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South African Gov’t Reveals It Has No Plans to Ban Crypto in Recent Consultation Paper

The South African Reserve Bank (SARB) has issued a consultation paper assessing the benefits and risks of cryptocurrencies. The paper, developed jointly with a number of the country’s government agencies, was announced in an official statement published Jan. 16.

In the document, titled “Consultation Paper on Policy Proposals for Crypto Assets,” South Africa’s government clarifies that it does not intend to ban either cryptocurrency trading, or crypto payments at the moment.

The consultation paper further proposes that all crypto asset trading platforms, as well as custodial services, payment service providers, and crypto ATMs, should be required to register with the the Intergovernmental FinTech Working Group (IFWG). IFWG was recently established by the South African government with the goal of fostering fintech innovation while maintaining uninterrupted functioning of the financial markets.

According to the paper, crypto-related businesses will have to comply with Anti-Money Laundering (AML) and Counter-Terrorism Financing (CFT) requirements of the Financial Intelligence Centre Act.

The consultation paper has been jointly developed by several major state agencies, such as the Financial Intelligence Centre (FIC), Financial Sector Conduct Authority (FSCA), National Treasury (NT), South African Revenue Service (SARS), and the SARB, the central bank of South Africa.

According to the agencies’ joint statement announcing the paper, the document will be open to public feedback until Feb. 15, 2019.

In early January, Cointelegraph reported that South African government has launched a regulatory working group dedicated to cryptocurrencies and blockchain. The group is set to release a final research paper on the industry over the course of 2019, according to the country’s Minister of Finance Tito Mboweni.

In June 2018, the SARB revealed that it has successfully tested its Proof-of-Concept (PoC) for an interbank payment system that tokenizes fiat using Quorum, an Ethereum-based (ETH) private blockchain.

Belarus Launches Trading Platform Enabling Customers to Buy Tokenized Securities

Belarus has launched a trading platform that enables customers to buy tokenized versions of shares, gold and other traditional assets, Reuters reported Jan. 15.

The project is reportedly backed by two companies, Larnabel Ventures and VP Capital. According to Reuters, the government of Belarus has not yet commented on the launch of the platform, but it was covered by the state news agency BelTa.

The platform will allow traders to buy shares, precious metals, foreign exchange and other traditional assets from Belarus, as well as from other countries, with cryptocurrencies.

Since its launch, the platform has reportedly issued 150 different types of tokens, with each corresponding to a traditional financial instrument. The company expects to eventually grow this number to 10,000.

According to the Reuters’ article, the government of Belarus has exempted transactions with tokenized securities from taxation until 2023. However, when registering on the new platform, traders will have to pass an Anti-Money Laundering (AML) verification procedure.

Reuters reported that the platform received 2,000 registration applications within the first two hours from launch.

In November 2018, Belarus High-Technologies Park, a national special economic zone dedicated to the IT industry, established the rules for the operation of the cryptocurrency market in the country.

Earlier in May, the country’s Minister of Communications and Informatization Sergey Popkov said that digital technologies are a top priority for Belarus due to their ability to transform the economy, public administration and social services.

On Jan. 3, 2019, Estonian trading platform DX Exchange announced a product similar to the one that was launched by Belarus. It reportedly allows cryptocurrency users to purchase tokens that are backed by stocks of various major companies, including Google, Facebook and Amazon.

Bakkt Announces Details of Bitcoin Futures Contracts

The much anticipated Bakkt platform by the Intercontinental Exchange has today announced further details about its Bitcoin Futures product that was due to launch today. The forthcoming exchange platform will be offering physically delivered daily futures contracts with an aim to bring greater regulatory oversight to Bitcoin price discovery.

The contracts will be traded in BTC/USD and will use the ICE’s electronic trading platform. However, Bakkt itself is still pending full regulatory approval.

