This episode features Peter Van Valkenburg, Director of Research at Coin Center, discussing the implications of a new broker rule proposed by the IRS for tax reporting in the crypto community. The podcast also delves into the constitutionality of the authority given to software developers, the potential impact of the Bank Secrecy Act on the crypto industry, and the latest developments in the crypto market.
IRS’s New Broker Rule and Its Implications
- Definition of a Broker: The IRS’s new broker rule defines who is considered a broker for IRS third-party tax reporting purposes, similar to how platforms like Robinhood report trades and capital gains to the IRS. The implications of this rule are significant for the crypto industry, as it will be challenging for many individuals to comply, and it raises concerns about civil liberties.
- Expanded Definition: The IRS recently issued guidance that includes a broker definition that goes beyond what Congress passed, potentially including software developers who publish software on the Ethereum blockchain. Coin Center argues that this expanded definition is unconstitutional from a First Amendment perspective, as it compels speech and forces developers to collect personal information against their closely held views on privacy and civil liberties.
- Fourth Amendment Concerns: Coin Center’s comment letter to the IRS also raises concerns about the Fourth Amendment, arguing that software developers should not be required to report private information without a warrant.
Constitutionality of Authority Given to Software Developers
- Non-Delegation Doctrine: The podcast discusses the non-delegation doctrine and its potential application to the Bank Secrecy Act, arguing that the delegation of power to the Secretary is unconstitutional. The lawmaking power should be vested in Congress, not an unelected official.
- Court Battles: Court battles are also mentioned as a potential avenue to challenge any expansion of the Bank Secrecy Act to software developers.
- OFAC Sanctions: The podcast mentions the Coin Center lawsuit against the Treasury Department over OFAC sanctions designation of smart contracts, which was dismissed by the district court. Coin Center plans to appeal the dismissal and is optimistic about their chances at the circuit level.
Latest Developments in the Crypto Market
- BlackRock’s Ethereum ETF: BlackRock, the world’s largest asset management firm, has applied for a spot Ethereum ETF with the US Securities and Exchange Commission. This follows their recent attempt to launch a Bitcoin ETF.
- FTX and BlockFi Negotiations: FTX and BlockFi are resuming claim negotiations after a US judge lifted the automatic stay on proceedings. FTX collapsed, costing BlockFi over $1 billion.
- Crypto Market Volatility: Crypto markets faced a tumultuous period, with over $37 million in liquidations of leveraged crypto long positions.
- Bullish: The podcast expresses a bullish sentiment towards the crypto industry, highlighting the surge in inflows into crypto investment products, reaching over $1.1 billion, with Bitcoin leading with $240 million in inflows. It also mentions the launch of Liberia, a tokenization platform by Standard Chartered’s venture arm, and the partnership between Dapper Labs and Disney.
- Bearish: A bearish sentiment is expressed regarding the new broker rule proposed by the IRS and its implications for the crypto industry. The podcast also expresses concerns about the constitutionality of the authority given to software developers and the potential impact of the Bank Secrecy Act on the crypto industry.
- Neutral: The podcast maintains a neutral stance on certain issues, such as the ongoing negotiations between FTX and BlockFi and the volatility in the crypto market.