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Attention Kraken Shoppers! Ether Was Half Off at $700 During Monday’s Crypto Sale

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No, it wasn’t a misprint. 

Ether, the second biggest cryptocurrency by market capitalization, at one point traded on the Kraken exchange at less than half the prices found on other exchanges during Monday’s massive sell-off.

Amid the market melee that pummeled crypto assets across the board, ether’s prices went as low as $1,546.53, down from around $1,800, according to CoinDesk 20. However, that number was a staggeringly low $700 on Kraken.

In a one-minute time span, the ETH/USD pair on Kraken dropped to $700 at UTC 14:20 Monday from $1628,82 just approximately three minutes prior.

The breathtaking drop wasn’t relegated to ether. Trading of cardano (ADA)  suffered a similar fate on Kraken, with the ADA/USD pair slumping to $0.156 at 14:23 UTC from $0.842 three minutes prior. During the same hour, the lowest price of cardano recorded on CoinDesk 20 was at $0.835.

“We saw the price of some digital assets such as ether and ada have a sharp downward movement this morning on multiple trading venues just after 14:00 UTC,” a spokesperson from Kraken told CoinDesk in response to the abnormally low prices of ether and ada on the exchange. “Kraken also saw a surge in sell orders around this time.”

“We’re communicating directly with clients and ask that anyone with questions about their account please open a ticket,” the spokesperson said, declining to comment further on the issue.

This is not the first time this type of “flash crash” occurred on Kraken, according to Trustnodes, which noted the problem on Kraken back in 2018. The report indicated that such incidents usually occur when a trader accidentally entered a wrong number during trading, a behavior nicknamed “fat finger error.

Ether’s trading volume on Kraken logged more than $888 million on Monday alone, more than double that of Friday’s figure.

At press time, ether is trading at $1,749.94, down 8.92% in the past 24 hours, according to CoinDesk 20. On Kraken, it’s at $1777.02, down 8.19%.
Apparently, sale time is over.

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SEC Inspectors Outline Crypto Examinations Playbook in Compliance Notice

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Examiners at the U.S. government’s top securities watchdog outlined their framework for vetting digital asset investments in a compliance notice Friday.

Naming custody, record keeping, registration requirements and conflicts of interest protocols on their exhaustive list of focus areas, officials from the Securities and Exchange Commission’s (SEC) Division of Examinations reminded mainstream financial players like broker-dealers and investment advisors to tread carefully when bringing digital asset products into the traditional financial world.

The release, which did not appear to be targeted at any one event, nonetheless comes as ever more U.S. corporates grapple with how to handle their digital asset endeavors without stoking regulatory ire.

On one end of this spectrum is MicroStrategy’s ban on employees trading bitcoin ahead of potentially market-moving corporate buys. And on the other is Tesla CEO Elon Musk, who yesterday expressed hope that rumors are true the SEC is investigating his DOGE tweets, which tend to precede with price jumps.

SEC examiners framed the notice as a reminder of the novel risks associated with distributed ledger technologies and digital assets, and of the responsibilities market participants have to hedge those risks with thorough compliance frameworks.

Many of their focus examination points simply reapply traditional bookkeeping practices to crypto investments. But other examination areas appear more novel. For example, examinations could consider what controls an investment firm has placed on access to private cryptographic keys.

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Nevada Gov. Steve Sisolak wants to build crypto-run private desert cities

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Nevada, the state of legalized gambling, prostitution and marijuana, is about to add another layer to its Wild West reputation: Desert cities formed by companies and run entirely on blockchain technology.

Nevada Gov. Steve Sisolak held a press conference on Friday to lay out his futuristic plan to open “Innovation Zones” on thousands of acres of privately owned desert that would allow private corporations specializing in emerging technology to form local governments complete with the right to impose taxes and create school districts or even courts.

It was Sisolak’s most detailed discussion of the plan, which has not yet been introduced to the legislature. He said the cities would be run entirely on blockchain technology, the digital ledger primarily used to transfer cryptocurrencies, allowing residents to buy goods, pay bills, transfer property deeds and obtain marriage licenses all using cyber coins. 

One big winner would be Jeffrey Berns, the founder and CEO Blockchains LLC, who purchased almost 70,000 acres of Nevada desert east of Reno in 2018 and said he wants to found a blockchain-based community.

