Red State and Blue State vs Crypto Market

U.S. bipartisan policymakers and state law enforcement agencies are putting pressure on the cryptocurrency market. In the draft infrastructure bill, Senator Portman and the White House required crypto market participants to be responsible for tax reporting. At the same time, the bipartisan regulatory agency for the cryptocurrency lending platform BlockFi has continued to expand and has now reached five states.

The Blockchain Association complains about crypto taxation compliance in the Infrastructure Act

According to a White House fact sheet, part of the “payment” in the $550 billion bipartisan infrastructure proposal that the U.S. Senate expects to vote next week is the wording of “strengthening tax enforcement in cryptocurrencies.”

Although the text of the proposal has not yet been publicly released, the Blockchain Association, one of the cryptocurrency supporters, published an excerpt of what they claim to be a bipartisan draft of the infrastructure bill in a letter to Congress:

“As currently drafted, the bill will expand the definition of’broker’ in Section 6045 of the Internal Revenue Law of 1986 to include anyone responsible for and regularly providing any services that enable the transfer of digital assets.'”

The Blockchain Association pointed out that cryptocurrency participants who are defined as “brokers” in the tax law need to provide a report, including “the name and address of each customer, and detailed information about total revenue.”

The strength of this crackdown on the crypto market depends on the definition of digital assets, if the reports it requires include decentralized exchanges, because these platforms usually do not enforce the “know your customer” requirement at all-if the legislator clarifies that they must provide tax Report, it will all change together.

Politico reported that this is a controversial issue:

“Behind the scenes, legislators have been debating expanding the definition of a broker to include decentralized transactions, no traditional middlemen, and peer-to-peer transactions, although some people say that the language of the proposal is broad enough to sweep others, such as cryptocurrency miners. “

Kristin Smith, executive director of the Blockchain Association, told Politico that the taxation of cryptocurrencies “may promote many participants, companies and individuals involved in overseas crypto.” But this argument raises a question: where will the crypto market go? After all, in recent weeks, the international regulatory review facing the cryptocurrency market has intensified:

-Binance is facing blows in the UK, Japan, Germany, Hong Kong and Malaysia;

-The Securities Commission of Ontario, Canada took legal action against KuCoin, Poloniex and ByBit;

-The European Commission proposes to ban anonymous encrypted wallets.

According to Bloomberg, although cryptocurrency lobbyists are sounding the alarm, the language appears to be a bipartisan compromise between Pennsylvania Republican Senator Rob Portman and the White House: The proposal is updated to require brokers to report cryptocurrency transactions and invest in cryptocurrencies. Of companies disclosed the rules for transactions exceeding $10,000, which is the result of a compromise between the White House and the Republican’s chief negotiator, Senator Rob Portman. According to people familiar with the matter, the clause includes part of Portman’s measures. The White House has also put forward similar ideas in recent months.

On Saturday, Politico’s Zach Warmbrodt tweeted a statement from Senator Portman’s office stating that the crypto tax bill did not force “app developers and miners” to “comply with the IRS report” but:

“Any individual or entity that acts as a broker by facilitating customer transactions and receiving cash must comply with standard information reporting obligations.”

Before the text of the bipartisan infrastructure bill is released, it is difficult to guess what its specific system will be. But it is clear that the Treasury Department and the Financial Crimes Enforcement Network (FinCEN) have been looking for ways to ensure the enforcement of US tax laws, including their past proposals for “non-custodial” encrypted wallets.

(Bai Ze’s Note: The Crypto Wallet Act is aimed at CVC wallets. U.S. authorities have found that malicious actors are increasingly using CVC to promote international terrorist financing, weapons proliferation, evasion of sanctions and cross-border money laundering, as well as the sale of controlled substances, Theft and fraudulent identity documents and access equipment, counterfeit goods, malware and other computer hacking tools, firearms and toxic chemicals. In addition, ransomware attacks and related payment requirements that are almost entirely denominated in CVC are becoming more and more serious. The Group of Nations specifically pointed out concerns about ransomware attacks “in view of malicious actors targeting key sectors during the COVID-19 pandemic.”)


Image source: Guidelines on Bipartisan Infrastructure Proposals published on the White House website

As Kentucky and Vermont join the crackdown, the BlockFi review heats up

Alabama and New Jersey are the first two states to take measures against BolckFi, and they believe BolckFi may be selling unregistered securities. Now, financial regulators from Texas, Vermont, and Kentucky have also joined the “war.”

Texas Securities Commission submits notice of hearing

On July 22, the Texas Securities Commission (TSSB) filed a hearing notice on BlockFi’s cryptocurrency interest account.

