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Abu Dhabi Moves to Regulate ICOs Despite “Many Risks”

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Abu Dhabi’s financial watchdog has granted regulatory approval of initial coin offerings (ICOs), but has warned of “many risks” involved in the new crowdfunding model.

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ICOs Get Approval in Abu Dhabi

The Abu Dhabi Financial Services Regulatory Authority (FSRA) has published guidelines on ICOs and cryptocurrency. The regulator said any ICO bearing a resemblance to a security will be governed accordingly.

Under the new protocol, startups wishing to go the ICO route must see FSRA approval. Companies will also be required to publish a prospectus, just like any initial public offering (IPO).

In regulating ICOs, the FSRA warned of an increased “risk of fraud and loss of capital.”

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The FSRA adds: “This is particularly likely to be the case where a token issuer promises extremely high investment returns that are disproportionately high relative to those generally available in the market.”

The warning mirrors that of neighboring emirate Dubai, which recently issued a statement clarifying its position.

Abu Dhabi has also labeled cryptocurrencies “commodities” in the same basket as precious metals and energy. As such, they will remain unregulated. However, the watchdog says it may be willing to change its position on cryptocurrency in the future.

Regulatory Response to ICOs Mixed

ICOs have emerged seemingly without warning to become one of the most popular methods for capital raises. More than $2.3 billion has flowed into ICOs this year alone, surpassing early stage venture capital.

However, regulators have struggled to define and effectively control the market, with China, South Korea and more recently Russia issuing a ban on ICO raises.

Russian President Vladimir Putin has warned that cryptocurrencies pose “serious risks” and allow individuals to “launder criminally obtained money, evade taxes and even finance terrorism, as well as, of course, perpetuating fraudulent schemes that obviously may affect ordinary citizens.”

Meamwhile, Japan earlier this year recognized bitcoin as a payment method, but has yet to comment on ICOs.

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Regulation

Trump’s Proposed Tax Changes Could Impact Cryptocurrency Investors

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Trump presents tax reform

As the Trump administration nears a historic overhaul of the U.S. tax code, cryptocurrency investors should be on high alert for changes that could impact their holdings. As it turns out, both versions of the new tax bill include tidbits that could impact holders of bitcoin and other cryptocurrencies.

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As a refresher, the House of Representatives and Senate have each passed their own versions of the tax bill. Though considerable overlap exists, there are important differences that need to be reconciled.

Tax Impact on Crypto Investors

Neither versions of the proposed tax legislation make any direct mention of cryptocurrencies, but they do peel back the so-called “like-kind” exchange that many investors used previously.  Under the proposed legislation, like-kind exchanges apply to real property only, which excludes cryptocurrency.

This essentially means that the new bill will remove the ability to defer capital gains taxes on property by switching one asset for another, similar asset. This provision was a boon to crypto investors, who could take advantage of the swap.

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Meanwhile, the Senate version is looking to implement a first-in, first-out (FIFO) framework, which could make it more arduous to report back on crypto holdings.

Both versions of the bill are promising major tax cuts to the tune of trillions of dollars spread out over a decade. This includes a permanent 15 percentage point cut to the corporate tax rate and temporary reductions for individual tax brackets. President Trump has also pushed hard to reform international tax rules and create more leeway for U.S. multinationals to repatriate their profits.

Cryptocurrency Tax Fairness Act Left Out of Bill

Bitcoin investors may be disappointed to learn that the Cryptocurrency Tax Fairness Act was omitted from both versions of the bill. The Act, which is co-sponsored by Arizona Republican David Schweikert, promised to create a de minimis exception for crypto payments below $600. This provision would have applied after Dec. 31.

The text of the bill stipulated that:

“Gross income shall not include gain from the sale or exchange of virtual currency for 5 other than cash or cash equivalents….[if the amount of gain excluded from gross income under subsection (a) with respect to a sale or exchange shall not exceed $600.”

Schweikert is also a member of the Congressional Blockchain Committee, which focuses on crypto regulation, and the Ways and Means Committee, which is concerned with taxation.

The new Republican tax bill, if passed, would be implemented Jan. 1, 2018. If the process is delayed, there’s still a change that the new tax code will be retroactive back to Jan. 1. President Trump had previously vowed to pass tax reform in time for Christmas. That leaves very little time left before Washington shuts down for the holidays.

