Welcome to the daily crypto news :

• Crypto Taxes: Still Confused After All These Years ;

• US Regulators Take Joint Action Against Crypto Firms’ Swaps Offering ;

• Fidelity International Doubles Stake in Bitcoin Mining Firm Hut 8 ;

• Data Says HODL! People Are Trading Ether More, Bitcoin Less ;

• Third Crypto Co-Founder Behind $25 Million ICO Scam to Plead Guilty ;

Crypto Taxes: Still Confused After All These Years

Kirk Phillips is an entrepreneur, certified public accountant (CPA) and author of “The Ultimate Bitcoin Business Guide: For Entrepreneurs & Business Advisors.”

You need to be nimble to be a crypto tax professional. As the industry has evolved over the last few years, there have been many technology changes, and many changes in how the IRS treats crypto taxation issues.

Between 2014, when the IRS issued its first virtual currency notice, and 2019, when it published new virtual currency FAQs, we saw all kinds of innovation requiring tax rethinks. Chain-splits, airdrops, token swaps, staking, DeFi yield farming, synthetic assets and more emerged in that period.

This explains why the AICPA (which represents accountants), the American Bar Association, and Coin Center have worked feverishly behind the scenes explaining to the IRS how “virtual currency events” should be taxed. As a member of the AICPA Virtual Currency Task Force, I’ve been fortunate to participate in these conversations and get a first hand view.

Crypto and Taxes 2020: Wednesday is this year's deadline for Americans to file their tax returns, and cryptocurrency users' obligations are as confusing as ever. This series of articles explores the complex issues facing digital asset investors.

Even today, it’s arguable whether we have greater clarity than before. Many tax professionals claim the recent guidance didn’t provide much clarity and created more confusion than it dispelled. For example, Rev. Rul. 2019-24 describes an “airdrop after a hard fork.” However these are independent and unrelated events, so professionals find it challenging to interpret the meaning and how to apply it.

This situation isn’t unique to crypto. Sometimes the IRS publishes final regulations more than a decade after taxpayers wish they were available. But it does make for unpredictable outcomes and forces individuals and businesses to file more in hope than expectation that they’ve acted correctly.

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US Regulators Take Joint Action Against Crypto Firms’ Swaps Offering

Two related cryptocurrency firms have fallen foul of U.S. financial regulators for entering into illegal off-exchange swaps in digital assets and foreign currency.

Two related cryptocurrency firms have fallen foul of United States financial regulators for entering into illegal off-exchange swaps in digital assets and foreign currency.

On July 13, the U.S. Commodity Futures Trading Commission (CFTC) issued an order filing and settling charges against the two firms. The same day, the U.S. Securities and Exchange Commission (SEC) announced that it had reached a settlement agreement with the respondents ahead of instituting its own cease-and-desist proceedings.

Misconduct and settlement with the SEC

The two respondents operate from Manila in the Philippines and Mountain View, California, and are named “Plutus Technologies Philippines Corporation” and “Plutus Financial, Inc. d/b/a Abra” respectively.

The announcement states, “Abra is a private company headquartered in California that offers a phone application allowing people to conduct financial transactions through contracts memorialized on the Bitcoin blockchain.”

According to the SEC, the Abra mobile app enabled users to enter into financial transactions with Abra or Plutus Tech acting as the counterparty.

Users were encouraged to fund their accounts by depositing U.S. dollars, Bitcoin (BTC) or other assets and, as of March 2018, were able to enter into contracts to gain synthetic exposure to the price movements of dozens of currencies, including the euro and the Mexican peso.

Starting in February 2019, Abra expanded its business to enable app users to enter into contracts that provided synthetic exposure to the price movement of U.S. stocks and exchange-traded funds. The publicity campaign for the offering allegedly highlighted that users of the app would not be required to undergo Know Your Customer procedures.

Following conversations with the SEC, Abra ceased to offer these contracts but then resumed the offering in the second half of 2019, while attempting to restrict them to non-U.S. residents:

“Specifically, the companies said that foreign investors would enter into contracts with Plutus Tech, a private Philippine company partially-owned by Abra and dependent on Abra for funding and on Abra employees in California to run most of the business.”

