Data Says HODL! People Are Trading Ethereum (ETH) More, Bitcoin Less

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Bitcoin Can Attract Large Capital Inflows on Short Notice: Research

us dollar, bitcoin, cryptocurrency, us dollar index, btcusdt, btc usd, stablecoin Bitcoin Price

Bitcoin Can Attract Large Capital Inflows on Short Notice: Research


  • Bitcoin is at the cusp of attracting large capital inflows from the neighboring stablecoin market, according to a weekly research note published by Glassnode.
  • The on-chain market analyst highlighted that the net supply of dollar-pegged tokens surged higher than Bitcoin.
  • It concluded that more money held in stablecoins increases the chances for Bitcoin to start a new price rally on short notice.

Bitcoin expects to attract a massive inflow of capital in a potential mass-migration from the stablecoin market, so says Glassnode.

The Zug-based data intelligence agency wrote in its weekly research note that the supply of stablecoins outpaced that of Bitcoin. The fractal points to an increase in demand for the US dollar-pegged tokens. Traders and investors can utilize the new stablecoin repository to pump the Bitcoin market.

These non-federal digital dollars tend to improve liquidity in the cryptocurrency market. Traders use them to purchase or sell cryptocurrencies without needing to involve a banking institution – and to seek stability during highly volatile periods of trading.

Lower Bitcoin Volatility

But the last few weeks has encountered Bitcoin in its least-volatile avatar. The cryptocurrency stands stuck in a narrow $300 trading range, with traders unable to establish a definite short-term directional bias.

us dollar, bitcoin, cryptocurrency, us dollar index, btcusdt, btc usd, stablecoin

Bitcoin price is trading sideways in a $9,000-9,300 range. Source: TradingView.com

Theoretically, it should decrease the demand for stablecoins, but their supply rate is rising, nevertheless. The top stablecoin Tether, for instance, reported a market capitalization worth over $10 billion last week.

Glassnode refers to it as “readiness of money” before they flow into the bitcoin market, based on a so-called Bitcoin’s Stablecoin Supply Ratio.

us dollar, bitcoin, cryptocurrency, us dollar index, btcusdt, btc usd, stablecoin

Bitcoin Stablecoin Supply Ratio. Source: Glassnode

“This metric – representing the ratio between the supply of money in BTC and the supply of stablecoins – highlights the theoretical readiness of money to flow into BTC,” the excerpts read. “The more money held in stablecoins, the higher the potential for a large inflow of capital into BTC on short notice.”

The statement also follows as multiple analysts watch the Bitcoin market for its next breakout move. Josh Rager, a US-based cryptocurrency trader, said this Sunday that lower volatility typical entices Bitcoin to undergo 30 percent to 60 percent moves in either direction.

“From current price: 30% move to the upside is $12,200,” he added. “30% move to the downside is $6,500.”

Bullish Mirage

While a higher stablecoin supply may lead the BTC price higher, Glassnode reminded that the same capital could migrate into the altcoin market. Excerpts from its note:

“With this rise in stablecoin supply, we might be seeing people preparing to buy into BTC en masse. But these funds may also be earmarked for another purpose, such as buying into the altcoin pump.”

Almost every top alternative cryptocurrency has delivered better quarter-to-date profits than Bitcoin. Staking coins Cardano and Chainlink are up 28 percent and 53 percent compared to Bitcoin’s 0.17 percent gains.

Glassnode added that investors might be holding stablecoins as a store-of-value asset against an uncertain macroeconomic outlook.

Photo by Aaron Kato on Unsplash

Technicals Indicate Cardano (ADA) Could Still Rally To $0.15 Despite 7% Pullback

Cardano’s price rallied more than 25% in the past few days and it traded close to $0.1400. ADA is currently down 7%, but it is still holding key supports and likely to resume its surge.

  • ADA surged towards the $0.1400 level before correcting lower against the US dollar.
  • The price is currently consolidating above the $0.1200 support zone.
  • There are two important bullish trend lines forming with support near $0.1200 and $0.1180 on the 4-hours chart of the ADA/USD pair (data source from Kraken).
  • The pair is likely to resume its upward move as long as it is above the $0.1100 support.

