Weekly Blockchain Focus
- Senate Holds Hearing on Stablecoins
- Senate Confirms New Commodities Futures Trading Commission Chair
- U.S. National Credit Union Administration Clarifies Ability of Federally Insured Credit Unions to Partner With Third-Party Digital Asset Service Providers
- IRS Revises Language on Form 1040
- Ninety Percent of Bitcoin’s Total Supply Mined
- Chinese Court Declares Mining Contract Void
Senate Holds Hearing on Stablecoins
The United States Senate Committee on Banking, Housing, and Urban Affairs held a hearing on stablecoins on Tuesday, December 14, 2021, featuring testimony from a cross section of law, policy, and technology. The witnesses included Ms. Alexis Goldstein, Financial Policy Director, Open Markets Institute; Mr. Dante Disparte, Chief Strategy Officer and Head of Global Policy, Circle; Ms. Jai Massari, Partner, Davis Polk & Wardwell, LLP; and Professor Hilary J. Allen, American University Washington College of Law. The hearing was titled “Stablecoins: How Do They Work, How Are They Used, and What Are Their Risks?”
The hearing featured a range of views from senators including Sherrod Brown and Elizabeth Warren (who highlighted the potential volatility and asset-backing risks of stablecoins) and Pat Toomey (whose remarks predicted that stablecoins may “speed up payments, especially cross-border transfers, reduce costs, including remittances, and help combat money laundering and terrorist financing through an immutable and transparent transaction record.”). Prior to the hearing, Senator Toomey released a legislative framework which would allow stablecoin issuers to “choose from at least three regulatory regimes based on their business models: operate under a conventional bank charter; acquire a special-purpose banking charter designed for stablecoin providers in accordance with new legislation; or register as a money transmitter under the existing state regime and as a money services business under FinCEN’s federal regime.”
Some testimony noted the potential for high transaction fees and technological barriers such as internet access, which can hinder financial inclusion. Others noted that the technology will continue to improve and may increase overall access to financial markets.
Senate Confirms New Commodities Futures Trading Commission Chair
On Wednesday, December 15, 2021, the U.S. Senate confirmed Rostin Behnam as the newest chairman of the Commodities Futures Trading Commission (CFTC) by voice vote. Behnam had served as acting chair since January of 2021 and had been a commissioner since 2017. Behnam requested Congress expand the CFTC’s authority over cryptocurrency markets in an October confirmation hearing. Reporting from The Block is available here.
U.S. National Credit Union Administration Clarifies Ability of Federally Insured Credit Unions to Partner With Third-Party Digital Asset Service Providers
The U.S. National Credit Union Administration, which provides deposit insurance to depositors in U.S. federal and state-chartered credit unions, published a statement “to provide clarity about the already existing authority of federally insured credit unions (FICUs) to establish relationships with third-party providers that offer digital asset services to the FICUs’ members, provided certain conditions are met. This includes third-party provided services to allow FICU members to buy, sell, and hold uninsured digital assets with the third-party provider outside of the FICU.” The statement refers to “digital assets” as “one of many terms used to describe distributed ledger technology (DLT) based tokens[,]” and includes a broad collection of other terms for digital assets (such as cryptocurrency, virtual currency, and utility tokens). The statement explains that “as insurer, the NCUA does not prohibit FICUs from establishing these relationships.”
The statement explains that FICU’s engaging in this sector must ensure compliance with all applicable federal and state laws and regulations, and should be “cautious that these functions do not create an agency or brokerage relationship and trigger compliance problems under any applicable laws.” These may include laws related to consumer financial and investor protection, cybersecurity, the Bank Secrecy Act and anti-money laundering, Office of Foreign Assets Control sanctions requirements, and other safety-and-soundness practices. The statement prescribes general guidelines to follow when participating in the described activities.
Kyle Hauptman, vice chair of NCUA, told Coindesk:
“Credit unions have been watching endless outflows of cash to crypto exchanges, and many people would rather use their primary financial institution for their first foray into crypto investing. Today’s guidance helps both concerns and gives a new revenue stream to credit unions [that] want to try it out. Financial services has always been ‘adapt or die’ and I don’t want credit unions to go the way of Blockbuster Video because we, the regulators, prevented innovation.”
A copy of the statement is available here.
IRS Revises Language on Form 1040
In preparation for tax season, the IRS has revised language on Form 1040 (U.S. Individual Income Tax Return). While the IRS has asked about digital asset activity of filers since 2019 (through Form 1040A and then Form 1040 as reported here), previously the language read, “At any time during 2020, did you receive, sell, or otherwise acquire any financial interest in any virtual currency?”
It now reads, “At any time during 2021, did you receive, sell, exchange, or otherwise dispose of any financial interest in any virtual currency?”
The current draft instructions require that this question be answered, and clarify that merely purchasing or holding virtual currency does not require checking “Yes.” Rather, the instructions list exemplary taxable activities, such as:
- The receipt of virtual currency as payment for goods or services provided;
- The receipt or transfer of virtual currency for free (without providing any consideration) that does not qualify as a bona fide gift;
- The receipt of new virtual currency as a result of mining and staking activities;
- The receipt of virtual currency as a result of a hard fork;
- An exchange of virtual currency for property, goods, or services;
- An exchange/trade of virtual currency for another virtual currency;
- A sale of virtual currency; and
- Any other disposition of a financial interest in virtual currency.
The instructions further state: “[a] transaction involving virtual currency does not include the holding of virtual currency in a wallet or account, or the transfer of virtual currency from one wallet or account you own or control to another that you own or control. If your only transactions involving virtual currency during 2021 were purchases of virtual currency for real currency, including the use of real currency electronic platforms such as PayPal and Venmo, you are not required to check the “Yes” box next to the virtual currency question.”
Ninety Percent of Bitcoin’s Total Supply Mined
With Block 714032, 90% of the total supply of 21 million BTC has been mined, taking 12 years, 11 months, and 13 days to do so. Meanwhile, the hash rate (the amount of computing power being used to conduct transactions) hit a record high on December 8, 2021.
Chinese Court Declares Mining Contract Void
The Chaoyang District People’s Court issued a decision on Wednesday regarding a contractual dispute over monetary damages related to an investment in a bitcoin mining firm. According to the South China Morning Post, the case involved an investment by the plaintiff made prior to China’s May 2021 ban on bitcoin mining (and, in fact, during a period when local governments “offered incentives to companies to encourage energy-intensive mining farms so they would consume excessive hydro power”). The plaintiff claimed 278.17 BTC in damages. The court declared that the contracts were “invalid.” According to the South China Morning Post, following the decision the Sichuan branch of the National Development and Reform Commission moved to shut down any remaining mining farms.