U.S. Crypto Investors Reject IRS Settlement

Key Takeaways

  • A married couple in Tennessee have claimed that the U.S. government offered them a tax refund after improperly taxing their crypto staking rewards—but they are refusing it.
  • In 2019, Joshua and Jessica Jarrett sued the Internal Revenue Service for taxing them on unsold crypto rewards earned by staking on the Tezos blockchain.
  • The Jarretts’ case draws attention to certain inconsistencies in the IRS’s policies and seeks to force clarity on the matter.

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Joshua and Jessica Jarrett, a married couple in Tennessee and plaintiffs in a suit against the Internal Revenue Service, have said that they are rejecting a settlement offer from the government body; instead, they and their legal sponsors want to make the IRS defend its position in court.

Taxpayers Want IRS To Clarify Crypto Policy

A pair of Tennessee taxpayers have rejected a settlement offer from the IRS and are instead insisting upon regulatory clarity.

In 2019, Joshua and Jessica Jarrett were taxed on 8,876 Tezos tokens they received by staking on Tezos blockchain. These tokens were taxed as ordinary income, though the Jarretts contend those tokens should only have been taxed upon their sale. In 2020, the Jarretts sued the IRS for damages.

Their case was supported by the Proof of Stake Alliance.

Received property is treated as income for tax purposes in the United States; however, the Jarretts and POSA have argued that tokens awarded to the Jarretts were not technically “received” property at all, but instead “new” property.

Writing in the complaint that “no express provision of 26 U.S.C. §61 or any regulation thereunder treats as gross income an item of property created by a person,” the plaintiffs’ team goes on to argue that “new property—property not received as payment or compensation from another person but created by the taxpayer—is not and has never been income under U.S. federal tax law.”

In other words, the suit argues that the Jarrett’s “created” property by staking their Tezos tokens, and that therefore this property should not be taxable until it is sold, for it is only at the point of sale that the taxpayer realizes any gains.

Waving the White Flag

In December 2021, the IRS appeared to concede and offered the Jarretts a refund of $3,793, plus interest. However, they opted to reject it with the hope of receiving a “better answer” from the IRS regarding the agency’s official policy on mining and staking rewards.

Joshua Jarrett wrote in an official statement he shared on Twitter:

“At first glance, this seemed like great news. But until the case receives an official ruling from a court, there will be nothing to prevent the IRS from challenging me again on this issue. I need a better answer. So I refused the government’s offer to pay me a refund.”

The Jarretts’ refusal of the settlement would appear to be an effort to compel the IRS to clarify its policy of taxing staking rewards as income in front of a U.S. court. POSA believes the court case will help remove the confusion over the taxation of staking rewards.

“For the sake of fair tax administration and American innovation, I hope the IRS follows this up quickly with clear guidance that staking rewards aren’t taxable income,” Alison Mangiero, Board Member and acting Executive Director of POSA, said in a statement.

A bench trial is slated to start in March 2023, according to a court document. The outcome from the lawsuit may have far-reaching implications for crypto tax policy in the U.S.

Disclosure: At the time of writing, the author of this piece did not hold any of the aforementioned cryptocurrencies.

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How to Calculate Your DeFi, NFT, and Airdrop Taxes for 2022

Key Takeaways

  • Tax season is approaching.
  • Crypto investors may be liable for income tax and capital gains tax based on their activity.
  • Capital gains tax and income taxes are applied differently based on the nature of crypto transactions.

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Crypto Briefing brings you a comprehensive guide on calculating cryptocurrency tax liabilities for 2022. 

The Crypto Tax Guide 

As we enter the new year, most cryptocurrency traders and investors will have tax deadlines looming. In the United States, the Internal Revenue Service will be opening up the filing process for taxpayers from Jan. 24, with last year’s tax returns due by Apr. 18. That means that tax returns filed in 2022 will apply to the 2021 tax year; taxes for 2022 will be due in April 2023. 

The IRS first published its guidance its guidance on taxing cryptocurrencies in 2019, and many other countries have adopted similar policies. As such, active crypto traders, DeFi enthusiasts, and NFT collectors need to pay attention to their tax obligations. Before filing taxes, the most important step is to take note of all crypto transactions that trigger taxable events. 