The hearing pointed out that BlockFi violated Texas securities laws and that the “BlockFi Interest Account” (BIA) is an investment contract:

-The term “securities” is defined in Article 4 of the “Securities Law” as including traditional products such as stocks and bonds. The regulation also provides a broad definition of the term securities, including investment contracts, bills, and debt evidence-a wide range of product categories, covering countless unique and innovative investment plans that continue to be introduced to the market.

-If an investment is associated with cryptocurrency, blockchain technology or a certain type of digital asset, if it constitutes an investment contract, bill, debt evidence or other types of securities, the investment cannot be removed from securities supervision Remove.

-According to the information and allegations described in this article, BIA constitutes investment contracts, bills or debt evidence, as securities supervision, this term is defined by Section 4.A of the Securities Law.

In addition, the hearing also pointed out that Texas first notified BlockFi that they “may have provided securities in Texas that may not comply with the Securities Act” or about April 20, 2021. Despite this, BlockFi “continues to provide BIA to Texans in violation of Sections 7 and 12 of the Securities Act.”

Next will be the hearing on October 13, 2021, when the law enforcement of the Texas Securities Commission will “provide testimony against BlockFi and other acceptable evidence.” If the judge approves, they will issue a suspension order against the company.

The Texas Securities Commission is no stranger to cryptocurrencies. In 2018, they conducted a four-week investigation on crypto and examined 32 cryptocurrency investments. They published a report titled “Extensive Fraud Found in Cryptocurrency Products.” Their findings include:

-The sponsor of the project sold securities without registration in Texas, which violated the Texas Securities Act;

-At least five promoters almost ignore investment risks and guarantee returns, some up to 40% per month;

-Only 11 promoters provided real addresses for potential investors;

In addition, the Texas Securities Commission (TSSB) website has a section dedicated to encryption, the “Cryptocurrency Investor’s Guide.” They warned that “extensive hype, coupled with lack of understanding by investors, makes Digital currency-related investments are particularly vulnerable to fraud.”


Picture: Texas State’s Notice of Hearing on BlockFi

Vermont uses Show Cause to oppose BlockFi

On July 26, the Vermont Department of Financial Regulation (DFR) issued a Show Cause order document for BlockFi, stating that BlockFi interest accounts “appear to be securities.”

In the document, the Vermont Department of Financial Supervision (DFR) revealed that they first contacted BlockFi as early as January. Vermont states that BlockFi may violate both state laws and federal securities laws:

“On or about January 7, 2021, the department notified BlockFi that [BlockFi interest account or] BIA appears to be a security, and asked BlockFi Lending to explain how the BIA provided by the respondent meets or is exempt from the registration and reporting requirements of 1933. The Securities Act and the Securities Exchange Act of 1934. And BlockFi responded unsatisfactorily to the requirements of the Ministry of Financial Supervision.”

In addition, the Vermont Department of Financial Supervision ordered BlockFi to explain to their commissioners within 30 days why a stop order should not be sent to them, prohibiting the provision of their BlockFi interest accounts in Vermont (a fine of $15,000 for each violation).


Picture: The Show Cause command file issued by the State of Vermont to BolckFi

Kentucky issues an emergency stop order against BlockFi

On July 29, the Kentucky Department of Financial Institutions issued an emergency stop order against BlockFi, stating:

-The Kentucky Securities Commission has realized that [BlockFi] is offering securities in the form of investment contracts in exchange for asset deposits in the company. These investment contracts allow passive investors to earn interest on the assets deposited in the company, and are eligible for securities under the law.

-Because these BIAs are equivalent to “investing funds in a joint enterprise, the profits are entirely derived from the efforts of others”, so they meet the conditions of investment contracts and securities under the Act.

-The audit records of the Securities Commission show that neither BlockFi nor the securities offered on its website have been registered with the department in accordance with the requirements of the Act. In addition, neither BlockFi nor these securities appear to be entitled to any registration exemptions under the Act.

The order concluded that BlockFi “should cease and stop soliciting or selling any securities in Kentucky unless BlockFi is registered with the local securities commission.”


Picture: Kentucky’s emergency stop order against BolckFi

BlockFi is by no means the only cryptocurrency company offering crypto lending products. For example, Coinbase allows its users to sign up to earn interest on their cryptocurrency-as do other companies such as Compound and Aave. This raises questions about whether companies such as Coinbase also offer unregistered securities in New Jersey, Alabama, Texas, Vermont, and Kentucky.


Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

Like (0)
Donate Buy me a coffee Buy me a coffee
Previous 2021-08-01 08:23
Next 2021-08-01 08:27

Related articles