Elon Musk’s massive Tesla battery gigafactory is also located in the same county as Berns’ recent landgrab. While there’s no indication billionaire electric car tycoon wants in on the plan, he would seem to be an ideal candidate given Tesla’s surprise and market-moving $1.5 billion investment in Bitcoin earlier this month.

Of course, for Tesla to build its own autonomous zone, Musk would need to add almost 48,000 acres to meet the 50,000 acres of contiguous, uninhabited land required for a company to meet the rules of the proposed legislation. The rules would also require a $1 billion investment over 10 years.

During a Friday afternoon press conference addressing the plan, Sissolak said Nevada needs a bold new vision to recover from the ravages of the pandemic on the state’s tourism-centric economy.

“This is different than anything that’s ever been proposed before,” he said, hammering home the vision of interconnected modern communities bringing jobs and commerce to unused land. “Companies can collaborate on a future together that would make Nevada not just a national but global leader in Blockchain technology.

While short on some details, like how a so-called Stablecoin would be designed to facilitate a fully Blockchain economy within a US state, and who would pay for roads in and out of what would be essentially private cities, the governor asked Nevadans to think big.

“There’s gonna be a lot of naysayers,” he said at the end of the presser. “I get that, but take a moment to look at the proposal.”

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Crypto creates new hurdles for financial advisors this tax season

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Cryptocurrency investors face two big headaches this tax filing season: the Internal Revenue Service is ramping up scrutiny of digital assets, and some investors owe large tax bills after cashing in last year’s hefty profits on Bitcoin and other blockchain-based coins.

The twin challenges, a counterpoint to Bitcoin’s blockbuster gains so far this year, create new complexity for financial advisors with clients in digital assets. Investors can also owe tax if they received crypto as payment for work, or if they used Bitcoin to shop at retailers like overstock.com or Home Depot.

Most advisors direct their clients who want to invest in digital currencies to special exchanges, like Coinbase, or to niche funds. But while advisors usually rely on their clients to do the heavy lifting come tax time, they’re not entirely off the hook.

“This is going to be the first season where we tackle” clients’ crypto taxes, “and on a case-by-case basis,” says Chad Norfolk, a CFP and Senior Financial Advisor at WMS Partners in Towson, Maryland. The firm, he says, helps clients “aggregate the data and get it over to the accountant.” But for some clients, “we might have to triage it with the accountant.”

Navigating a tangle of electronic records
Merely owning crypto is not a taxable event; potential tax bills arise only if an investor sells, trades or spends it. That’s where things get woolly for tax purposes.

Digital-asset exchanges don’t typically send investors an annual statement showing the gains or losses needed to calculate a tax bill, in contrast to what traditional brokerages and funds do for stocks and bonds. Some crypto firms and funds send out a 1099-K statement, with a copy to the IRS, but that only shows gross proceeds. And the forms go only to investors who have undertaken more than 200 transactions with at least $20,000 in gross proceeds.

Some firms don’t even send out that statement. Exchange Coinbase, the most valuable crypto company in the U.S., ditched the statements this year in favor of a separate 1099 form for investors who racked up at least $600 last year in various fees and rewards.

The upshot is that many investors have to sift through their electronic records to manually calculate their cost basis: what they paid for their crypto, what they sold or traded it for, and the resulting tax owed on the difference. Bitcoin, now at around $49,000 after years in the doldrums (it spiked briefly in December 2017 before falling back), nearly tripled last year, finishing close to $29,000.

Crypto billionaire investor Michael Novogratz speaks at an investment conference in New York in 2018.

Crypto billionaire investor Michael Novogratz speaks at an investment conference in New York in 2018.

Bloomberg

Even the pros find the taxes daunting. “It’s complicated,” admits billionaire investor Michael Novogratz, the founder, chief executive officer and chairman of Galaxy Digital Holdings Ltd., a financial firm focused on digital assets and blockchain, with $1.2 billion in its asset management unit. Novogratz keeps his personal crypto holdings at Galaxy, which uses KPMG and Canadian accounting firm Davidson & Co. for tax preparation.

The IRS’s big question this year
The IRS treats Bitcoin, Ethereum and other digital currencies not as money but as property, taxing it like stocks or real estate. Investors owe capital gains rates — for short-term assets held less than a year, that’s the ordinary individual rate, now topping out at 37%; for long term held at least a year, a top 20%.