Such transactions include selling crypto assets like Bitcoin and Ethereum for cash or other assets, receiving airdrops, crypto mining, staking, and yield farming. It’s also important to be aware of the type of tax that applies to each transaction. Those that trigger taxes fall into two main categories–income tax and capital gains tax. Both are reported differently in tax returns. This feature covers the topic in detail. 

Income Tax 

In the U.S., income tax applies on crypto assets received through staking, yield farming, as part of a salary, or in exchange for a good or service. Income tax is charged at the regular tax rate according to earnings. It applies to compensation earned from employment, including salary and royalties. Other earnings such as dividends and commissions are also subject to income tax. 

All crypto assets received from lending, yield farming, airdrops, and governance token rewards are subject to income tax according to the market value at the time the user receives them. Whenever a user receives coins in their wallet, the market price in fiat terms can be used as the cost basis for reporting gross income. 

In the U.S., the gross income must be reported on Form 1040, which is used for filing individual income tax returns. Income tax rates fall under seven brackets ranging from 10% to 37%. It’s worth noting that there is also a standard tax free deduction on income in the U.S. The deduction is set at $12,550 for the 2021 tax year and $12,950 for the 2022 tax year.

Capital Gains Tax

According to the U.S. Internal Revenue Code, capital gains are made from selling or exchanging capital assets like stocks and cryptocurrencies, and other properties used for investment purposes. 

Capital gains or losses must be calculated when an asset is sold, swapped, or exchanged for fiat money, stablecoins, or any other tokens. 

In the U.S., there are two types of capital gains tax: short-term and long-term. Short-term gains apply to assets sold within a one-year holding period and are subject to higher rates than long-term gains. As such, many crypto users opt to hold assets for more than one year to reduce their liabilities.

Short-term capital gains tax is charged at the same rate as ordinary income. Taxpayers can therefore expect to pay between 10% and 37% on gains from selling their assets within a year. 

Long-term capital gains tax is charged at between 0% and 20% depending on the taxpayer’s income. The tax-free allowance for single people is up to $40,400 for the 2021 tax year and up to $41,675 for the 2022 tax year.

It is also important to note how capital losses can impact tax liabilities. A capital loss is a realized loss from an asset depreciating in value at the time of sale. Capital losses can be used to offset capital gains and reduce tax liabilities as part of a strategy known as “tax loss harvesting.” For example, a crypto user may have bought a DeFi token that underperformed in 2021. They could decide to sell that asset at a loss in order to offset the capital gains they owe on the SOL and LUNA they sold at a profit in the same year. 

In the U.S., taxpayers must file the IRS Form 8949 to report capital gains and losses.

Taxes on NFTs

NFTs are tokenized digital collectibles that may encompass digital art, music, memes, or any other type of content. In 2021, NFTs exploded in the mainstream and welcomed a new wave of adopters into the crypto space. 

While NFTs are still a nascent asset class, it is important to note that they are a type of cryptocurrency. As such, taxes apply to NFTs in the U.S. and other parts of the world. As with other types of crypto asset, the liabilities users face can vary from income tax to short or long-term capital gains tax. 

There are two primary ways to generate NFT profits. One of them is creating an NFT and selling it on a marketplace such as OpenSea. In this instance, income tax applies. 

Buying an NFT and selling it on the secondary market, meanwhile, leaves the user liable to capital gains tax. For example, if someone minted an NFT for $200 in Ethereum in May and sold it for $6,000 in Ethereum in August, the liability would be $5,800. Liabilities are calculated based on the dollar value of NFTs.

In the U.S., investors must report gains and losses from NFTs on the IRS Form 8949.


Many crypto tokens are launched through airdrops to early users. While airdrops can offer lucrative returns for active crypto users, they must also be reported in tax filings. 

Token airdrops are considered a form of income in the U.S., and their value is based on the market value at the time the user receives them.

For example, if someone received 310.7 DYDX tokens from dYdX’s September 2021 airdrop and claimed them at a market price of $10, their taxable income would be $3,107.

The income tax forms a cost basis for calculating capital gains on an asset. It’s deductible from capital gains tax liabilities. For example, if the user sold the 310.7 DYDX when the tokens were trading at $20, they would receive $6,214. The realized capital gain would be the difference between the $6,214 profit and the $3,107 liability, which comes to $3,044. Tax would be due on the $3,044 gain.

