What’s the Story? Hedge funds investing in cryptocurrency might not be properly paying taxes on their gains and losses.
Why It’s Important? IRS policy needs to be cleaned up around cryptocurrencies. Many individuals and institutions don’t understand their tax liability when a cryptocurrency is sold. The IRS currently taxes cryptocurrency as property, but there are questions over taxation of off-shore funds and if cryptocurrencies can take advantage of commodity tax savings (assuming cryptocurrencies are considered commodities). For example, if cryptocurrencies are commodities, investors can use certain tax advantages. We believe regulators are creating vague policy resulting in slower adoption due to higher compliance and legal costs.
What’s the Story? Overstock is transitioning from an e-commerce business to a full-out cryptocurrency company.
Why It’s Important? Overstock is receiving a significant capital infusion to build out their blockchain business. Overstock’s crypto subsidiary is now worth more than Overstock stock. We have been skeptical about their cryptocurrency business because it’s progressed at a glacial pace. They have little to show for their work in the space, but maybe this investment will change things. Overstock is a good play if you want blockchain exposure in the public markets, but the management team needs to do a better job of building the tZero platform.
What’s the Story? Tether, a digital currency that claims to be backed by the dollar, is an essential piece of volatile crypto markets. However, there isn’t significant evidence that the cash to support it exists.
Why It’s Important? Tether’s usage has skyrocketed so far this year, a response of the overall crypto bear market. During times of volatility, many traders move their holdings into tether. While tether claims they have the $2.5 billion in cash to support their coins in circulation, they have never actually produced an audit report that proves it. Further, it has never named the bank at which it holds these reserves. Tether hired Friedman LLP to audit their reserves last year but released Friedman before a final audit. Unlike other cryptocurrencies, tether has no set amount of coins. Bitfinex places orders for new tokens based on demand, and wires money to Tether’s bank account. Tether then sends the tokens back to Bitfinex, who distributes them to investors. This process would be fine if the two companies didn’t share ownership and management. That’s not to say that anyone is necessarily acting mischievously, but it does raise questions as to whether or not foul play could be involved. The SEC singled out tether in its recent ETF rejection, citing the possibility that tether is being used to manipulate the bitcoin market.
What We Read This Morning
- A BCH Update: Bitmain, BCH, the IPO & What it all Actually Means: Crypto Herpes Cat (Yes, that is the user’s name) looks into the Bitmain IPO.
- What’s eating crypto? A tale of Bitmex, sh*tcoins and opaque valuation:Jonathan Cheesman of Distributed Global explains why cryptocurrency has been in an extended bear market.
- Capitulation?: Fred Wilson of USV talks about the recent bear market in cryptocurrency as well.