A Taxing Year For Digital Assets Begin

The IRS announced that during 2024 it would focus on compliance initiatives associated with Digital Assets, FBAR, high-income and high-wealth taxpayers. After all, BTC’s value surged 160% during 2023. And a bull market for digital assets is on the horizon for 2024 stemming from the potential approval of a BTC ETF by the SEC and the utilization of a BRICS[UE] multinational stablecoin.

The veil on the identity of Satoshi Nakamoto, the author of Bitcoin’s White Paper that proposed the blockchain-based decentralized crypto currency,  still has not been lifted.  This  “‘identity issue,’ namely whether Dr. Craig Wright is the pseudonymous ‘Satoshi Nakamoto,’ i.e., the person who created Bitcoin in 2009” or not according to high court judge John Mellor  is  still being litigated in the UK  with the support of Bitcoin Legal Defense Fund     set up by Block CEO Jack Dorsey.  "The Bitcoin Legal Defense Fund is a nonprofit entity that aims to minimize legal headaches that discourage software developers from actively developing Bitcoin and related projects such as the Lightning Network, Bitcoin privacy protocols, and the like," explained Jack.

Unfortunately, the self-proclaimed inventor of Bitcoin, Dr. Craig Wright is only one of many to  claim to be Satoshi Nakamoto according to an article “The Faketoshi” authored by Arthur van Pelt.[1]

Adding layers to Satoshi’s identity  mystery is a Binance wallet sending approximately $1.2 million worth of BTCs to Satoshi’s genesis wallet on January 5, 2024, two days after BTC’s 15th Birthday [2]. This mysterious BTC transfer to Satoshi’s wallet coincided with Judge Mellor’s order of Craig Wrigth to pay over $1M to the court on Jan 5, 2024.

The mist around Dr. Craig’s ’identity issue’ is expected to  lift Judge Mellor said “By 4 pm on January 18, 2024, [when] Dr Wright and COPA shall exchange and shall serve on the Developer Defendants expert reports on (a) forensic document analysis in respect of the Additional Documents,--  [95 documents dating back to 2007] – stored on the Samsung Drive, and the BDO Drive; and (b) LaTeX software.” [3]

Once the identity of Satoshi is known, if this person is a US person with an estimated BTC wealth  of $41B [4] the US taxpayer is expected to file Form 8300 with the IRS by January 20, 2024 for the $1.2M in BTC received since effective January 1, 2024, any crypto transaction over $10,000 must be electronically (if they are required to file certain other information returns electronically) reported [5]. Noncompliance with Form 8300 subject’s taxpayer to  civil and criminal penalties.

Bad Actors Out of the Way

While the “real”  author of the Bitcoin White Paper  continues to being debated in the UK court system, the Digital Asset industry went through a  cleansing of bad actors in the US during 2023.   The world’s largest Digital Asset Exchange Binance and its CEO pleaded guilty to federal charges  and agreed to pay over $4B to resolve the Justice Department’s investigation into violations related to the Bank Secrecy Act, failure to register as a money transmitting business, and the International Emergency Economic Powers Act (IEEPA).

Binance [6], Coinbase [7], Terraform Labs [8], and others also faced action by the SEC  for operating unregistered securities exchanges which are still ongoing [9].

"In 2023, the U.S. experienced significant regulatory shifts, particularly in response to the FTX collapse which was followed by five crypto-friendly bank failures. The Biden administration's 'regulation by enforcement' strategy shaped the federal landscape, spearheaded by Gary Gensler and the SEC. Amidst this, states like Colorado stood out as beacons for the crypto industry, accounting for 33% of all U.S. crypto businesses. This success is primarily attributed to forward-thinking measures such as Colorado's 'Digital Token Act' and key initiatives like ETH Denver, all nurtured under Governor Jared Polis' vision”  explained Sergiu Hamza, CEO of Coincub which prepared Reports on US MSB and global VASPs .

American investors, money managers and even CBOE Digital president John Palmer is confident that a new wave of institutional and pension fund investment will follow spot Bitcoin ETF approvals [10].  Already over a dozen spot BTC exchange-traded fund (ETF) applicants including but not limited to Vaneck, Valkyrie, Grayscale Investments  Fidelity  BlackRock,  and Bitwise   filed to register their funds as securities with the U.S. Securities and Exchange Commission (SEC) with an approval deadline of Jan. 10, 2024. Eleven were approved.

The first spot BTC ETF application was made by Cameron and Tyler Winklevoss filed on July 1, 2013 with the SEC a decade ago. “As we move into 2024, the launch of Bitcoin ETFs marks a significant milestone, particularly for Wall Street. This development enhances Bitcoin's appeal and credibility, heralding a market ripe for expanded investment and engagement from political and financial sectors, potentially catalyzing the next chapter in bitcoin's growth" said Sergiu.