On the contrary, if the user sold the 310.7 DYDX when the tokens traded at $6, they would receive $1,864.20. Factoring in the $3,107 taxable income, they would realize a capital loss of $1,242.80. This loss could be deducted from other capital gains, reducing the user’s overall tax burden. 

DeFi Lending and Yield Farming

Taxes also apply to DeFi activities.

Lending assets on platforms like Compound, Curve Finance, and Balancer in anticipation of yield is a core component of DeFi. 

Income tax applies to yield farming based on the market value at the time of claim or receipt in the user’s wallet.

In DeFi, lending rewards are typically paid out using interest-bearing tokens. For example, on Aave, lenders earn aTokens, a form of ERC-20 token that gets minted when a deposit is made and denotes the user’s deposited value. aTokens can be redeemed for the underlying asset. Such tokens add a layer of complexity to reporting liabilities as they can trigger multiple taxable events. 

For example, a DeFi user may buy 10 ETH for $3,000 each at a total price of $30,000. Later, they could deposit the assets into an Aave lending pool. Aave would mint 10 aETH, and they stay pegged to the underlying asset. Ten months later, if the price of ETH increased to $3,300, they would receive 0.1 aETH (or $330) in interest. 

They would need to report the $330 interest as income. After this, they could close the deposit and convert 10 aETH to 10 ETH when each token is trading at $3,300. As they would receive a $33,000 sum, there would be a capital gain based on the difference between the value of the deposit and the assets withdrawn. The difference between the $30,000 deposit and $33,000 withdrawal results in a capital gain of $3,000.

The overall tax due would be $3,000 plus the $330 interest, which equates to $3,330.

On centralized cryptocurrency lending platforms, such situations be less complex. For example, lending 10 ETH on BlockFi may earn 0.1 ETH directly to the user’s wallet. If the user does not make any trades, they would only be subject to income tax. 

Liquidity and Governance Rewards

Providing liquidity is another way to generate profits in DeFi. 

On decentralized exchanges like Uniswap, liquidity providers can earn a portion of the trading fees.

Liquidity providers automatically receive a share of the fees through LP tokens, which represent a percentage share in a pool.

When users withdraw assets from a pool, they burn the LP token and receive their underlying assets plus any accrued interest.

Such activities constitute a crypto-to-crypto trade and therefore assume capital gains taxes.

For example, a user may receive LP tokens after depositing $1,000 worth of ETH to a Uniswap pool. If they withdraw their assets a few months later when the LP tokens are worth $1,100, the capital gain is calculated based on the difference between the LP tokens and the underlying asset. This would result in a capital gain of $100. 

Many DeFi protocols also reward users with governance tokens in what’s known as liquidity mining. For example, if a user earns 10 SUSHI at a market price of $10 for providing liquidity on SushiSwap but does not dispose of the asset, they would owe capital gains on trading their LP tokens, and $100 income tax on their SUSHI rewards. If the price of SUSHI increased to $20 and they opted to sell the tokens, the liability would be the capital gain of $200 with the income tax liability of $100 deducted. This would result in a $100 liability.

Final Thoughts

The IRS has not provided complete clarity or guidance on taxing all types of DeFi transactions. For example, it’s still unclear whether depositing Bitcoin to mint wrapped Bitcoin would count as a taxable event. It could be argued that swapping BTC for WBTC does not count as disposing of the underlying asset, but most crypto tax experts say that transactions and trading should be considered taxable events. Therefore, even a simple swap of BTC to WBTC can qualify as a taxable event. 

Many active crypto traders calculate their taxes using tools such as CryptoTrader.Tax, CoinTracker, TaxBit, and TokenTax. Such products are useful for tracking transactions and making the process of paying taxes on crypto less cumbersome. Some users opt for consulting a specialist before filing their returns. When using crypto, DeFi, and NFTs, it’s important to be aware of the tax liabilities for each activity. That way, there’s less chance of an unexpected shock when tax season comes around.

Disclosure: At the time of writing, the author of this feature owned ETH and other cryptocurrencies. None of the information presented above is intended as tax or investment advise. 

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Is Ethereum a Security? Gensler Stutters Over Question Again

Key Takeaways

  • Gary Gensler has declined to comment on whether Ethereum could be classed as a security in a CNBC interview.
  • The SEC Chairman reiterated the need to bring crypto tokens under the purview of securities regulations.
  • The SEC has been criticized for its unclear guidelines on cryptocurrencies in recent months.

