than $591,000 with 2 Chainz’s No. 1 of 10 selling at the highest for 38 Ethereum or $68,030.
New Wave Art Collectors:
NFTs boomed in 2020, though some warn that a bubble is forming and ready to burst, particularly in the market for NFT art. Blockchain NFT trading has made the world of art collecting an open democratized and diverse market for the first time in history. In the first two months of the year there were $300 million in NFT sales, according to Cointelegraph. Blockchain platforms are now being used by artists to register the copyright data of digital art pieces, create proof of ownership, and be credited each time the artwork is traded digitally.
Historically, art trading was an exclusive, and mainly white, realm of investing. Black art was underrepresented due to the reliance on galleries, making it harder for these artists to live sustainably from their craft. However, NFTs are changing this through waves that continue to shock economists, and shift the tide in terms of equity and profitability of digital artists. Blockchain allows them to sell digital artwork with fractional ownership: creating as many “fractions” as they want and selling to owners who buy only a fraction of the piece. Fractional ownership increases an owner’s chances for a meaningful return on investment.
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Bitski noted that this phase of investment will support its ambitions to “make the NFT economy more accessible for creators, brands and enterprises”. Collectors and artists alike are confident that the opportunities blockchain brings in terms of authenticity, equity, and return on investment will allow it to endure.
Citi is contemplating a move into crypto markets after surging interest in the asset class from its clients, the Financial Times reported Friday, making it the latest financial institution to consider ways to give its clients access to the sought-after market after years of mainstream resistance.
Itay Tuchman, Citi’s global head of foreign exchange, told the FT the bank had not yet decided whether to offer clients cryptocurrency services but said a boom in interest across its client base prompted the bank to consider its options.
Trading, custody and financing are all services the bank is considering offering, Tuchman told the FT.
Tuchman said the bank “will jump in” when it is confident in its ability to build something regulators can get behind and will benefit its clients.
Elaborating on Citi’s decision not to rush into the crypto space despite clear client demand and moves from competitors, Tuchman said the ecosystem is new enough to accommodate multiple players. “This isn’t a space race,” he said, adding: “There is room for more than just one flag.”
There has been a major shift in sentiment towards digital assets over the past year, with many major institutions jumping on board after years of resisting. JPMorgan CEO Jamie Dimon, a longtime crypto critic, said earlier this month he is no supporter of digital currencies but recognizes that many of the bank’s clients want to get involved. Many major currencies have soared this year, with bitcoin, ethereum and meme-based dogecoin all reaching new highs in 2021.
What To Watch For
In a report published in March, Citi said bitcoin could be about to go mainstream and might be on the path to become “the currency of choice for international trade.” Bitcoin is the “North Star” of the crypto ecosystem, it said, making it the currency to watch for whether crypto as a whole goes mainstream. Earlier this year, Tesla CEO Elon Musk said it is on the “verge of getting broad acceptance” by conventional finance people. Musk himself drives a lot of interest in cryptocurrencies, notably dogecoin.
JPMorgan CEO Dimon Says He Doesn’t Care About Bitcoin—But His Clients Do (Forbes)
Citi weighs launching crypto services after surge in client interest (Financial Times)
Bitcoin Poised For ‘Massive Transformation’ Into The Mainstream, Citi Says (Forbes)
Elon Musk Warns People To ‘Invest With Caution’ As Dogecoin Rallies Ahead Of His SNL Appearance (Forbes)