Bakkt Gives Investors First Glimpses of Opening Product

The Intercontinental Exchange has posted a list of details about the highly anticipated Bakkt platform’s first product. The venture, which is expected by many to become a one-stop-crypto-shop of sorts and aiding in regulated price discovery, is starting out by offering one day, physically delivered Bitcoin futures.

Although there is nothing too dramatic in the details published earlier, for anyone hoping to trade using the Bakkt platform, they should provide further insight into the nature of the product offered.

According to the Market Specifications released today, the trading screen product name for the Bitcoin contracts offered by the platform will be the “Bakkt BTC (USD) Daily Future”. Each contract will be a 1 BTC in size. Prices will be quoted in US dollars up to two decimal places. The minimum price fluctuation will be $2.50 per contract, reducing to 1c per Bitcoin on block trades of 10 BTC or more. There will also be no upper limit on daily prices and fees will be charged at 50c (incorporating both exchange and clearing) per side of a trade. There will, however, be a position limit of 100,000 lots in any one contract date.

The trading times for the Bakkt platform will be between 20:00 and 18:00, with a pre-open at 19:55. Meanwhile, daily settlement will occur between 16:58 and 17:00 each day. All times are in Eastern Prevailing Time. To oversee the delivery of these futures contracts, a regulated custody solution, known as the Bakkt Warehouse, will be used.

Additionally, the Bakkt platform is looking for experienced members of staff to help bring its vision of a fully regulated Bitcoin trading venue to light.

Bakkt Forging Ahead Whilst Still Pending Approval

The Bakkt platform was first announced last summer to great excitement. The fact that the Intercontinental Exchange (the owner of the New York Stock Exchange) is behind it has stamped an air of legitimacy over the Bitcoin space for many. At the time of the announcement, the mention of the likes of Microsoft and Starbucks being involved in the platform in some capacity also generated anticipation.

Since then, those behind the project have been working hard to flesh out the final details for launch. This has included raising a massive $182.5 million from its first round of funding.

The platform itself was due to launch in mid-December but owing to an underestimation of the processes requiring finalising prior to the platform’s first day trading, the opening date was put back to today back in November of last year.

However, since then yet another major stumbling block has hindered the opening of Bakkt. The platform is yet to gain regulatory approval from the Commodities Futures Trading Commission. This has meant that the launch has had to be postponed until such approval is secured. With today’s publishing of final product details, however, it seems that the Bakkt platform is now only waiting for a green light from the CFTC for it to finally open for business.

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Japan’s financial regulator is considering allowing Bitcoin (BTC) exchange-traded funds (ETF), an anonymous source told Bloomberg on Jan. 7.

Citing a person familiar with the matter, the publication reports that the Financial Services Agency (FSA) is testing interest in an ETF with a view to potentially giving the instrument the green light to trade on domestic markets.

The move would place Japan in direct contrast to the United States, where regulators are risk-averse on ETFs but permit physical Bitcoin futures trading, something the FSA has rejected.

This, Bloomberg notes, came due to the Japanese regulator “concluding that such products would achieve little besides stoke speculation.”

Appetites for an ETF worldwide remain mixed. While some cryptocurrency advocates argue their acceptance would help Bitcoin’s image and popularity, others from within the industry claim the increased speculation and lack of physical Bitcoin ownership involved would have a detrimental effect.

Discussing the U.S. stance on ETFs, securities lawyer Jake Chervinsky stood firm on his opinion that lawmakers were unlikely to change tack anytime soon.

Speculation had arisen that the ongoing government shutdown in Washington could see the Securities and Exchange Commission (SEC) give an ETF automatic approval.

“It's true that a proposed rule change is auto-approved if the SEC doesn't make a decision by the deadline, but in reality it would never happen,” he wrote Saturday, clarifying:

• “The SEC has enough staff to put out a decision, even if it's a one-pager saying ‘denied for reasons to be explained later.’”

Intercontinental Exchange’s Bakkt platform is still slated to begin offering Bitcoin futures on the U.S. market later this month, a move which Nasdaq has said it will copy in 2019.