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SEC Chair Gary Gensler declined to comment on whether Ethereum could be classed as a security in a CNBC interview today.

Gensler Avoids Ethereum Security Question 

Gary Gensler has shown his reluctance to clarify Ethereum’s regulatory status again.

In a Monday interview with CNBC Squawk Box, the SEC chairman discussed securities laws surrounding cryptocurrencies with Andrew Sorkin. When Sorkin challenged him about whether he thought Ethereum could be classed as a security, he swerved the question, remarking that he would not speak on a specific crypto asset. “Can you explain your view of whether Ethereum is a security or not—I think you’ve actually suggested it isn’t, but then while you believe that Ripple is a security, and I know there’s an ongoing lawsuit related to Ripple, but could you speak to the Ethereum issue?” Sorkin asked.

“I’m not going to speak to any one matter,” Gensler told CNBC. He added that the SEC doesn’t “get involved in public forums talking about any one project.”

Gensler’s public stance on the number two crypto marks a stark contrast to his predecessor Jay Clayton, who stated that Ethereum was not a security during his tenure at the helm of the SEC. 

Securities are instruments that represent ownership in a common enterprise with an expectation of a profit. The issue of whether crypto assets like Ethereum can be classed as a security has been a hot topic in recent years as the space has grown. While the SEC has been criticized for its unclear guidance on cryptocurrencies, Gensler has stated on several occasions that DeFi tokens could be categorized as securities. The SEC has also been in a widely publicized legal battle with Ripple after it accused the firm of selling unregistered securities since late 2020; it’s due to come to a close sometime this year.

Commenting further on the regulatory environment surrounding cryptocurrencies, Gensler remarked that many crypto tokens could be classed as securities and should register with the SEC. He said: 

“Unfortunately, way too many of these [projects] are trying to say ‘well, we are not a security, we are just something else.’ I think the facts and circumstances suggest that they are investment contracts, they are securities, and they should register.” 

While Gensler did not elaborate on his current views on Ethereum’s regulatory status, he told an MIT class that he thought it would pass the test as a security when lecturing at the university in 2018. At the time, Gensler explained that he thought Ethereum would pass the Howey Test–an official framework under the U.S. Constitution to determine whether a particular investment is a security offering.

“I think Ether, when it was done in 2014, would pass this [Howey] test. When I say ‘pass,’ it means it’s a security,” he said. He added that the SEC decided that it had become sufficiently decentralized by 2018 and therefore decided to “let it go the other way.” In 2014, Ethereum raised $18 million in Bitcoin in the first Initial Coin Offering to kick off the project. 

Despite Gensler’s lack of clarity surrounding Ethereum, he has maintained that Bitcoin is n0t a security back then and today. “Bitcoin came into existence as mining began as an incentive in validating a distributed platform,” he said in 2018. The SEC has since approved the first Bitcoin-related exchange traded funds tied to the Chicago Mercantile Exchange’s Bitcoin futures prices under Gensler’s leadership. 

Gensler’s refusal to confirm or deny his thoughts on how other crypto assets would be classified could cause concern for believers in the technology. It also suggests that assets built on top of Ethereum—such as the DeFi tokens Gensler has called out in the past—could be subject to regulatory action in the future. 

It is also noteworthy that the SEC’s decision on whether a token is a security is subject to change. Last month, the Bitcoin-focused project Stacks said that the SEC had changed its classification from a security token to a non-security once it had demonstrated that it was sufficiently decentralized.

Disclosure: At the time of writing, the author of this piece owned ETH and other cryptocurrencies.

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U.S. Congress Reportedly Set for Hearing on Bitcoin’s Carbon Footprint

Key Takeaways

  • The House Subcommittee on Oversight and Investigations may be planning a hearing on Bitcoin’s carbon footprint. 
  • The subcommittee is reportedly working on a list of witnesses who may testify in an oversight hearing by the end of the month..
  • In the last year, large mining companies have expanded operations U.S. states like New York, Texas, Alabama, and Wyoming.

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U.S. Congress may soon have its first hearing on the environmental impact of Proof-of-Work crypto mining. 

