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Studies analyze the cryptocurrency market, new payment announcements, businesses and threats BakerHostetler

Multiple studies analyze recent trends in the cryptocurrency market

Of: Robert A. Musiala Jr.

A recently published report by the Blockchain Transparency Institute analyzed high-volume bitcoin trading pairs on various cryptocurrency exchanges and found "clear evidence of wash trading" on 22 of the 25 stock exchanges analyzed. A bitcoin "trading couple" is a bitcoin exchange for another type of cryptocurrency (or vice versa), and "wash trading" is a form of market manipulation in which an investor buys and sells the same financial instrument to create activities of the artificial market. The report states that it has identified four different "bot strategies" used to artificially inflate the bitcoin trading pair volumes through the washing trade on cryptocurrency bags. According to the report, more than 80 percent of the highest bitcoin trading pair volume reported by CoinMarketCap is traded with most trading pairs with actual volume less than 1 percent of the reported volume.

Another recent report analyzed website traffic on the most frequently used cryptocurrency exchanges and found that many cryptocurrency exchanges with low website traffic report high transaction volumes. According to the report, this indicates that some cryptocurrency exchanges could artificially inflate the dollar value of transactions processed on their platforms. The manipulation of the cryptocurrency market is also the theme of a recently published research paper, co-author of professors from four different universities that provides a detailed examination of the "pump and dump" schemes in the cryptocurrency markets. The results of the report suggest that such schemes are "widespread and often quite profitable".

According to a recent Bloomberg Article, a large US hedge fund recognized emerging contingencies related to initial coin offerings (ICOs) citing the risk that a significant percentage of ICOs in which it had invested could be found in violation of US securities laws. An analysis published on December 17 found an increase in Ethereum (ETH) outflows from portfolios that were controlled by ICO projects, with over 400,000 ETHs moving from the ICO team portfolios for a period of 30 days. Another recently released analysis found that of the more than 460 million "public key" addresses on bitcoin blockcoin, only about 172 million were "economically relevant" because "controlled by people or services that currently own bitcoins", with the remaining 63 percent of addresses used only temporarily to facilitate transactions.

Another apparent trend, reported by diar, found that institutional bitcoin trading seems to shift from traditional trade to over-the-counter markets. Finally, the University of Cambridge has released its own 2nd Global Cryptoasset Benchmarking Study, which "collects data from over 180 companies and individuals in cryptocurrencies, covering 47 countries in five regions of the world" and provides analyzes focused on mining, exchange, storage and payments. In a noteworthy finding, the study reports that in the first three quarters of 2018, the number of cryptocurrency users verified by ID has almost doubled, from 18 to 35 million.

For more information, please see the following links:

Stablecoins, "trading pairs" and other developments in cryptocurrency payments

Of: Robert A. Musiala Jr.

In the latest developments in cryptocurrency payments, according to reports, the stablecoin PAX, which is supported 1: 1 by US dollars, has recently exceeded the transaction volume of $ 5 billion in just over three months since the September launch. Another recently launched stablecoin, USD Coin, was added by the Binance cryptocurrency exchange as a "trading pair" option for six different cryptocurrencies.

This week, Coinbase has begun to allow its retail clients to trade bitcoins in "trading pairs", where bitcoins are traded for another type of cryptocurrency. Coinbase also recently announced that its US customers will now be able to withdraw cash balances on their accounts from a major Internet payment processor in the United States. And the startup OpenNode recently announced that it has closed a seed-funding round from a major US venture capital firm to develop a new bitcoin payment processing system for merchants who want to accept bitcoins as payment.

For more information, please see the following links:

Threat updates: ransomware malware, cryptographic malware, BTM and ICO fraudulent schemes

Of: Shea M. Leitch

Fraudsters have recently sent messages to various targets that threatened to explode explosive devices carried by an unidentified "mercenary" unless targets have paid a $ 20,000 ransom to a bitcoin wallet by the end of the working day. The senders targeted individuals in geographically distant English-speaking countries, such as the United States, Canada and New Zealand. The authorities of these jurisdictions reported that no explosives were actually found.