Cardano (ADA) Holding Uptrend Support

Earlier this month, cardano’s price started a strong increase after it broke the $0.1000 resistance zone. ADA gained bullish momentum above the $0.1200 resistance level and settled well above the 100 simple moving average (4-hours).

The price gained over 25% (outperforming bitcoin) and traded close to the $0.1400 level. A new monthly high was formed near $0.1385 before the price started a downside correction. It corrected lower sharply below the $0.1300 level.

There was a spike below $0.1200, but the bulls protected the $0.1100 zone. ADA recovered and it is currently consolidating above the $0.1200 support zone. More importantly, there are two important bullish trend lines forming with support near $0.1200 and $0.1180 on the 4-hours chart of the ADA/USD pair.

Cardano (ADA)

Cardano (ADA) price testing $0.1200. Source: TradingView.com

The recent low was $0.1200 and the price is testing the 23.6% Fib retracement level of the downward move from the $0.1361 high to $0.1200 low. The first major resistance is near the $0.1280 level.

The 50% Fib retracement level of the downward move from the $0.1361 high to $0.1200 low is also near $0.1280. The main resistance is near the $0.1320 level and a connecting bearish trend line on the same chart, above which the bulls are likely to aim a new monthly high above $0.1400. In this case, the price could test the $0.1500 resistance.

Chances of Downside Break?

If cardano’s price fails to stay above the $0.1200 support, it could correct lower towards the $0.1100 level. Any further gains could intiaite a major decline towards the $0.1000 level.

An intermediate support might be near the 100 simple moving average (4-hours) and $0.1050. A successful close below the $0.1000 support may perhaps push the price into a bearish zone.

Technical Indicators

4-hours MACD – The MACD for ADA/USD is showing a few bearish signs.

4-hours RSI (Relative Strength Index) – The RSI for ADA/USD is currently just below the 50 level.

Major Support Levels – $0.1200, $0.1100 and $0.1000.

Major Resistance Levels – $0.1280, $0.1320 and $0.1400.

Take advantage of the trading opportunities with Plus500

Risk disclaimer: 76.4% of retail CFD accounts lose money.

2020: The Year Ethereum Stayed Home

This is a weird year for everyone and everything, but it’s a particularly weird year for Ethereum. 

Why? The second-largest blockchain by market cap and the largest by contributing developers has always been known for having lots of events. COVID-19 has put the kibosh on that.

“These folks are in a state of constant BUIDLing” Amanda Cassatt, a ConsenSys alum who launched its Ethereal event series, told CoinDesk in an email. “Ethereum is also, by design, a uniquely collaborative community. These factors contribute to the prevalence of and enthusiasm for in-person events.”

Ethereum turns five on July 30, 2020. CoinDesk is marking five years of Ethereum with a series of retrospective stories and live-streamed Twitter conversations. There are even some “Easter eggs” for eagle-eyed readers. Tune in to our CoinDesk Live sessions July 27-31 at 4 p.m. Eastern each day or call +1 (661) 4-UNICRN.

In normal times, there’s roughly one fairly big Ethereum conference somewhere in the world every month, but that has all come to a halt in 2020. The community’s tentpole event, October’s Devcon, announced its next gathering will be in 2021. Similarly, the Community Ethereum Development Conference, or EDCON, has taken 2020 off.

“I guess normally the number of international events feels a little excessive, but EDCON and Devcon are mainstays and it does feel like a loss not to be able to have them,” Jinglan Wang, leader of the Optimism scaling project, told CoinDesk.

Ethereum during coronavirus

This reticence to meet up makes sense due to safety concerns around COVID-19. 

After all, one of the last big Ethereum events, EthCC, turned out to be the source of a COVID-19 cluster. Still, it makes for a very different time in the community, particularly if this dearth of gatherings drags on into next year.

Lane Rettig, an Ethereum core contributor and former Ethereum Foundation employee (now at SpaceMesh), told CoinDesk this time at home has made him realize how much he wasn’t getting done.