United Arab Emirates and Saudi Arabia Collaborate on New Cryptocurrency

The United Arab Emirates (UAE) and Saudi Arabia have announced an agreement to cooperate on the creation of a cryptocurrency, UAE official news agency Emirate News Agency reports on Jan. 19.

According to the report, the Executive Committee of the Saudi-Emirati Coordination Council has held a meeting in UAE capital Abu Dhabi, with 16 members in total from both countries, in order to discuss the join initiatives in the Strategy of Resolve.

The Strategy of Resolve is comprised of seven initiatives, including civil aviation, financial awareness youth training, and the development of a cross-border digital currency. According to the article, the cryptocurrency “will be strictly targeted for banks at an experimental phase with the aim of better understanding the implications of blockchain technology and facilitating cross-border payments.”

The joint cryptocurrency project will also research the effect of a central currency on financial policies.

The initiative reportedly seeks to protect customer interest, create standards for technology, and consider the cybersecurity risks while determining the impact of central currencies on monetary policies, Emirate News Agency reports.

Vulnerability Is Found in Constantinople Hours After ETH Devs Call It ‘Least Eventful’ Hard Fork

Ethereum’s (ETH) Constantinople hard fork faces a delay over a newly discovered security vulnerability allowing a reentrancy attack. The critical issue was detected by smart contract audit firm ChainSecurity and reported in a blog post Jan. 15.

According to the company’s report, the Constantinople upgrade introduces cheaper gas cost (transaction fees) for some operations on the Ethereum network. As an unexpected side effect, this allegedly enables reentrancy attacks via the use of certain commands in ETH smart contracts.

A reentrancy vulnerability allows a potential attacker to steal cryptocurrency from a smart contract on the network by repeatedly requesting funds from it while feeding it false data about the malicious actor’s actual ETH balance.

Afri Schoedon, the hard fork coordinator at Ethereum and release manager at blockchain infrastructure provider Parity Technologies, has confirmed on Reddit that the core developers of Ethereum are aware of the vulnerability.

Schoedon explained that an all-core-dev call has been scheduled on Friday, Jan. 18, to decide on further steps in relation to the newly discovered loophole. According to him, the launch of Constantinople has been postponed until at least the next week:

• “We will decided (sic) further steps on Friday in the all-core-devs call. For now it will not happen this week. Stay tuned for instructions.”

On the same day that the vulnerability was discovered, Ethereum’s core developers said that they expect the upcoming fork to be the least eventful one in the history of Ethereum. Their remarks were reported in a Bloomberg article published Jan. 15.

Constantinople was first trialed on the Ethereum public testnet Ropsten in mid October last year, and had been intended to be swiftly activated on the main blockchain by the end of October–November 2018.

After facing technical hurdles, its launch was delayed to be implemented at Ethereum block 7,080,000, expected Jan. 16. Given the fork’s focus on primarily technical improvements, Ethereum core dev Lane Rettig told Bloomberg:

• "I really can’t imagine a less contentious hard fork, to be honest. Of all the hard forks in the history of Ethereum, it’s probably the least eventful one."

As reported, in earlier discussions of Constantinople, some devs had proposed it would be less controversial, or even political, to change the term for the transition from hard fork to “update.”

The main impact of the shift will be the reduction of mining rewards for each block from the current 3 ETH to 2. The downward adjustment could reportedly help to reduce the inflation and volatility that is allegedly associated with miners selling ETH to cover their costs and boost revenue.

If reduced incentives equate to less support from miners, as Bloomberg notes, this could render the network more susceptible to the possibility of a 51 percent attack — a risk that has been robustly demonstrated in the recent attack on Ethereum Classic (ETC).

Yet, as reported, the reduction is unlikely to be controversial, as it has long been in the works to gradually reduce rewards to zero as the network readies for its planned transition to a Proof-of-Stake (PoS) consensus algorithm.