In addition to the so-called crypto-ransomware, another emerging threat is ATM bitcoins (BTM), which according to a recent report are spreading rapidly and may involve high money laundering risks. Perhaps the most widespread threat is cryptographic malware, which, according to a new report on the threats of McAfee Labs, has increased by 4,000% in the last year.

The financial regulators of France and Belgium have sought to minimize the impact of cryptocurrency fraud on investors by including a series of encrypted investment websites each week and warning against unauthorized or fraudulent ICOs. The announcement by the Belgian Authority on Financial Services and Markets contained a clear warning to investors.

"The principle remains the same: they offer you an investment that they claim safe, easy and very profitable. They try to inspire confidence by making sure that you do not need to be an expert in cryptocurrencies to invest them. They claim to have specialists who will manage your investments for you. You are told that your funds can be withdrawn at any time or that they are guaranteed. In the end, the result is always the same: the victims find themselves unable to recover their money! "(Emphasis in the original)

The Supreme Court of Greece issued a ruling this week stating the lower court's decision to extradite in France Alexander Vinnik, who is charged with laundering up to $ 4 billion through the now-defunct CRC-e cryptocurrency change. Russia has also sought the extradition of Vinnik. Vinnik's legal representatives have expressed the belief that his extradition to France will mean his possible extradition to the United States to deal with allegations of fraud, identity theft, money laundering and a series of other crimes related to his alleged operation of the cryptocurrency BTC-e exchange.

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Blockchain Enterprise developments in France, Spain and South Korea

Of: Simone O. Otenaike

According to a recent report, French officials plan to invest approximately $ 569 million in blockchain projects at the state level over the next three years. In the same report, officials expressed their desire to create a more favorable mining environment in France. Despite these potential initiatives, the country's commitment to the blockchain and cryptocurrency industries seems weak: only last month, the French central bank has not approved a plan to sell bitcoins in thousands of tobacco kiosks. Meanwhile, the Spanish renewable energy company ACCIONA Energía has launched the GREENCHAIN ​​project, which will use a blockchain platform to track the supply chain of renewable energy from five wind and water plants in Spain to four business customers in Portugal in real time. According to reports, ACCIONA Energía will be the first entity in Spain and Portugal to track renewable energy through blockchain technology and allow customers to certify from anywhere in the world that 100 percent of the energy supplied is green.

In South Korea, the Ministry of Science, ICT and Future Planning and the Ministry of Oceans and Fisheries have announced the intention to launch the pilot blockchain maritime project, which will promote the efficiency of 39; container transport industry in the country. The port logistics pilot will be active for one year outside the port of Busan, the largest port in the country, and the fifth busiest container port in the world. The pilot is part of the overall strategy of the South Korean government to raise $ 204 million for blockchain technology by 2022.

For more information, please see the following links:

UK Issues Cryptocurrency Guidance; The problems of the United States remain

Of: Roger M. Brown is Nicholas C. Mowbray

This week, the US tax authorities (HMRC) have published a guide on the taxation of criptoassets. The guide states that the HMRC does not consider such cryptocurrencies as money or money – which aligns HMRC's vision with the UK's general regulatory position. The guide identifies three types of cryptoassets:

– Exchange tokens (including bitcoins and other cryptocurrencies)

– Utility tokens

– Security token

The guide notes that the labels do not control; rather, functionality and substance do. The guide focuses on the taxation of exchange tokens while noting that it also provides an initial discussion point for rules that can eventually be developed for other types of tokens.

The guide states that, in the vast majority of cases, individuals hold criptoassets as their personal investment and therefore will be required to pay taxes on capital gains on any profits from the sale of their cryptoassets. Only in exceptional circumstances does HMRC expect people to buy and sell criptoassets with such frequency, organization and sophistication that the activity is equal to a financial trade – whose profits would be subject to income tax rather than capital gains tax.

