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BITCOIN’S STAGGERING CLIMB CONTINUES
It took bitcoin 10-plus years to reach $20,000, but then only another 3-plus weeks to double again to $40,000. Experts believe the bull run is due in large part to increasing institutional investment in digital currency from established firms such as PayPal
Adding further credence to the observation that this rally is being driven by large investors, researchers at the San Francisco-based bitcoin and cryptocurrency exchange Kraken identified that “Bitcoin ‘whales,’ addresses with more than 100 bitcoin, accumulated an additional 47,500 bitcoin amid bitcoin’s ruthless rally throughout December.” That said, in euphoric climates such as this there are always concerns of a downturn, even among long-term bitcoin bulls. David Mercer, the chief executive of FX and institutional cryptocurrency exchange LMAX Group, wrote in a note that “This year we’ve seen the price move up past the $30,000 area due to the uncertainty gripping markets and whilst we do anticipate further dips, potentially down to the $15,000 mark, we do not think it is unreasonable to suggest bitcoin could push towards $50,000 in 2021.”
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YOU KNOW WHAT’S COOL? A TRILLION DOLLARS
In the 2010 film, The Social Network, Justin Timberlake’s Sean Parker got the attention of Jesse Eisenberg’s Mark Zuckerberg when he told him at a club that Facebook could be worth $1 billion someday. However, with all due respect to Mr. Parker, the market cap for the entire crypto industry just passed $1 trillion for the first time to currently reach $1.07 trillion. To add insult to injury, bitcoin’s market cap of $762 billion also just overtook Facebook’s of $754 billion.
While bitcoin is undoubtedly playing a huge role in these movements, they are also being driven by alternative cryptocurrencies, known as altcoins, making significant gains. In the last five days ether, XRP, stellar, chainlink, litecoin, bitcoin cash, tezos and cardano have each provided returns in excess of 20%. The headliner is stellar, which gained 138%. If bitcoin continues to climb, perhaps aided by additional stimulus measures following the inauguration of Joseph Biden as the 46th president of the United States
BANK-LED BITCOIN NODES
Acting Comptroller of the Currency, and Coinbase’s former Chief Legal Officer, Brian Brooks has proven to be a white knight for crypto. Since taking up the post in May 2020, the OCC has provided interpretive letters and guidance clarifying that banks can custody cryptocurrency and stablecoins, as well as engage in stablecoin activity. This week, the OCC went a step further. It published interpretive Letter 1174, which explains that banks may use new technologies, including independent node verification networks (INVNs) and stablecoins, to perform bank-permissible functions, such as payment activities. Said simply, banks now have coverage to handle stablecoins and use public blockchains to send and process transactions.
In reacting to the news Kristin Smith, executive director of the Blockchain Association, noted, “The OCC’s interpretive letter shows that there are those in government who actually understand that cryptocurrency networks are the foundation of a next generation payments system. Stablecoins, like USDC, can power faster, 24-hour real-time payments in a way that existing U.S. payments infrastructure can’t handle.”
CRYPTO REGULATORS CLOSING LOOPHOLES
As crypto continues to go mainstream, financial regulators are educating themselves and tightening guidance and regulations to make sure they get a full accounting of an individual’s holdings. This week, the IRS released updated instructions on how to answer the infamous virtual currency question, “At any time during 2020, did you receive, sell, send, exchange or otherwise acquire any financial interest in virtual currency?”on 2020 Form 1040. The updated version as of December 31, 2020, clarifies what’s covered under the term, “virtual currency,” and makes cryptocurrency purchases subject to this question. This means if you purchased cryptocurrency during 2020, you will have to check “yes” on the virtual currency question on page 1 although this may not trigger any taxable event.
Additionally, the recently released FinCEN Notice 2020-2 states that the agency is intending to subject cryptocurrencies held in overseas locations to the Foreign Bank and Financial Accounts Reporting (FBAR) regime. Currently that is not the case, but if the existing rules get amended as described in the notice, cryptocurrency holders who use foreign crypto exchanges would have to disclose their holdings exceeding the $10,000 threshold at any point of a given year. While there is no tax obligation associated with FBAR, this would add to the administrative burden of crypto taxpayers.
ELSEWHERE
Why Joe Biden’s $3T Stimulus Package Could Add Fuel to Bitcoin’s Rally [CoinDesk]
Ripple CEO Brad Garlinghouse responds to questions surrounding the SEC lawsuit [The Block]
FinCEN Crypto Surveillance Rule Sees Surge in Public Comments [Decrypt]