The high stakes involved in implementing hard forks were thrown into stark relief last November, when the Bitcoin Cash (BCH) community splintered into two warring factions over a scheduled hard fork.

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Six Questions IRS Needs to Answer About Crypto Tax

The U.S. Internal Revenue Service (IRS) is known for their undecided stance towards cryptocurrencies - other than the fact that they should be taxed, nothing else seems clear to U.S. residents that hold crypto assets. To answer six basic questions often asked by cryptocurrency holders in the US, crypto-focused research and advocacy institution Coin Center published a report with recommendations on what should be done to solve those problems.

The IRS has published a guidance in early 2014 that has never been updated and does not answer the questions below. “Rather than targeting ‘unintentional tax cheats,’ we are hopeful that the IRS will adopt our common-sense recommendations,” writes James Foust, senior researcher at Coin Center, in a commentary accompanying the report.

Question 1: How should taxpayers distinguish between convertible and non-convertible virtual currency, and what is the significance of that distinction for tax purposes?

According to existing regulations, only “convertible virtual currency” is treated as property, and it is defined as “virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency” in the guidance, in Notice 2014-21. The guidance only concerns convertible virtual currency.

Although Bitcoin is considered convertible, it is unclear how, by definition, one should categorize other types of digital assets, “such as those having attached voting or payment rights or other contractual rights or obligations, algorithmic stablecoins, airline rewards miles, and video game currencies for which there are official fiat markets - e.g., Second Life’s Linden Dollars - as well as video game currencies that are not meant to be traded for fiat but for which secondary black markets nevertheless exist - e.g., World of Warcraft Gold,” Coin Center points out.

Coin Center’s report urges the IRS to first clarify whether the distinction between convertible and non-convertible assets makes a difference for tax purposes, and, in case it does, to clarify whether non-convertibles are taxed and how. Also, clearer guidance on how to separate the two should be issued. If the distinction is non-consequential, then it should be noted that Notice 2014-21, as well as any others, applies to both.

Question 2: How should taxpayers calculate the fair market value of virtual currency?

To calculate whether a transaction resulted in a gain or a loss to the taxpayer, they must take the fair market value (FMV) in USD realized from the exchange and subtract it from the adjusted basis in the property being sold; the basis is adjusted by various provisions of the tax code.

Now, to the question: how does one calculate the FMV? The guidance states that, “If a virtual currency is listed on an exchange and the exchange rate is established by market supply and demand, the fair market value of the virtual currency is determined by converting the virtual currency into U.S. dollars (or into another real currency which in turn can be converted into U.S. dollars) at the exchange rate, in a reasonable manner that is consistently applied.” However, most cryptocurrencies are listed across several exchanges and their prices on each can differ - which one should they choose? What does the IRS consider “a reasonable manner that is consistently applied”? Because of market volatility and often slow processing time at exchanges, which price should the taxpayer take into account?

Coin Center proposes that taxpayers should be left to choose whether they use the exchange rate data from one exchange, averaged data from a set of exchanges, or a third-party exchange rate index, as long as they are consistent in their choice. However, they also note that the “reasonable manner consistently applied” should only be explained, and there would be no need for an additional solution.

Question 3: How can taxpayers determine the cost basis of virtual currency dispositions?

Buying Bitcoin differs from one day to another, let alone from one month or one quarter of the year to another. This means that the assets are also differently taxed, depending on when they were bought. The intuitive solution would be to keep track of every single transaction and calculate it based on the circumstances of the day they went through. Coin Center calls this task “incredibly onerous but technically feasible” for users that hold their own private keys - but for those using hosted wallets, it may be completely impossible.

Stocks and some other securities have other, simpler ways of determining tax lot reliefs, but cryptocurrencies seem to not be eligible to use those. Coin Center recommends that the IRS changes this decision to include cryptocurrencies, letting taxpayers choose tax lot relief methods the same way other commonly traded financial instruments can, and/or adapting those to be applicable in the case of cryptocurrencies.