Congress May Examine Bitcoin’s Environmental Impact 

According to a report by The Block, the Subcommittee on Oversight and Investigations—a subcommittee of the larger House Committee on Energy and Commerce—may be planning a hearing on Bitcoin’s environmental impact and the carbon footprint of crypto mining.

The Subcommittee is reportedly working on a list of witnesses who may testify in an oversight hearing by the end of this month.

The Committee on Energy and Commerce is the oldest standing committee in the U.S. House of Representatives. It has jurisdiction over a broad set of issues pertaining to the environment, energy, healthcare, and other important infrastructure.

It is noteworthy that the top cryptocurrency Bitcoin relies on a consensus algorithm known as Proof-of-Work. This algorithm can only be run with special computing hardware that validates new transactions on the network. This makes mining a highly energy-intensive activity that has been linked to increasing global carbon emissions.

A source involved in pre-hearing discussions in the subcommittee told The Block that the House Energy and Commerce Committee was concerned about environmental issues resulting from “recent events in New York State,” referring to the rapid growth of Bitcoin mining in the U.S. state. 

After China’s blanket ban on crypto in Sep. 2021, many large mining companies moved operations to U.S. states such as New York, Texas, Alabama, and Wyoming. These states have offered less expensive electricity rates to mining firms. The growth in U.S-based crypto mining helped make the country the largest contributor to Bitcoin’s global hashrate in Oct. 2021. 

Nevertheless, some environmentalists and politicians have voiced their concerns regarding the environmental impact left behind by the mining industry. 

In October 2021, 70 activist groups collaborated on a joint letter to the U.S. Congress, in which they requested Senate Majority Leader Charles Schumer (D-NY), House Speaker Nancy Pelosi (D-CA), and others to take action to mitigate the effects of cryptocurrency on climate change. 

Some reports have highlighted that cryptocurrency regulation is increasingly becoming a more partisan issue. Republican Senators like Cynthia Lummis, Pat Toomey, and others have spoken favorably of Bitcoin on record, while on the other side, some Democratic senators like Elizabeth Warren have slammed Bitcoin for its energy consumption.

Disclosure: At the time of writing, the author of this piece owned ETH and other cryptocurrencies.

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Senator Cynthia Lummis to Present Crypto Bill Next Year

Key Takeaways

  • U.S. Senator Cynthia Lummis will propose a new crypto bill in early 2022.
  • The proposed bill includes clear guidelines on various crypto investment topics.
  • In the U.S., comprehensive rules for the crypto industry have been long overdue. 

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Senator Cynthia Lummis (R-WY) plans to propose a new bill for the cryptocurrency industry next year.

Republican Senator Will Present Comprehensive Crypto Bill

U.S. Senator Cynthia Lummis, Republican from Wyoming and a well-known Bitcoin supporter, is proposing a sweeping regulatory bill for the digital assets industry in early 2022.

According to a Bloomberg report, the proposed bill includes guidelines and overarching regulations on taxation, stable coins, and consumer protection. Furthermore, the bill proposes a new regulatory group that combines top financial regulators in the U.S.—the Securities and Exchange Commission and Commodity Futures Trading Commission.

In a Twitter post, the lawmaker requested followers to gather Senate support for her bill. “Welcome bipartisan cosponsors! Please encourage your senator to reach out and consider it,” Lummis said, referring to the proposed bill.

Lummis has expressed support for crypto several times in the past. She is an investor and has officially disclosed owning 5 Bitcoin, worth roughly $250,000 at the time of writing.

With the exception of Senator Pat Toomey (R-PA), Lummis is the only ranking member of the Senate Banking Committee that has crypto exposure. Both senators opposed a provision in the U.S infrastructure bill that contained a provision on cryptocurrency brokers to monitor report transactions for tax purposes.

Crypto Guidelines Long Overdue

In the U.S., comprehensive and clear guidelines around the crypto industry have been long overdue. There are challenges for companies working in the United States, the primary being the lack of jurisdictional and regulatory clarity. Even in the characterization of cryptocurrency, there seem to be key differences.

The SEC has long deliberated whether cryptocurrencies are securities and has concluded that Bitcoin is not a security, whereas CFTC treats Bitcoin as a digital commodity. In contrast, the IRS treats Bitcoin and digital currencies as property.

This inconsistent treatment presents challenges for companies seeking to operate within the existing regulatory framework. The lack of a concise regulatory framework for the industry was one challenge repeatedly highlighted by crypto CEOs in their recent testimony before the U.S. Congress.