“I think I had convinced myself I was operating at 60%-70% productivity. I was probably more at 20% productivity,” Rettig said.

While he’s enjoying this greater sense of accomplishment, Rettig also believes there’s more to Ethereum’s tendency to gather than just having the largest community of devs.

The enjoyment of being together is part of the stickiness of Ethereum’s underlying technology.

“I do think the in-person events are part of the DNA of the community and part of what binds us all together. And some of the affinity we share could hypothetically begin to dissipate,” Rettig said of the current situation. “If this was to go on some indefinite period, I would really be worried.”

The last Devcon?
Source: CoinDesk archives

Remote-first

But token investor William Mougayar was eager to downplay any risk. “The Ethereum community has been used to working virtually anyway,” Mougayar told CoinDesk.

Rettig, however, cited a comment from a friend to express what he’s worried about if folks go too long without hanging out and having spontaneous encounters at events. “The reason I’m here and the reason we’re all here is because we want to work on cool shit with people we like and do it in a sustainable way,” Rettig said, paraphrasing the comment from his Ethereum colleague.

It’s that “with people we like” part that gets harder and harder to replicate virtually.

No one knows quite when to look for the next big Ethereum gatherings to take place.

“Given our community’s interest in events, I could see larger in-person gatherings resuming in 2021,” Cassatt predicted, but she also expects hybrid on- and off-line gatherings will be the norm from here on out. The virtual experience will vastly improve during COVID-19, she added, even for events that go back to an in-person focus.

What’s missing

“There’s been a lot of snarky discussion around people saying we’re glad in-person conferences aren’t happening because now we are building more, which I think is a little shortsighted,” ConsenSys developer relations staffer Coogan Brennan told CoinDesk.

Optimism’s Wang agreed on the value of in-person events: “They’re great opportunities to meet projects that you’ve been chatting online with, or random crypto people whose tweets you enjoy.”

Rettig shared a particularly concrete example of how events can be helpful for distributed teams. When he was working for the Ethereum Foundation’s eWASM team (which is porting the popular WebAssembly framework, in part, over to Ethereum), he said they tended to gather a few times each year, anchored to some Ethereum event, be it Devcon, ETHDenver or some hackathon. They’d rent a whole-house Airbnb and live together and work side-by-side for a week. A physical hangout that was otherwise unheard of.

“It would be very intense. Professionally as well as socially,” Rettig said.

ETHDenver 2019
Source: CoinDesk archives

Jared Wasinger, still of the eWASM team at the Ethereum Foundation, confirmed that these side gatherings have been key. 

“I would say that the in-person events are definitely important from a morale point of view,” he said.

Similarly, ConsenSys’s Brennan said events served as a kind of punctuation in the year that Ethereum teams could organize their work around. A lot of product launches and debuts where driven by reveals at events. That was a way of driving excitement.

“Ethereum conferences are very very known for dogfooding,” the Ethereum Foundation’s Hudson Jameson said. “It inspires a lot of confidence in the community. People are using the things they are building and that brings people a lot of joy.”

The online events themselves have been more beta tests than real products as of yet, though, as Cassatt noted. 

“I haven’t seen any event completely crack the code on virtual networking, virtual sponsorships, or ticket sales,” she said. “Virtual events may be a tougher sell to sponsors, but I’m looking forward to seeing creative solutions emerge for virtual events to offer sponsors value in new ways.”

What’s gained

“Maybe there were too many events. This kind of break, if anything, it’s positive. It’s a benefit because there’s been more productivity,” Mougayar said.

“Most events felt like a distraction to me, if I’m being honest,” Spencer Noon, of DTC Capital, told CoinDesk. “I’m actually pretty bullish on people in the community organizing some awesome virtual events, though.”

Noon may have been the only person CoinDesk spoke with that had real excitement about the potential of virtual gatherings. In fact, Rettig in particular noted how virtual events do a bad job of replicating the hallway (or lobby) conference, which is what people really go for. Still, many are looking forward to saving money on travel now and seeing more conference content delivered electronically.

For Jameson, there is an advantage in making the discussion around Ethereum more accessible.