Crypto investors aren’t great at reporting to the IRS what they own. And the IRS knows it. For the first time, the agency this year asks all individual taxpayers high up on their federal returns to disclose whether they sold, received, sent, exchanged or “otherwise acquired” any financial interest in any virtual currency.

It’s a yes-or-no question, and taxpayers tick or leave blank the appropriate box under penalty of perjury when they sign and file their returns. Preparers handling returns for filers who make a mistake on that question or lie can face monetary penalties if they or the filer is caught.

A federal tax return that all individuals file each tax season. This year, it has the crypto question.

A federal tax return that all individuals file each tax season. This year, it has the crypto question.

Bloomberg

The fess-up question was buried in the last tax season’s 1040. This year, it’s smack dab on top of the first page, right below the lines for a filer’s name, address, social security number and filing status.

Taxpayers who simply own crypto, or transferred some last year between their digital “wallets” — software that stores an investor’s crypto — can tick “no.” But answering the question gets tough when a taxpayer owns Bitcoin through a partnership, according to Shehan Chandrasekera, a CPA and the Head of Tax Strategy at CoinTracker, a software company for crypto taxes. Is it the taxpayer that owns the asset, and thus has to disclose it? Or is it the partnership, which files its own return — one that doesn’t include the yes-or-no question?

The crypto tax calculus gets even more complicated when accounting for air drops, in which coins appear out of nowhere in your digital wallet. And for forks, when a currency unexpectedly splits in two. The IRS generally considers both taxable, but it’s still refining guidance for other issues.

“The advice to clients is, if you’re going to be dabbling or trading, you need to track these things, keep accurate records, spreadsheets,” says Douglas Boneparth, a CFP and President of Bone Fide Wealth, an advisory firm in New York that caters to millennials. “Even if an accountant is going to help, the onus is on the client to produce that data set.”

Coming after crypto holders
The IRS doesn’t have a lot of information about crypto owners. Online venues that let people trade with each other directly, known as decentralized exchanges, as well as foreign exchanges and digital wallets almost never report an investor’s activity to the IRS. “If you jumped on the bandwagon and started buying and selling things, there are plenty of people who have no idea come tax time what to do,” Boneparth says.

Lewis Taub, the Director of Tax Services at accounting firm Berkowitz, Pollack & Brant in Miami, Florida, sees a parallel with the agency’s crackdown on holders of undisclosed Swiss and Swiss-style bank accounts, a dragnet that since 2009 has snared more than 56,000 American taxpayers and brought in over $11.1 billion. “The IRS is looking for these transactions like they looked for foreign bank accounts several years ago,” he says.

Boneparth, who is a “brand ambassador” for digital currencies for the AICPA, the leading professional association for accountants, argues that if investors keep their records straight, “they don’t need to go to a special accountant. At the end of the day, an asset was bought or sold at a given price, and accountants are used to dealing with that.” But Adam Blumberg, a CFP and a co-founder of Interaxis, an educational firm for fintech, blockchain and digital assets, disagrees. “There are so few CPAs that actually understand what they’re doing with crypto. “

Recordkeeping pain
Crypto tax software firms can ease the record-keeping pain. But only a fraction of investors appear to use them. Cointracker says it has 100,000 users. ZenLedger has more than 10,000 customers. That’s a tiny slice of the estimated 36.5 million Americans who owned crypto in 2019, according to a survey by finder.com, a personal finance app.

An engineer runs diagnostics on mining rigs at the Evobits crypto farm in Cluj-Napoca, Romania, on Jan. 22, 2021.

An engineer runs diagnostics on mining rigs at the Evobits crypto farm in Cluj-Napoca, Romania, on Jan. 22, 2021.

Bloomberg

The real problem with manually tracking things comes when an investor moves digital assets between accounts and then sells, according to ZenLedger’s founder and chief executive officer, Pat Larsen. “The cost basis is lost,” he says. So any statements from an individual provider “won’t know about your previous transactions. You may have numbers that are wildly off” for tax purposes.

All this makes for an often-bewildering layer of involvement for financial advisors.

“With crypto, it’s really a self-directed account by the client,” says Norfolk. “They provide the statements to the accountant. If the accountant wants a second pair of eyes, we come in.”



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