The proposed bill from Lummis may help fill the regulatory gap. However, the proposed legislation may face resistance from political opponents due to Lummis’ investment in Bitcoin as a potential conflict of interest.

Disclosure: At the time of writing, the author of this piece owned ETH and other cryptocurrencies.

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Stablecoins Empower the U.S. Dollar, CEOs Tell Congress

Key Takeaways

  • CEOs and executives from several leading crypto firms testified on stablecoins in front of U.S. Congress today.
  • Those executives told the House Committee on Financial Services that stablecoins will strengthen the U.S. dollar.
  • Representatives from Coinbase, FTX, Circle, Stellar and other companies appeared during the hearing.

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U.S. Congress conducted a hearing on crypto assets today, hearing testimonies from the industry’s most notable executives.

Crypto Executives Defend Stablecoins

The hearing was held by the House Committee on Financial Services in the U.S. Congress. Chairwoman Maxine Waters hosted a hearing on the topic of “Digital Assets and the Future of Finance.”

During the congressional hearing live-streamed on YouTube, executives from leading crypto firms gave their testimonies. Witnesses included Circle CEO Jeremy Allaire, Bitfury CEO Brian Brooks, Paxos CEO Charles Cascarilla, Coinbase CFO Alesia Haas, FTX CEO Sam Bankman-Fried, and Stellar CEO Denelle Dixon.

One topic extensively discussed was stablecoins, or tokens are that are price pegged to traditional currencies such as the U.S. dollar. 

The topic is relevant to several of the executives: Circle and Coinbase are responsible for the USD Coin stablecoin (USDC), while Paxos is responsible for its own Paxos dollar (USDP).

Allaire and Brooks Emphasize Competition

Circle CEO Jeremy Allaire argued that rather than causing harm, stablecoins may help the global dominance of the U.S. dollar.

Allaire argued independent U.S. stablecoins will continue to dominate the crypto market even as competing alternatives such as China’s digital yuan, issued by its central bank, emerge on the market.

Whereas dollar stablecoins have carried out “trillions of dollars of transactions,” China’s digital yuan has done “only $10 billion worth of transactions so far,” Allaire observed.

He explained that the U.S. crypto industry wants the dollar to play a critical and strategic role, and as such, supporting U.S. stablecoins should be a “national security priority” for regulators.

Bitfury CEO and ex-OCC chair Brian Brooks agreed with Allaire in his testimony. Brooks said that., at a time when inflation is rising, stablecoins can help the U.S. dollar become utility-driven and “not just a monetary system created after World War II.”

Brooks endorsed U.S. stablecoins, arguing that their online nature will allow the dollar to “compete on features, not only on history.”

Others Discuss Stablecoin Security

Allaire went on to argue that stablecoins provide security. He noted that the assets backing stablecoins “are safer than dollars in bank accounts because [the latter] are fractionally reserved and lent out.” This, he said, poses more risk to the U.S. economy than stablecoins.

Paxos CEO Charles Cascarilla also testified to the security of stablecoins. Addressing concerns of a bank run caused by stablecoins, Cascarilla affirmed that stablecoins are “backed by money sitting in FDIC-insured bank accounts or money sitting in Treasury bills.”

This, he said, means there is “no risk of a run.” Cascarilla explained further: “It’s liquid cash, and you have tokenized a dollar. There is very good utility for such assets.”

Responding to criticism that stablecoins could be ripe for illicit activities, FTX CEO Sam Bankman-Fried said that “advanced policies are already in place” and that the “digital asset industry has a pretty strong standard” for KYC/AML procedures.

The other witnesses, Coinbase CFO Alesia Haas and Stellar CEO Denelle Dixon, discussed how stablecoins can help the unbanked.

They also suggested that greater clarity is needed from regulators, a point that is in line with Coinbase’s recent policy proposal, which suggests that a new regulatory framework should be created.

Reception to Hearing Was Positive

The majority of the committee members who spoke during the hearing supported the idea of not stifling innovation in the crypto sector. While several questions were posed as to how regulators can ensure investor protections, the general outcome of the discussion was positive and encouraging for the cryptocurrency space.

Jake Chervinsky, a notable crypto lawyer and the head of the Blockchain Association, commented on the hearing by calling it “the most positive, constructive, and bipartisan public event on crypto.”