“It is a privilege to be able to travel the world,” Jameson said. “That intrinsically creates this different class system.”

Moving these things online has a leveling effect that brings more people into discussions in real time, which is when people want to participate in them.

Brennan took this a step further, saying that with online events “you really have to engage people in a way about tangible technologies.” 

He said his team has found a need to actually give people a way to work on their code rather than just wowing folks with a charismatic on-stage presentation. “One of the things we have been trying to do with our ConsenSys Live series is to actually have code on screen,” he said.

Mougayar also spoke about having done a long workshop with on-screen code and feeling that by doing it from home he could really focus in on it more.

The Ethereum Foundation’s Jameson concurred. “I think this creates a whole new paradigm of having to keep people’s attention rather than waiting for the next big event to hear the next big announcement,” he said.

Disclosure

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Gold Bug Peter Schiff Learns Bitcoin Holders Won’t Sell at Any Price

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Focus on USDT and DeFi as 5-Year Anniversary of Ethereum Approaches

What can I do to prevent this in the future?

If you are on a personal connection, like at home, you can run an anti-virus scan on your device to make sure it is not infected with malware.

If you are at an office or shared network, you can ask the network administrator to run a scan across the network looking for misconfigured or infected devices.

Crypto Taxes: Still Confused After All These Years

Kirk Phillips is an entrepreneur, certified public accountant (CPA) and author of “The Ultimate Bitcoin Business Guide: For Entrepreneurs & Business Advisors.”

You need to be nimble to be a crypto tax professional. As the industry has evolved over the last few years, there have been many technology changes, and many changes in how the IRS treats crypto taxation issues.

Between 2014, when the IRS issued its first virtual currency notice, and 2019, when it published new virtual currency FAQs, we saw all kinds of innovation requiring tax rethinks. Chain-splits, airdrops, token swaps, staking, DeFi yield farming, synthetic assets and more emerged in that period. 

This explains why the AICPA (which represents accountants), the American Bar Association, and Coin Center have worked feverishly behind the scenes explaining to the IRS how “virtual currency events” should be taxed. As a member of the AICPA Virtual Currency Task Force, I’ve been fortunate to participate in these conversations and get a first hand view. 

Crypto and Taxes 2020: Wednesday is this year’s deadline for Americans to file their tax returns, and cryptocurrency users’ obligations are as confusing as ever. This series of articles explores the complex issues facing digital asset investors.

Read more:

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Hodlers Can Donate Crypto to Charity to Minimize Tax Payments

But, even today, it’s arguable whether we have greater clarity than before. Many tax professionals claim the recent guidance didn’t provide much clarity and created more confusion than it dispelled. For example, Rev. Rul. 2019-24 describes an “airdrop after a hard fork.” However these are independent and unrelated events, so professionals find it challenging to interpret the meaning and how to apply it. 

This situation isn’t unique to crypto. Sometimes the IRS publishes final regulations more than a decade after taxpayers wish they were available. But it does make for unpredictable outcomes and forces individuals and businesses to file more in hope than expectation that they’ve acted correctly.  

Even in a world where all taxpayers operate in good faith and make their best compliance efforts, they might take a completely different approach to the same scenario. For example, Taxpayer A arrives at a non-taxable or tax-deferred scenario while Taxpayer B concludes they have ordinary income, yet both were engaged in the same Virtual Currency Transaction X. 

Tax positions are a game of risk management taking account the likelihood of audit, the strength of the position and amount of the tax liability, penalty and interest due if a taxpayer “loses the game.” 

Risk management gets more complex when tax advisors are involved because their asses are on the line. There are more professional liability claims for tax services than any other service offered by CPAs. (Audit claims are higher in dollar value but lower in number.) 

With this in mind, some tax preparers are undercharging for services and many taxpayers don’t understand how tax preparer risk is properly reflected in the price. Almost anyone can prepare taxes for hire and you don’t have to be a CPA. But like Robert Kiyosaki says, “free advice is the most expensive advice,” referring to people who like to get advice from an “expert friend.”

