On January 10, 2024, the Securities and Exchange Commission (“SEC” or the “Commission”) approved the listing and trading of eleven spot bitcoin exchange traded products (“ETPs”). [1]  The Commission declared effective the registration statements for ten of the ETPs on the same date.  This long-awaited approval stands in contrast to the SEC’s sixteen prior denials

On November 7, 2023, the Consumer Financial Protection Bureau (CFPB) announced a notice of proposed rulemaking (NPRM) that would establish CFPB supervisory authority over certain nonbank companies “participating in a market for ‘general-use digital consumer payment applications.'”

Overview

The CFPB seeks to subject nonbank companies that provide digital payment wallets and applications to the CFPB’s

On November 1, 2021, the President’s Working Group on Financial Markets (PWG), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) issued a joint report that, among other things, calls on Congress to adopt legislation to enable federal oversight of stablecoin issuers, custodial wallet providers that hold stablecoins,

The House Rules Committee recently released the latest version of HR 5376, the Build Back Better Act. This proposal would amend Internal Revenue Code section 1091 (“loss from wash sales of stock or securities”) to apply to a much broader range of assets, including foreign currency, commodities, and digital assets, in addition to stocks and

In his testimony before the Senate Finance Committee, on February 12, Treasury Secretary Steven Mnuchin stated that the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) will soon release new regulations related to cryptocurrency. FinCEN is responsible for issuing and implementing anti-money laundering (AML) and counter-terrorist financing (CTF) regulations applicable to certain US financial institutions. According to Secretary Mnuchin:

We’re spending a lot of time on the issue of cryptocurrencies and digital payment systems …. on pure cryptocurrencies like Bitcoin, and there are others, we want to make sure that these are not used as the equivalent of secret bank accounts. So, we are working with FinCEN, and we will be rolling out new regulations to be very clear on greater transparency so that law enforcement can see where the money is going and that this isn’t used for money laundering.

FinCEN previously issued guidance on virtual currency in 2013 and 2019, which clarify how FinCEN’s existing rules for money services businesses, or MSBs, apply to “administrators,” “exchangers,” and “users” of what the agency calls “convertible virtual currency.” The MSB rules apply to certain persons dealing in fiat currency, convertible virtual currency, and other “value that substitutes for currency,” but does not treat MSBs dealing in convertible virtual currency differently than other types of MSBs. Therefore, if FinCEN were to issue new regulations specifically addressing cryptocurrencies or digital assets more broadly, such regulations would be a first of its kind.Continue Reading Secretary Mnuchin Indicates New Cryptocurrency Regulations are Coming

The IRS has released new guidance on the U.S. tax treatment of cryptocurrency for the first time since 2014. The guidance includes Revenue Ruling 2019-24, which provides guidance on the tax treatment of hard forks. The IRS also released a series of FAQs covering a variety of topics that expand on Notice 2014-21.

Revenue Ruling 2019-24

Revenue Ruling 2019-24 generally concludes on two scenarios involving hard forks. A hard fork occurs when a blockchain undergoes a protocol change resulting in a permanent diversion from the legacy or existing blockchain, which may result in the creation of a new cryptocurrency on a new distributed ledger in addition to the legacy cryptocurrency on the legacy distributed ledger. In the first scenario, the cryptocurrency blockchain experiences a hard fork but the taxpayer does not receive units of a new cryptocurrency, and in the second scenario, the taxpayer receives units of new cryptocurrency “as a result of an airdrop of a new cryptocurrency following the hard fork.” The Revenue Ruling concludes that the taxpayer does not have income in the first scenario. However, in the second scenario, the taxpayer has ordinary income because he has experienced an accession to wealth. The income arises at the time of the airdrop because the taxpayer is, at that time, able to exercise dominion and control over the forked cryptocurrency.Continue Reading IRS Releases New Cryptocurrency Guidance

The IRS has confirmed that it has begun sending letters to taxpayers with virtual currency transactions that potentially failed to report income and pay the resulting tax from virtual currency transactions or did not report their transactions properly. In the announcement, IRS Commissioner Chuck Rettig says that “The IRS is expanding our efforts involving virtual currency, including increased use of data analytics. We are focused on enforcing the law and helping taxpayers fully understand and meet their obligations.”

The IRS identified the taxpayers receiving these letters through various ongoing IRS compliance efforts, likely including customer information that the IRS received last year after successfully enforcing a John Doe summons against Coinbase. The IRS has said that it expects more than 10,000 taxpayers will receive these letters by the end of August.Continue Reading IRS Stepping Up Cryptocurrency Enforcement Efforts

Bipartisan members of the House are advocating for more clarity in the tax law as it relates to taxation of cryptocurrency.

First, on April 9, Representative Warren Davidson (R-OH), a member of the House Financial Services Committee, reintroduced legislation that would provide clarity on certain tax and securities law issues related to cryptocurrency.  The bill, entitled the “Token Taxonomy Act of 2019,” resembles the original bill that Davidson introduced in the 115th Congress with Congressional Blockchain Caucus co-chair Darren Soto (D-FL).  The 2019 version of the bill is co-sponsored by Representatives Soto, Josh Gottheimer (D-NJ), Ted Budd (R-NC), Scott Perry (R-PA), and Tulsi Gabbard (D-HI) (who has announced she is running for President).

Davidson said in a statement that “[t]he Token Taxonomy Act is the key to unlocking blockchain technology in America.  Without it, the U.S. is surrendering its innovative origins and ownership of the digital economy to Europe and Asia.”

The bill would enact a number of new tax provisions. 
Continue Reading Congress Weighs In on Cryptocurrency Taxation

Last week, US District Judge Gonzalo Curiel of the Southern District of California reversed his previous November 2018 order and issued a preliminary injunction against Blockvest LLC (Blockvest) and its founder, Reginald Buddy Ringgold, III, after finding that the Blockvest token (BLV token) met the definition of an investment contract under the Howey test and was therefore a security.  While we are keen to see an example of a digital asset that falls outside the definition of a security either through application of the Howey test or a new test, we are relieved that Judge Curiel did not use the Blockvest case to set forth this precedent.
Continue Reading Judge Holds Blockvest Token a Security Under Howey, and the Wait for a Non-Security Token Continues

Last month the Texas Department of Banking published an updated supervisory memorandum discussing the application of the state’s money transmitter law to digital assets.  Nearly every state has a money transmitter statute regulating businesses engaged in the transfer of money within that state, but states vary considerably with respect to how their laws apply to digital assets.  A number of states, including Texas, have taken the position that their money transmitter laws apply only to fiat currency and not cryptocurrency.  Such laws might still apply to a cryptocurrency company, for example one that exchanges cryptocurrency for fiat currency, but don’t govern companies that do not offer fiat-based services.
Continue Reading A Regulatory Fork for Stablecoins: Is New Texas Guidance a Sign of Things to Come?