Crypto investing has exploded in the United States, with San Francisco-based CoinDesk registering more than 13 million trade accounts. This includes more than 100,000 signups during Thanksgiving weekend.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

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Companies are Lining Up to Launch Bitcoin ETF, According to SEC

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Two companies have stepped forward with applications to the U.S. Securities and Exchange Commission (SEC) to launch a bitcoin exchange-traded fund (ETF), according to a recent report from CCN. The renewed push toward ETFs comes as more institutional investors look to enter the burgeoning cryptocurrency market.

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Bitcoin ETF

According to the SEC’s public filing system, regulators received new applications for the REX Bitcoin Strategy ETF and Rex Short Bitcoin Strategy ETF, as well as the VanEck Vectors Bitcoin Strategy ETF.

REX, which is based in Connecticut, filed its application on Dec. 8. The New York-based VanEck filed its application on Dec. 11 in a sign that more market players were looking to capitalize on a booming market.

VanEck had previously filed to create a bitcoin ETF before the SEC struck down a similar proposal. That being said, VanEck will reportedly provide the pricing data for an upcoming bitcoin futures contract to be made available via the Nasdaq exchange. Unlike the CBOE and CME futures contract, the Nasdaq version will pull pricing information from 50 sources provided by VanEck.

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A bitcoin ETF would make the digital currency widely available to millions of investors through common retirement accounts, such as IRAs and 401(k)s.

The highly coveted but elusive bitcoin ETF has been tried before by Tyler and Cameron Winklevoss, who failed to earn SEC approval earlier this year. Regulators disapproved the ETF on several grounds, including lack of regulation and a general inability to enter necessary surveillance-sharing agreements.

The SEC’s ruling on the Winklevoss ETF puts considerable doubt over whether the new products will ever get approved. Analysts say that ETFs could spark an even bigger rally for an asset class that has already added hundreds of billions of dollars to its value this year alone.

Bitcoin Trade Volumes

Bitcoin’s market cap surged past $290 billion on Monday as institutional money flowed into the asset class following the launch of the CBOE futures contract. Trade volumes over the past 24 hours reached $12.6 billion, according to CoinMarketCap.

Bitcoin-dollar transactions on Bitfinex accounted for 11.6% of the daily transaction. South Kore’as Bithumb accounted for nearly 11% of the daily turnover. Coinbase’s GDAX also saw 6.5% of the daily turnover, data showed.

At press time, BTC/USD was trading north of $17,100. Prices skyrocketed past $19,000 last week.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

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South Korea Loosens Grip on ICOs

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Initial coin offerings (ICOs) will not be banned in South Korea after all, according to a recent decision by the central government. Although the market will still be governed by strict regulations, institutional players will have the opportunity to invest in the burgeoning market.

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ICOs Will Not Be Banned

South Korean newspaper Chosun reported Friday that the government is looking to regulate the ICO market and will allow institutional investors to participate in the controversial crowdfunding model. Chosun revealed that several government agencies have formed a task force to sort out a regulatory framework for ICOs. They include the Ministry of Strategy and Finance, Financial Services Commission, Fair Trade Commission, Financial Supervisory Commission and Ministry of Justice.

The task forces are investing the possibility of taxing cryptocurrency investors, as well as implementing Know Your Customer (KYC) and Anti-Money Laundering (AML) policies for institutional investors. These protocols have already been adopted elsewhere and currently form the basis of the Simple Agreement for Future Tokens (SAFT) protocol.

A task force spokesperson told Chosun:

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“Currently, the task force is considering imposing stricter regulations for investor and consumer protection within the cryptocurrency market.” The spokesperson added “in regards to ICOs, the government will likely impose regulations to enable institutional investors to invest in ICOs.”

That being said, South Korea will still keep a tight lid on public access to ICOs, with the spokesperson clarifying that only institutional investors will be able to enter the market.

The spokesperson added: “It is not possible to allow any citizen of South Korea to invest in ICOs. However, the government may allow institutional investors that meet capital requirements established by the Financial Supervisory Commission.”

South Korea has adopted a fairly laissez faire approach to cryptocurrency, which has made the Asian nation a prime destination for traders. The South Korean yuan is the third most traded fiat currency involved with cryptos, behind only the Japanese yen and U.S. dollar. South Korean exchanges were at the center of the latest bitcoin rally that took prices north of $19,000.

Last month, South Korea’s Financial Supervisory Service (FSS) said it had no plans to monitor cryptocurrency exchanges. According to FSS head Choe Heung-sik, “supervision will come only after the legal recognition of digital tokens as a legitimate currency.”

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock. 

Important: Never invest money you can't afford to lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here.



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