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Fidelity International Doubles Stake in Bitcoin Mining Firm Hut 8

Billion-dollar fund manager Fidelity International has doubled its equity investment in bitcoin mining company Hut 8, bringing its total stake to over 10%.

In a filing with the Ontario Securities Commission (OSC) last week, the fund manager disclosed it had acquired 4.1 million "units" in Hut 8 on June 23 in an overnight offering.

Each unit represents a combined offering of one common share and the option to purchase another in the next 18 months.
Fidelity International, a spin-off of Fidelity Investments, already held approximately 4 million common shares in Hut 8.

Last month's purchase, including the options, means it now controls over 10.5% of the Toronto-listed crypto mining company.

Hut 8 closed a C$8.3 million funding round (US$6.1 million) on June 23, with the total raise being over C$800,000 above its target.

Fidelity's investment may have comprised nearly three-quarters of the raise, based on the total of around 5.7 million units changing hands.

CoinDesk has approached Hut 8 for more information.

In an overnight offering, a company sells equity once the market has closed at the end-of-day price to prevent short-sellers from depressing it any further.

Hut 8's share price spiraled since listing on the Toronto Stock Exchange, falling from $3.35 in April 2018 to a low of $0.50 in March 2020.

Fidelity may be bullish about Hut 8, though, as the option for a common share is at a purchase price of $1.80 – more than double its current trading value of over $0.80 at press time.

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Data Says HODL! People Are Trading Ether More, Bitcoin Less

Exchange balances for ETH and BTC move in opposite directions in a new insight into investor sentiment.

Ether (ETH) is trading at its highest since before the March coronavirus crash, but data suggests that investors have little interest in holding the second-largest cryptocurrency by market capitalization.

Uploading findings using on-chain monitoring resource Glassnode on July 10, one trader noticed that Ether exchange balances remain high, while Bitcoin (BTC) balances have dropped considerably.

BTC, ETH exchange balances diverge

According to the unverified data, since March, ETH balances on exchanges have continued to trend upward overall. At the same time, BTC has been leaving exchanges en masse over the past three months.

“Ever since the Black Thursday crash, Bitcoin balances on crypto exchanges have been falling quite fast. On the other hand, Ethereum exchange balances continue to remain relatively stable,” the trader summarized.

The phenomenon could have several implications. Coins on exchanges are more vulnerable but quicker to trade, suggesting that owners store them there to sell at short notice.

On Ethereum, the network for which Ether is the native token, the current DeFi trend may also be influencing investors. The decentralized finance sector has sparked a token boom and associated trading, and as ERC-20 tokens on Ethereum, ETH is required for transactions.

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Third Crypto Co-Founder Behind $25 Million ICO Scam to Plead Guilty

Sohrab Sharma would be the 2nd co-founder behind the Centra Tech ICO scam to face prison following the conviction of Robert Farkas in June.

Sohrab Sharma, one of the co-founders of cryptocurrency firm Centra Tech facing charges related to a $25 million initial coin offering scam, is reportedly planning to plead guilty.

According to a July 13 report from Bloomberg, Sharma may avoid a November trial date as his lawyers told a federal judge he would be interested in changing his plea.

The announcement comes after Sharma’s associate Robert Farkas was convicted of conspiring to commit securities and wire fraud on June 16. Farkas faces up to 87 months in prison and a $250,000 fine.

A history of scamming

The U.S. Department of Justice (DOJ) stated that Sharma, Farkas, and Raymond Trapani were arrested in April 2018.

The three reportedly lied to investors about having a fictitious Chief Executive Officer (CEO) at Centra Tech, Michael Edwards, as well as having a money transmitter license in 38 states. The company made false claims about partnerships with major firms including Visa.

The charges from the DOJ allege the trio’s goal from these deceptions was to dupe people into investing in Centra Tech’s initial coin offering (ICO) of Centra tokens, also called CTR tokens.

Celebrity support

When the ICO was held between July and October 2017, it was backed by celebrities including former pro boxer Floyd Mayweather and music producer DJ Khaled.

Both men were subsequently charged by the Securities and Exchange Commission (SEC) for unlawfully promoting the ICO and failing to disclose payments they received from Centra Tech to their followers.

The case involving the third co-founder in this enterprise, Trapani, is still scheduled for trial in November.

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