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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.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Market News

After SEC Feedback, Several Firms Withdraw Bids to List Bitcoin ETFs

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Several fund managers have shelved bids to launch bitcoin exchange-traded funds (ETFs), citing push back from the Securities and Exchange Commission (SEC). The regulator, which has taken a hard stance on bitcoin in the past, expressed concerns over liquidity and valuation of futures contracts backed by the cryptocurrency.

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Bids Withdrawn

In a recent letter published online, Direxion and Exchange Listed Funds announced that they had cancelled their bids to launch ETFs that track bitcoin futures. ProShares Trust also issued a latter one day later informing the public that it will not pursue the matter further.

Unlike the cryptocurrency itself, bitcoin ETFs can be traded by retail investors as easily as stocks and other financial products. It would also allow them to gain exposure to the digital asset without the volatility of trading it directly.

Proponents of the ETFs had high hopes the filings would be approved following the launch of bitcoin futures contracts on the CBOE and CME exchanges last month. The coin’s 1,500% surge last year created a sense of urgency for fund managers to get in on the action.

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Interestingly, the SEC does not regulate futures, as that is the domain of the Commodity Futures Trading Commission (CFTC). The CFTC is being pressured to reassess the bitcoin futures contracts for underlying risks.

Last year, the SEC failed to approve a high-profile bitcoin ETF backed by billionaire investors Cameron and Tyler Winklevoss. At the time, the securities regulator cited “concerns about the potential for fraudulent or manipulative acts and practices” related to bitcoin. Although that line of reasoning likely still persists, regulators now appear to be more concerned with volatility.

While volatility has been part and parcel of digital currency trading, the general trajectory of the market has been overwhelmingly higher. A flood of exchanges has rushed to get in on the action, although many have been unable to scale fast enough to meet demand. As a result, several major exchanges, including Bitstamp and Bitfinex, have instituted temporary blocks on new accounts.

Bitcoin has started the year in rocky waters, as investors seem to favor the more diverse altcoin universe. The original blockchain has seen its overall market share decline to roughly one third, with the likes of Ripple and Ethereum witnessing an upsurge in demand.

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 (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Shares of Hong Kong-Based UBI Blockchain Suspended by SEC

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The Securities and Exchange Commission (SEC) has halted trading in UBI Blockchain Internet Ltd. (UBIA) over “unexplained market activity,” a sign that regulators were continuing to clamp down on assets tied to cryptocurrency.

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Trading Halted

The U.S. securities regulator announced Monday that it was suspending UBI Blockchain shares from being traded until the company answers questions about the accuracy of its financial statements.

UBI Blockchain surged more than 900% last year, bringing its total market value north of $800 million. All this, and the company has yet post any revenue. It also failed to give regulators a working phone number during public filing.

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Company chief Tony Liu said the SEC’s decision is “understandable  due to the recent frenzy of buying stock related to the bitcoin phenomena.” However, Liu reminded that his company was not involved in cryptocurrency.

“We believe the general public is confusing our blockchain technology with bitcoin companies,” Liu said in a statement that was quoted by Bloomberg. UBI was “involved in blockchain technology for well over two years before the bitcoin buying frenzy took place and we plan to be in business for years after the bitcoin buying anomaly ends.”

Blockchain is the pioneering technology that underlies bitcoin and other cryptocurrencies, but can exist independently of those systems. Its vast use case has attracted attention from banks, governments and businesses in pursuit of more transparent audit trails.

The Rise of Crypto Stocks

So-called ‘crypto stocks’ have benefited from the euphoria surrounding digital currencies. Their popularity has grown in lockstep with bitcoin among investors who want to capitalize on the crypto revolution without the added volatility of owning the underlying assets.

There’s a long list of companies that can offer indirect exposure to cryptocurrency. Some of the more popular include AMD (AMD) and Nvidia (NVDA), whose chips are used for mining virtual currency.

Digital Power (DPW) is a manufacturer of power-supply products that is venturing into cryptocurrency-specific equipment. Meanwhile, Overstock.com is an online retailer that not only accepts bitcoin, but is launching a mega ICO through its subsidiary tZero.

In addition to stocks, traditional investors can choose from Grayscale’s Bitcoin Investment Trust (GBTC), which holds BTC tokens in a fund that is similar to an ETF, as well as futures contracts offered by CME and CBOE. Efforts to bring bitcoin to the ETF market are also ongoing.

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 (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Regulation

CFTC Plans to Address Growing Concerns Over Cryptocurrency Trading

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The Commodity Futures Trading Committee (CFTC) is moving to address industry-wide concerns over its oversight responsibilities for cryptocurrencies, the burgeoning asset class that has quickly moved into institutional investment circles.

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According to The Wall Street Journal, two CFTC advisory committees will meet later this month to discuss oversight of cryptocurrency exchanges, the processing of bitcoin futures and whether the digital asset class falls under the same rules governing securities manipulation. The advisory groups consist of regulators as well as market participants.

“Ignoring virtual-currency trading will not make it go away.  Nor is it a responsible regulatory strategy,” said Chairman J. Christopher Giancarlo in a statement.

The U.S. derivatives regulator has faced criticism over its handling of cryptocurrency regulation, with some investors and industry groups arguing that more needs to be done to protect consumers. These groups have been especially vocal about the CFTC’s handling of bitcoin futures, which began trading on the CBOE and CME futures exchanges last month. The growth of bitcoin futures has also led CBOE to pursue the listing of half a dozen exchange-traded funds (ETFs) tied to the digital asset.

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Earlier this week, the Securities and Exchange Commission (SEC) invited the public to comment on two of the CBOE’s proposed funds. A week prior, it issued a similar call on two other ETFs put forward by the Chicago-based exchange.

Critics of bitcoin-based futures contracts argue that the new products could introduce unwanted risks into the clearing process. The Futures Industry Association (FIA) has questioned whether the CFTC could have done more to solicit public input or delay the release of the futures contracts.

In response, the CFTC has argued that “neither statute nor rule” would have prevented the likes of CME from launching their new futures products in advance of public hearings. “Even if the CFTC could have held public hearings or requested public input, it is unlikely that the outcome would have changed,” the CFTC added.

Cryptocurrencies have taken the global market by storm over the last 12 months. Currently, there are roughly 1,400 cryptocurrencies collectively valued at more than $760 billion. Analysts say the only thing stopping the market from expanding further is the regulatory uncertainty facing digital assets. South Korea recently became the latest jurisdiction to clamp down on cryptocurrency exchanges. In the United States, the SEC has already warned that it is policing the ICO market to ensure securities tokens are meeting federal securities requirements.

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 (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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