The HMRC specifically observes that it does not consider the purchase and sale of cryptoassets as the gamble, the proceeds of which would be tax-free. This is a clear change in position compared to the March 2014 guide, which states that "depending on the facts, a transaction can be so highly speculative as not to be taxable or to alleviate any losses. 39, hazard or bets are not taxable. "

According to the UK Guide, cryptoassets received from mining or air travel may be subject to income tax upon receipt, depending on the nature of the activity that gave rise to the receipt . The criptoassets received as a gain from employment are considered "money" and are therefore subject to income taxes and national insurance contributions.

The UK Guide raises questions similar to those that need to be addressed from a US tax perspective when cryptocurrency transactions occur. Some of these questions focus on:

– The appropriate category of properties to place tokens

– Which types of transactions give rise to taxable gains or deductible losses

– The applicable percentage to increase taxes

– Application of the employment compensation rules to the cryptoassets (or related rights), even when there are conditions of working continuity associated with the preservation of these rights

– Treatment of cryptocurrency or token received in exchange for the execution of certain activities (for example, mining, social actions, validation)

– Actions that generate a taxable gain (or loss) when a cryptocurrency is discarded, as well as planning opportunities that may defer taxable gains

– Tax treatment of the forks – both hard and soft

– Record keeping and reports

In the absence of a complete US guidance on cryptocurrency issues, taxpayers will borrow from other areas at their best to meet their tax obligations, while identifying opportunities to optimize their tax situations when the applicable doctrines allow it. .

* * * * *

The United States discussion above was provided by Roger Brown and Nicholas Mowbray of Baker Hostetler LLP. The discussion in U.K above was provided by Darren Oswick of Simmons & Simmons, LLP.

Monetary placement in Cryptoasset without triggering taxable gain or loss

Of: Roger M. Brown is Heather K. P. Fincher

There are still strategies to monetize a position in the crypt without triggering the current profit or loss, as a recent case shows: Property of McKelvey against commissioner (906 F.3d 26, 2nd Cir. 2018).

Many people have historically tried to diversify their cryptographic holdings by exchanging one cryptoasset with another. Some people tried to avoid the recognition of taxable income considering that the exchange of cryptocurrencies was exempt from current taxes according to the rules of the "type of exchange". However, this is no longer possible due to changes in the tax law of 2017.

However, a number of common law doctrines continue to exist that allow for current monetization without current taxable income. An example is illustrated by the transaction undertaken by the founder of the Monster.com website, Andrew McKelvey (McKelvey). McKelvey had a substantial appreciation in his actions, and sought to monetize this value without triggering the current taxable gain by entering into prepaid variable prepaid contracts (VPFCs).

Under VPFC, a share buyer agrees to make an upfront payment for the right to receive a maximum amount of designated assets or their cash equivalent at a future date. The exact number to be delivered, however, will be determined by a minimum price and a maximum price that limit the amount of the property to be delivered in the future.

As a security for performance, the buyer gives the seller cash, effectively "monetizing" the shares in advance. In turn, the seller receives the maximum amount of assets at a future date that the buyer may have to deliver. Custodians can be involved to minimize the risks of execution and execution.

The IRS did not question the fact that McKelvey's VPFCs were effective in allowing the tax payer to monetize his position. Rather, IRS said that McKelvey's change of VPFCs by extending their settlement dates shortly before delivery was indeed an event that triggered a taxable gain. The court of appeal agreed.

With the increase in trading in cryptoassets, taxpayers try to monetize positions without triggering taxable gains or losses. Traders also try to enter different forms of "long" and "short" positions to profit from market movements. VPFCs are among the established tools that can be used to achieve these goals in cryptographic space, just as they have been for other asset classes.

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