Tax compliance and tax reporting are a collaborative dance between taxpayer and tax advisor. A taxpayer may prefer a more aggressive tax position, but both the taxpayer and tax advisor are simultaneously on the hook, albeit in different ways. Both parties have to come to and be comfortable with their consensus. Just add in crypto and the process becomes more challenging. 

What we’ve seen since the IRS’s 2014 Notice makes it easy to conclude there’ll be a larger cornucopia of “virtual currency events” over the next six years for the crypto tax industry to digest. Taxpayers will continue to take varied positions, some of which will be audited as the IRS steps up compliance efforts and finds a long-term approach. 

The audits that end up in tax court will set “de facto tax guidance” for the whole industry to follow. The rulings are sure to be as entertaining but it’s a long road to reveal the answers taxpayers want today. Perhaps tax courts will chime in on whether chain-split coins are ordinary income when a taxpayer exercises dominion and control, capital gains only when sold or something else. 

In the meantime, the AICPA, Lukka Library and individual CPA and law firms are producing excellent resources to help navigate uncertain crypto seas. The result is a “collective knowledge base” allowing everyone to benefit. Tax clarity is ever-evolving, so get educated. 

Enjoy your ride on the crypto tax rollercoaster. No face mask required. 

Disclosure

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Even the IRS Admits Some Crypto Tax Regulations Are ‘Not Ideal’

Roughly four hours into a phone call with a TurboTax representative, in which she had to sort through the company’s own internal resources in order to answer my questions, I found out I probably didn’t owe any taxes on my admittedly meager bitcoin holdings. It should have been obvious: At no point did I sell for fiat or convert into another crypto. 

In reporting this article, I was also reminded I should check my Blockchain account to see if I ever received the XLM it was airdropping because that might also result in me owing taxes on crypto (I did not). Do I need to report the $15 in bitcoin I sent to a hardware wallet I can’t access anymore? (I don’t think so?) 

U.S. taxpayers have until Wednesday to file their 2019 returns, if they haven’t already, or otherwise request an extension. I’ve been covering taxes around the crypto space for most of the past year, and have talked to more than half a dozen certified public accountants, tax lawyers and other professionals about what the IRS’s issued crypto tax guidances are actually telling us. If a reporter who’s been embedded in the space is having this much trouble, imagine how hard it might be for a complete newcomer.

This is going to remain one of the biggest barriers to mainstream adoption.

Crypto and Taxes 2020: Wednesday is this year’s deadline for Americans to file their tax returns, and cryptocurrency users’ obligations are as confusing as ever. This series of articles explores the complex issues facing digital asset investors.

Read more:

IRS Violated ‘Taxpayer Bill of Rights’ With 2019 Crypto Letters: Watchdog

Crypto Taxes: Still Confused After All These Years

Hodlers Can Donate Crypto to Charity to Minimize Tax Payments

Even the IRS admits the guidance leaves questions unanswered. An IRS official said taxpayers should take advantage of both the forms that exchanges are issuing to list taxable events and the different software tools that have been built to help simplify the process. 

The official, who did not have authorization to speak publicly, acknowledged that some of the guidance published to date could be clarified and “is not ideal,” saying the agency is working to keep up with the crypto industry.

One of the major outstanding questions falls around information reporting, said Michael Meisler, a partner at Ernst and Young (EY) who specializes in taxes and is the Big Four auditor’s global blockchain tax leader. 

Taxpayers can use different methods to report how much they believe they owe, but they should be consistent when calculating gains and losses. Using weighted averages, for example, might be impermissible under existing guidance and the FAQs (which Meisler noted is not “published guidance” in the legal sense).

The IRS official agreed, telling CoinDesk that this is the next issue on its list around crypto.

“The IRS is working on guidance about how to get proper information reporting and what is the proper form of information reporting, and the IRS has recognized that that guidance is lacking as far as what the exchanges should report on,” the official said. “We’re working on that as part of our guidance plan and that is really probably the top most guidance priority for the IRS, in, in the realm of virtual currency at this time.”