Question 4: How should taxpayers substantiate the value of cryptocurrency donations?

Charity donations in the US are deductible from the taxpayer’s income for that year, and cryptocurrencies are no exception. The deduction is usually capped at USD 500, while donations that warrant a deduction of USD 5,000 or more have to be appraised. There is currently no way to have cryptocurrencies become an exception from appraisal, due to the fact that they are not considered cash.

In this case, the recommendation is to have the IRS provide guidance explicitly allowing taxpayers to use exchange data to value cryptocurrency donations - the same way they would calculate the FMV of their transactions - instead of going through a costly appraisal process.

Question 5: How should taxpayers account for tokens they receive from a network fork or airdrop?

Perhaps the most famous example of a hard fork was the creation of Bitcoin Cash in August 2017. Anyone who owned Bitcoin before the fork received an equivalent amount of Bitcoin Cash after it. This is the case with all forks that result in new chains being created.

Airdrops are a similar feature: to each holder of a certain token, creators of a new token can choose to give them these new tokens corresponding to the amount of the original tokens they hold. The new tokens are not sold, but simply given away, to people who are known cryptocurrency users and already hold tokens, which are often in some way similar to the ones they are receiving now.

In both cases, recipients may be completely unaware of the existence of the new tokens, especially if the fork or airdrop went by unnoticed and without media coverage. Even if they are aware, what if they do not sell or trade the new tokens? What if they never access them, regardless of being aware of them?

The report suggests that the new tokens should not be taxed if the owner does not dispose of them. If they do, then the income should be recognized at the moment of disposition, not the moment of receipt or the owner becoming aware of their existence, as these would be too difficult to follow. However, if users hold their tokens at exchanges, anything the exchange decides to do with these new tokens should not affect the taxpayers unless it was done at their own direction.

Question 6: How should taxpayers account for cryptocurrency when filing information returns?

In Notice 2014-21, it is stated that crypto payments are subject to the same reporting requirements as “any other payments made in property.” Current regulations state that every taxpayer holding financial assets exceeding certain thresholds in foreign countries need to report this to a specific institution, according to circumstances.

However, Coin Center claims, it is unclear whether holding cryptocurrencies on an exchange that is not located within the United States falls under this guideline or not. It is also not clear whether assets could be treated as foreign financial assets if a counterparty to the transaction is not a US person.

As the solution to this problem, it is suggested that the IRS needs to clarify whether cryptocurrencies are subject to these reports or not - there would be no need for changing anything in the current regulations.

New Tax Proposition Could Be the Ruin of Crypto Traders

Meanwhile, this week, Democratic senator Ron Wyden proposed a new version of capital gains tax, where investors would pay taxes on the assets they hold every year when those assets gain value, instead of just when they’re sold. Republican Sen. Pat Toomey of Pennsylvania has called it a “breathtakingly terrible idea,” according to a report by CNBC, and people seem to agree wholeheartedly.

This new version of the tax could kill a lot of markets, but the cryptocurrency market is especially vulnerable due to high volatility. However, the idea would be incredibly hard to implement - but it would throw yet another wrench into the already confusing idea of cryptocurrency taxes. “This tax proposal [...] adds enormous complexity to a code that is already mind-numbingly incomprehensible,” writes Ron Insana, senior analyst at CNBC.

Crypto Companies to the Rescue?

At the beginning of this year, Goldman Sachs-backed cryptocurrency company Circle that is also a member of a lobbying group named Blockchain Association revealed that they’re working with the IRS on clarifying, and even setting up, the rules surrounding crypto-to-crypto payments taxation. “We believe there should be different tax treatment for crypto-to-crypto, especially for smaller payments oriented transactions. The leading government on this issue right now is France, where they are soon passing a law where there will be zero taxes on crypto-to-crypto transactions,” The company’s CEO, Jeremy Allaire, said at the time.