After a bear market in 2022, BTC’s value surged 160% during 2023. William Quigley, co-founder of Tether [11] and WAX Blockchain added that “Unlike previous crypto bull market years, crypto focused investment funds have large reserves of investable cash.  This is a positive factor in driving a crypto bull market.  There are many more investment funds operating in 2024, with much more crypto investing experience. ETFs are a mixed bag for crypto enthusiasts. While they provide a new way for institutional investors to acquire bitcoin, they also provide an easy way for those investors to short bitcoin.  This might cancel out any sustained buying support for bitcoin in 2024.”

BRICS Doubles in Size

In 2018 Russia took  the lead in proposing a multinational stablecoin backed by commodities with the Eurasian Economic Union, or EAEU, and BRICS countries [12].

In the beginning of 2024 five more countries—Saudi Arabia, UAE --which have a joint coin initiative ABRA--, Iran, Egypt and Ethiopia  joined BRICS.  In the beginning of the year  BR BR2xIC2xSU2xE = BRICSUE  Russia was passed the baton of the BRICS chairmanship [13].

BRICSUE member countries plan to launch a common currency for their organization that could be a multinational digital currency  backed by a basket of assets or gold. BricsTether already launched a stablecoin that is backed by a basket of assets, providing greater stability and predictability than traditional cryptocurrencies on August 23, 2023 in South Africa at the BRICS Digital Summit [14].

However, recently China’s top legal watchdog clamped down on the use of Tether by declaring that  exchanging local currency for foreign ones using Tether-USDT  stablecoin or providing technical support for exchange services for such transactions is unlawful [15].

Furthermore, an order from Judge Jed Rakoff in the U.S. District Court for the Southern District of New York who granted summary judgment for the SEC stated that stablecoin TerraUST, LUNA, wLUNA, and MIR are securities [16].

Accordingly, BricsThether or BRICSUE issued  multinational stablecoin could be subject it to SEC oversight as a security.    US holders of the BricsTether or BRICSUE stablecoin would be subject to FBAR [17] and to Form 8938 FATCA  reporting requirements [18].

With abundant investment opportunities abound digital Asset investors should be aware that the IRS announced that during 2024 it would focus on compliance initiatives associated with Digital Assets, FBAR and high-income and high-wealth taxpayers.  Noncompliance with FinCen Form 114 and Form 8938 subject’s taxpayer to  severe civil and criminal penalties potentially in excess of the unreported foreign assets themselves. For institutions, noncompliance can result in exclusion from access to U.S. markets.

[1] https://hackernoon.com/craig-wright-is-not-satoshi-nakamoto

[2] https://www.theblock.co/post/270748/someone-sent-1-2-million-of-bitcoin-to-the-genesis-wallet-mined-by-satoshi-nakamoto

[3] https://decrypt.co/210675/satoshi-not-satoshi-craig-wright-uk-case-inches-further-forward

[4] https://coincodex.com/article/28459/satoshi-nakamoto-wallet-address/

[5] https://www.irs.gov/newsroom/e-file-form-8300-reporting-of-large-cash-transactions#:~:text=A%20person%20must%20file%20Form,person%20should%20file%20Form%208300.

[6] https://www.sec.gov/news/press-release/2023-101

[7] https://www.sec.gov/news/press-release/2023-102

[8] https://www.sec.gov/news/press-release/2023-32

[9] https://cryptobriefing.com/sec-leverages-terraform-labs-ruling-in-binance-proceedings/

[10] https://www.theblock.co/post/265684/institutional-investors-poised-for-increased-crypto-activity-in-2024-analysts-say

[11] https://www.theblock.co/post/266872/tether-freezes-all-ofac-sanctioned-wallets-in-proactive-security-measure

[12] https://cointelegraph.com/news/pax-crypto-russia-proposes-first-multinational-cryptocurrency-expert-blog; https://cointelegraph.com/news/russia-leads-multinational-stablecoin-initiative

[13] http://en.kremlin.ru/events/president/news/73202

[14] https://www.bricstether.com

[15] https://examiner.com/china-declares-currency-exchange-via-tether-illegal/

[16] https://www.theblock.co/post/269579/new-york-judge-grants-sec-summary-judgement-over-claim-that-terraform-sold-unregistered-securities

[17] https://www.irs.gov/businesses/small-businesses-self-employed/report-of-foreign-bank-and-financial-accounts-fbar

[18] https://www.irs.gov/businesses/corporations/foreign-account-tax-compliance-act-fatca#:~:text=The%20Foreign%20Account%20Tax%20Compliance,to%20withholding%20on%20withholdable%20payments.