Other questions

Another unanswered question around crypto taxes revolves around staking, Chandrasekara said. He pointed to Ethereum’s pending upgrade to Eth 2.0, which will see the second-largest cryptocurrency’s consensus mechanism switch from proof-of-work (where computers maintain the network by running complex calculations and issuing blocks with crypto in them as a reward for miners) to proof-of-stake (where computers maintain the network by locking in large amount of wealth from validators that earn annualized interest as new blocks are issued).

“There’s a lot of people making passive income through staking,” he said. 

It gets weirder with decentralized finance. While centralized exchanges are publishing 1099 forms and sending both the IRS and taxpayers information about their transactions, decentralized platforms might not be.

“DeFi platforms aren’t issuing tax forms,” Lodha said. 

Margin trading is another issue where unsophisticated users are ending up with leveraged positions, since crypto derivatives settled in crypto essentially mean the taxpayer is receiving property at the end of the transaction. 

“There’s pretty clear guidance on non-crypto futures, like if you’re trading regulated commodity futures, that are [U.S. Commodity Futures Trading Commission] regulated, there’s like a ton of legislation around how that works,” he said. 

Crypto futures fall into a fuzzier category, particularly as unsophisticated traders (like some Robinhood users) might end up with highly leveraged positions without understanding the tax implications, he said. 

The way IRS guidance on airdrops and hard forks is currently worded may be unclear, the official added.

At present, the biggest issue the IRS has is a resource one, given how quickly the industry changes and the other issues facing the agency today, including the response to COVID-19.

“[The] industry changes so quickly that to try and keep up with the industry and make the guidance relevant [is challenging]. At the same time the IRS has been facing other legislations with regard to the Taxpayer First Act and then some of the legislation with respect to COVID,” the official said. “The biggest challenge is just kind of resource, and facing the other legislative priorities that have been coming out.”

Still, the IRS has published multiple pieces of guidance and its FAQs, which shed some light on what taxpayers might owe and how they should calculate those costs. 

Filing your taxes

What the IRS has made clear is taxpayers need to file if they made (or lost) any money as a result of exchanging their crypto for fiat or another cryptocurrency; if they gained any crypto as a result of airdrops or hard forks; or if they gained funds as a result of staking or mining. 

The IRS added a mandatory question to the U.S. tax return last year, asking if the individual held or transacted with crypto during the year. 

“That question proves intent, so if you lie to that and then the IRS finds out through [a] 1099 that exchanges issue or through scanning the blockchain … then all of a sudden it can turn criminal,” said Austin Woodward at crypto tax startup TaxBit. “It is important to take that question seriously and answer it honestly.”

The IRS is cracking down on crypto taxes this year in a way the agency hasn’t in past years, said Chandan Lodha of CoinTracker, another crypto tax service. 

He pointed to the 1040 form, last year’s updated guidance and the 10,000 warning letters the IRS sent out to taxpayers last year. IRS job postings also seem to indicate that the agency is “doubling down on hiring consultants” to track transactions and de-anonymize transactions. 

If taxpayers don’t have the necessary information to fully file their taxes, they should file for an extension, said CoinTracker’s Shehan Chandrasekara (Lodha said doing so is “super trivial” with no downside). 

He noted that the extension only allows taxpayers to file their forms later, but any payments they owe are still due on July 15. 

Just by filing an extension, taxpayers might avoid having to pay a penalty for being late on their paperwork, he said. Still, they might owe some penalties for paying late (which is better than not filing at all and potentially being audited).

“My recommendation is if somebody doesn’t have all the information to figure out their tax liability, just be more conservative,” he said. If a filer says they made more on crypto than they actually did, they’ll get whatever excess they paid back. 

Remaining compliant

The IRS takes enforcement more seriously than comparable agencies in most other countries, Woodward said, similar to the Australian Tax Office. 

The agency mailed some 10,000 letters to taxpayers in 2019, asking them to verify their crypto transactions and offering hints at how to calculate their fair holdings’ fair market value. A second set of letters warned taxpayers that they may have incorrectly reported their holdings, and detailing what the agency believed to be the correct amount owed.