Committee ranking member Patrick McHenry has called the cryptocurrency sector the “next generation of the internet.” He added that U.S. Congress must collaborate in a non-partisan way to regulate the burgeoning sector. 

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Ripple Proposes Its Vision for Cryptocurrency Regulation

Key Takeaways

  • Today Ripple laid out its vision for a regulatory landscape surrounding digital assets in the United States.
  • It proposed three key pieces: public-private collaboration, building upon already-existing regulatory frameworks, and safe harbor provisions.
  • The proposal arrives amidst Ripple’s own ongoing legal battle with the SEC.

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Ripple has released proposed guidelines for cryptocurrency regulation in the U.S. The proposal is introduced amid Ripple’s own ongoing battle with the SEC.

Ripple Releases Suggestions for Crypto Regulation

Ripple, the company behind XRP, has released a set of guidelines for regulating the blockchain and cryptocurrency space that it has dubbed, “a real approach to cryptocurrency regulation.” According to Ripple’s head of public policy, Susan Friedman, this proposed policy framework has been conceived of in part through discussions with regulators and members of Congress, and Ripple CEO Brad Garlinghouse has remarked that Ripple’s proposed measures offer advantages as compared to “a regulation-by-enforcement approach.” 

The proposal suggests a three-pronged approach: encouraging public-private collaboration, adapting regulatory frameworks that already exist, and what are called cryptocurrency innovation sandboxes. 

The public-private collaboration push encourages regulators to work with crypto industry entities and market participants when making policy or legislating. Ripple points out a prime example of this in action, the Eliminate Barriers to Innovation Act of 2021, which passed in the House of Representatives in April but is pending in the Senate. 

The second key piece in Ripple’s proposal is to take advantage of the sensible regulatory frameworks that already exist by simply tailoring them to better fit cryptocurrencies’ unique aspects. Ripple hails U.S. financial markets as “first in class,” due in part, it says, to “the existing regulatory framework under which they operate.” Ripple seems convinced that simply adapting frameworks that already exist could already “provide the clarity innovators seekand the market protections consumers deserve.”

To this end, Ripple advocates for both the Securities Clarity Act (SCA), which was introduced in July, and the Digital Commodity Exchange Act (DCEA), which was introduced last year. The SCA, complementary with the DCEA, would differentiate “investment contract assets” from securities, and the DCEA would define (at the federal level) a “digital commodity exchange” and grant authority and oversight to the Commodity Futures Trading Commission (CFTC). 

Lastly, Ripple proposes innovation sandboxes for cryptocurrencies, which are “safe harbor” regimes that allow network developers to launch products and develop networks “for a limited period of time without needing to comply with federal securities laws, provided certain conditions are met.”  

Disclosure: At the time of writing, the author of this feature held XRP, BTC, and several other cryptocurrencies.

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SEC Ready to Approve First Bitcoin Futures ETFs: Report

Key Takeaways

  • The SEC could approve the first Bitcoin futures ETF next week, according to Bloomberg report.
  • This month, the SEC will announce its decision on Bitcoin futures ETF applications filed by four firms.
  • If approved, the funds tracking the Bitcoin futures market would be regulated under the Future Investment Company Act of 1940.

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The Securities and Exchange Commission may soon approve the first Bitcoin exchange-traded fund (ETF) backed by derivatives of bitcoin futures contracts.

Bitcoin Futures ETF is Reportedly Imminent 

The SEC is set to approve the first Bitcoin futures exchange-traded funds (ETFs), according to a Bloomberg report.

Citing sources close to the matter, the publication noted that the SEC could greenlight Bitcoin futures applications as soon as next week.

The SEC is currently processing multiple Bitcoin futures ETF applications, with a decision on four of them due this month. According to the report, the financial regulator has no objections to approving the applications. Applicants include ProShares (due to be announced Oct. 18), Invesco (due to be announced Oct. 19), VanEck (due to be announced Oct. 25), and Valkyrie (due to be announced Oct. 25).

ETFs are investment products that track the value of an underlying asset. For years, the SEC has had issues with physically-backed ETFs. It’s rejected several Bitcoin ETF applications citing investor protection concerns and a lack of regulatory oversight.

However, in August of this year, the SEC chair Gary Gensler said that he would favor allowing an ETF tied to cash-settled Bitcoin futures traded on a regulated exchange such as the Chicago Mercantile Exchange.

