In our 217th episode of The Cyberlaw Podcast, the blockchain and cryptocurrency team takes over the podcast again.
Alan Cohn hosts another of the podcast’s periodic deep dives into all things blockchain and cryptocurrency to discuss recent regulatory developments and the current state of play of the industry.
Our episode begins by looking at the Department of Treasury’s letter regarding initial coin offerings (“ICOs”). Jack Hayes tells us the key takeaways from the letter, including that persons engaged in ICOs could be considered a Money Transmitter under FinCEN’s regulations. Not only does the letter address companies based in the US that are issuing tokens, but also those based outside of the US that may have a substantial part of their business in the US or be issuing tokens to US persons. The idea that FinCEN can reach outside of the US border is not a new one. Last summer we saw a civil enforcement action against BTC-e, a foreign cryptocurrency exchange.
Jack and Alan also discuss the New York Attorney General’s recent voluntary transparency questionnaire sent to both US and non-US cryptocurrency exchanges. New York has seen its fair share of controversy with respect to cryptocurrency with the implementation of the BitLicense and the resulting exodus of a number of cryptocurrency companies.
Lisa Zarlenga provides an expert overview of the Internal Revenue Service’s (“IRS”) activity in the space starting with IRS Notice 2014-21. For tax purposes, convertible virtual currency (“CVC”) is treated as property, which means that every time you buy or sell CVC you are engaging in a taxable event and need to report capital gains or losses. The Notice did not provide much guidance on accounting for and determining basis of cryptocurrency. Lisa also discusses whether exchanging one cryptocurrency for another cryptocurrency is a like-kind exchange and how the 2018 Tax Reform Bill changes things. With the increasing popularity of airdrops, Lisa and Alan tell us about the tax treatment of tokens received during an airdrop.
Chelsea Parker discusses trends coming out of New York Blockchain Week 2018. Consensus 2018 was three times bigger than Consensus 2017 and there were almost three dozen other official conferences and events that were part of NY Blockchain Week. Needless to say, interest in blockchain appears to be at an all-time high, and there was a particularly high international presence. Government officials from countries such as Gibraltar and Bermuda highlighted their proactive steps to implement regulation while still encouraging innovation and protecting consumers. This idea of balancing regulation while still encouraging innovation was a common theme across panels.
Alan highlights Steptoe’s panel “Blockchain in Supply Chain, Navigating the Legal Waters” and the key questions discussed during Alan Cohn and Lisa Zarlenga’s presentations on the tax treatment of digital currencies and tokens at the Accounting Blockchain Coalition’s conference. Finally, the panelists highlight where they see the industry going next in terms of adoption and regulation. Lisa discusses the possibility of additional guidance from the IRS while Jack discusses the future of sovereign cryptocurrencies and the resulting regulatory challenges.
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