“I think right now [the IRS’s taxation treatment] falls in line pretty closely with that of equities so it’s nothing new. It’s been around for you know decades now,” Woodward said. “It’s just cumbersome in the crypto space as opposed to the equity space because there’s so much more transaction volume.”

The IRS is definitely taking the space seriously though, he said, a sentiment Lodha echoed. 

There’s “significant evidence” that the IRS cares, including through its recent postings seeking expertise around crypto transactions, Lodha said.

The IRS official CoinDesk spoke to recommended using the different software tools that have been released. 

“Taxpayers should at least use the information that their exchanges provide and reflect that on their returns, and there are tools out there that they can use that interact with these exchanges that [conduct] the process now kind of seamless in the realm of someone who’s engaging in cryptocurrency transactions,” they said.

It’s important to be careful when using different software products as well, Meisler warned. Different software solutions running the same data might calculate different gains/losses due to how they interpret guidance. This could happen if one solution calculates fees different from another, for example. 

The taxpayer would still be responsible for accurately reporting their holdings to the agency, he said.

“If the guidance is lacking the taxpayer should use their best efforts and then take consistent positions from their reporting,” the IRS official said.

Disclosure

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Hodlers Can Donate Crypto to Charity to Minimize Tax Payments

With the tax deadline just around the corner, crypto holders are stressing over the dreaded capital gains tax. But they can write it off by donating to a worthy cause of their choice, according to one crypto-focused charity.  

The Giving Block, a platform that enables nonprofit organizations to accept donations in cryptocurrency and has helped raise over $1 million to support pandemic relief efforts through its #cryptoCOVID19 campaign this year, is hoping to make it easier for taxpayers to file their returns by publishing a guide on how to donate their holdings and maybe minimize some taxes.

The group collaborated with crypto tax software TAXbit to create the guide, said co-founder Alex Wilson. 

“In our opinion, most crypto users still don’t know that they can donate crypto and save money on their taxes,” Wilson said. 

Crypto and Taxes 2020: Wednesday is this year’s deadline for Americans to file their tax returns, and cryptocurrency users’ obligations are as confusing as ever. This series of articles explores the complex issues facing digital asset investors.

Read more:

Even the IRS Admits Some Crypto Tax Regulations Are ‘Not Ideal’

Crypto Taxes: Still Confused After All These Years

Even the IRS Admits Some Crypto Tax Regulations Are ‘Not Ideal’

According to the tax guide, which was first published last week, if a taxpayer donates cryptocurrency to a 501(c)(3) qualified nonprofit organization, it is a “non-taxable event for givers and receivers.” This means the donation will not be recognized as income or as a gain or loss. Donors do not have to pay capital gains tax on appreciated cryptocurrency, and will qualify for itemized charitable deductions depending on how long they held the crypto asset before the donation was made.

“If you held the cryptocurrency for more than a year (‘long-term’) prior to the donation then you will be eligible for the itemized charitable deduction for the fair market value (FMV) of the cryptocurrency at the time of contribution, in addition to not incurring a taxable gain on an appreciated asset,” said the guide. 

This claim is backed up by the IRS’s non-binding Frequently Asked Questions.

Wilson said that 29 nonprofit organizations signed up to receive funds through the COVID-19 campaign, while 50 different corporate partners came together to help raise funds and awareness. Bitcoin (BTC) was the most donated cryptocurrency followed by ethereum (ETH). 

“Now we are looking to replicate that success with the #CryptoForBlackLives campaign,” Wilson said. 

Launched last month, the initiative hopes to raise $1 million for the civil rights campaign, with about $50,000 raised so far.

The Giving Block was founded two years ago by co-founders Wilson and Pat Duffy, when they realized crypto users had a tax incentive to donate their virtual currency directly to nonprofits. Wilson said the platform currently supports over 50 nonprofit organizations.

Crypto tax attorney Justin Woodward, the guide’s author, said in a statement to the press that it was “far more tax advantageous to donate capital assets rather than traditional fiat.”

“We believe it to be the future of charitable giving,” Woodward said. 

Brave’s basic attention token (BAT) was recently added to the platform’s list of accepted cryptocurrencies. 

Disclosure

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.