Intro/Disclaimer: In late 2022 I started preparing updates for the attorneys at my firm practicing in the Web3 space regarding what legal stories people were talking about the prior week. The firm has started turning these into bi-weekly posts on the award winning BitBlog summarizing the top stories with tl;dr breakdowns on the stories’ importance and general thoughts on their ripple effects on the industry. But for more comprehensive and unfiltered thoughts, I have been putting the weekly updates on my personal blog as well on Tuesdays. Note, any opinions from these (or any of my other) blogs are mine alone, and are not adopted or endorsed by my firm.
Last week, many were focused on locking in tax losses before end of year, and this week everybody was focused on tax reporting obligation which went into effect (technically) on January 1. There was also debate over the Bitcoin Spot ETFs, as one reporter from Matric Report issued two releases reaching opposite conclusions on the same day after he “changed [his] view.”
Here’s everything that happened last week in Web3 law:
2024 Crypto Tax Reporting Unclear Under Infrastructure Investment and Jobs Act
The Infrastructure Investment and Jobs Act, which passed Congress in November of 2021, included a provision amending the Tax Code (“6050I”) to require anyone who receives $10,000 or more in cryptocurrency in the course of their trade or business to make a report to the IRS about that transaction. The law became effective as of January 1, 2024, leaving many unclear as to their reporting obligations. Coin Center filed a lawsuit challenging the law in the summer of 2022 and has posted their current thoughts about it here.
Tl;dr: Jason Schwartz, a tax partner and head of digital assets at Fried Frank had a great thread breaking down the reporting obligations. He and others have reported that the IRS appears to believe that the 6050I reporting requirement doesn’t actually come into effect for crypto until after regulations are issued. This also only applies to receipts of one or more related transactions which were received in business and amount to over $10,000. So 10,000 people buying a jpg for $100 each is not something that trigger reporting obligation, nor is most day trading even at large scale. Additionally, failure to file is a $50 fine unless intentional (and hard to say it would be intentional here in most cases without clarifying rules), so for now it is likely best to simply maintain accurate books and records and wait for further guidance.
Other Stories
Visa continues to lead the way amongst payment processor service provider in Web3, releasing a Web3 loyalty service this week. Visa-backed Playbux is also experimenting with a fair community offering (FCO) for a token distribution method which is interesting. Visa and Square are the leaders in my mind for the next wave of payments in self-custodial assets.
All eyes were on the spot bitcoin ETF applications this week as we get closer to expected approval. JP Morgan and Jane Street got involved in the BlackRock product offering. Others amended their applications following the financial giant’s lead. There were also reports (the source of which appear to be made up thoughts of one reporter) that the applications would be rejected. This waiting game has gotten rough to keep updating on, and I think I agree with Matt Levine (shocking) that this is call for crypto in the “number go up” sense but doesn’t really accomplish any of its goals or seriously onboard anybody into its real uses. I won’t complain if my ETH bags go up, though.
As Google moves away from cookie tracking, NFTs and digital wallets are increasing going to be used to track user bases and link products to potential customers of those products while maintaining individuals’ privacy.
It is actually insane all the things Polygon Labs accomplished in 2023. It is impossible to not be impressed reading through this thread. Polygon’s chief legal and policy officer Rebecca Rettig also had this great Op-Ed in Tech Crunch this week. As everybody who reads this weekly rundown knows, I have so much faith in Web3 gaming, and it is impossible to bet against Polygon as leader in that space.
The Jim Cramer Curse is real and I won’t be told otherwise.
This Franklin Templeton-backed Receipts Depositary Corporation for bitcoin-based depositary receipts is interesting especially with the above spot Bitcoin ETFs. Just giving more opportunity for exposure to crypto to traditional investors.
Airdrop season marches on. It is honestly hard to keep track to make sure money isn’t being left on the table, but anybody with an active digital wallet over the past few years should be paying attention.
It looks like we are getting a hearing next week on Congress “Examining the Impact of FSOC’s Ever-Changing Designation Framework on Innovation” so as a privacy maxi I am excited to see what comes of that.
This is an article from November I missed but make a valuable point about how AI makes crypto, and its system of trustless and digitally un-fakable assets.
Big fan of this CapHillCrypto update which included a conversation with the Global Head of Policy at Ledger about the self-custody considerations for the upcoming legislative session.
Mango Markets got “highly effective trading [strategized]” (aka, exploited) and now they are dealing with regulatory issues on top of losing their funds. Really interesting from a legal perspective though, as the development company appears to be separating from the DAO for the Solana-based DeFi platform.
As somebody who is going to be one of the fools that buys the $3,000 Apple goggles in February knowing it is dumb to buy the first generation of any tech product, I am very ready for the Metaverse sponsored by Visa and Warner Brothers.
Logan Paul is buying back the assets form his failed NFT launch and the release is a doozy. It is limited to primary purchasers, so you’re out of luck if you purchased on secondary or transferred to cold storage or something.
Missouri’s Blaine Luetkemeyer will not be seeking reelection in Congress, which clears the way for crypto advocate French Hill to chair the House Financial Services Committee if the Republicans retain the House and with current Chair Patrick McHenry leaving as well.
Conclusion
If you have any questions or would like me to write about anything else, let me know on either of my twitter pages! As always, I am an attorney, I am not your attorney. For legal advice, you should always consult (and pay for) an attorney.
The NFTtorney 