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The funds tracking the Bitcoin futures market would be regulated under the Future Investment Company Act of 1940. According to Gensler, such ETFs are expected to have “significant investor protections” that overcome the agency’s initial concerns.

Gensler’s comment sparked optimism, leading many investment funds to file applications for a Bitcoin futures ETF. Most recently, Cathie Wood’s ARK Investment Management submitted an application in partnership with 21Shares earlier this week.

If approved, the first-ever Bitcoin-related ETF could be a watershed moment for the crypto sector, opening the gateway for many institutions to gain exposure to the asset class.

Amid the bullish sentiment fueled by ETF possibilities, Bitcoin has rallied 35% this month. It’s currently trading at around $59,400, just under 8% short of all-time high.

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Report Alleges Tether Owns Billions In Chinese Debt

Key Takeaways

  • According to Bloomberg BW, stablecoin issuer Tether has extended billions of dollars in loans to Chinese companies.
  • The value of loans backing Tether’s stablecoin reserves could be a risk factor for the crypto industry.
  • Tether has faced scrutiny from authorities and investigators in the past.

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A Bloomberg investigation finds Tether holds billions of dollars worth of Chinese commercial paper.

Bloomberg Investigation Raises New Concerns

Today, Bloomberg BusinessWeek reported that stablecoin issuer Tether owns billions of dollars worth of commercial paper issued by large Chinese firms and that it may be using these assets to back up its stablecoin reserves.

According to documents received by Bloomberg BusinessWeek, Tether has extended billions of dollars in loans to large Chinese companies, including those from the troubled real estate sector.

The report investigated the quality of assets backing USDT, and alleged the debt assets supporting its dollar reserves may of questionable nature.

USDT is designed to be pegged to U.S. dollar at a 1:1 ratio, thereby making it possible to trade crypto assets without relying on traditional banking services by providing a stable unit of account. USDT leads the stablecoin market by trading volume and acts as the top base-pair currency for trading across several large crypto exchanges, including Binance, FTX, and others.

The report revealed that the stablecoin company also provided a billion-dollar loan to Celsius, a centralized crypto lending platform that was recently accused of violating securities laws by the U.S. States of Alabama, Texas, and New Jersey.

Chinese Debt May Be A Risk Factor

Tether’s previous public attestations include various short-term deposits and commercial paper kept as reserves to back the USDT stablecoin. In fact, $30 billion of the Tether’s dollar holdings are invested in commercial paper, which makes one of the largest holders of this debt asset class and puts the firm ahead of some top financial firms.

Chinese real estate developers are some of the world’s biggest issuers of commercial paper. Before falling into a major crisis, Chinese property developers had issued commercial paper worth 3.6 trillion yuan ($556 billion) in 2020—20% higher from 2019.

This is not the first time concerns about the true value of USDT have emerged.  In fact, Tether, has been accused multiple times that their stablecoin is not backed by dollar reserves in the full amount of its market cap of $69 billion.

But Tether has vehemently dismissed the claims and has stated it maintains the full value of the reserves backing its stablecoin supply. It is also alleged that Tether also owns commercial paper issued by Evergrande, China’s second-largest real estate developer, which is itself experiencing a major liquidity crisis.

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Tether denied holding any Evergrande debt and claims to hold only commercial paper issued by A-2 and above-rated companies, which the company claims to be a risk-free asset. But the firm has not clarified the exact details of its debtors.

Tether’s Response

The company has tried to quell the heightened concerns expressed by mainstream financial media regarding its dollar reserves. In response to the Bloomberg BW report, it released a blog post claiming that the report is spreading “misinformation.”

Tether has been beset by transparency concerns in the past as well.  Just last month, Bitfinex, Tether’s parent company, tried to block CoinDesk from accessing the specifics of its commercial paper holdings by filing a petition in New York Supreme Court.

Tether is currently under investigation by multiple law enforcement agencies, including the U.S. Department of Justice and the Federal Bureau of Investigation.

In early 2021, Tether paid a fine of $18.5 million to settle a case with the New York Attorney General. In the NYAG investigation, the company was found to be conducting “illegal activities” in New York.

Tether’s reserves remain unaudited.

This news was brought to you by Phemex, our preferred Derivatives Partner.


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