News Updates January 26, 2023
1. China starts taxing crypto investors and Bitcoin miners 20%. For a long time, China has had a complicated relationship with the cryptocurrency industry, its government indecisive on the policies that have ranged from a total ban to investigating the utility of blockchain. Most recently, some local authorities have started to impose a hefty income tax on crypto.
Specifically, a number of crypto whales, miners, and other investors have said they were being audited by their local tax departments over personal income tax, starting in early 2022 and still awaiting the results, Colin Wu reported on January 25.
According to the report, this represents the implementation of a 20% personal income tax on investment profits or individual cryptocurrency investors and many Bitcoin (BTC) miners after several major domestic exchanges handed to the tax authorities extensive information about some of the whales’ transactions.
Differing stance on digital assets
Although this practice would imply that the Chinese government may have finally recognized the legal status of cryptocurrencies, the reality is more complex, with tax authorities and financial authorities having differing views on the legality of crypto.
In October 2021, China Tax News, a subsidiary of the State Administration of Taxation, published an article stating that the services previously provided by overseas exchanges to Chinese residents were “not expressly prohibited by law”, but imposing VAT, enterprise income tax, stamp duty, and other related taxes on the income they obtain from China.
At the same time, China has strict constraints on illegal financial activities in the form of digital currencies, but, within its current legal framework, it doesn’t prohibit individuals from holding the likes of Bitcoin, with the trading of virtual currencies defined as an “invalid civil act”, but not explicitly prohibited by law.
On the other hand, an article in the China Public Prosecutor’s Journal from November 2022, highlighted that the government had tightened its oversight of digital assets such as Bitcoin in recent years, citing substantial financial risks associated with them.
The taxation department has its own basis for taxation, according to a senior tax professional, as tax audits on whales have become stricter, and the tax authorities have recently launched investigations of the overseas income of high-net-worth individuals.
China’s complex crypto connection
More than nine years ago, China started to restrict the use of cryptocurrencies, primarily Bitcoin, by the country’s banks, but it has since unwittingly become a silent crypto whale, in part thanks to its restrictive measures, and has ranked as one of the top ten countries in crypto adoption.
Interestingly, the FTX bankruptcy filing has recently also revealed that mainland China accounted for the third highest share of customers of the crypto exchange, right after island tax havens such as the Caymans and the Virgin Islands.
In fact, China’s crypto possessions, the result of confiscating a large amount of Bitcoin and Ethereum (ETH) from the Plus Token scheme in 2019, are so massive, that the country could tear down the entire crypto market in seconds if it chose to.
2. Tesla Did Not Buy or Sell Any Bitcoin in the Fourth Quarter
The company reported $34 million in impairment charges to its bitcoin holdings, however.
Electric car maker Tesla (TSLA) did not buy or sell any bitcoin in the fourth quarter for the second straight quarter, the company reported Wednesday in its latest earnings report.
The value of its digital assets at the end of the quarter was $184 million, down from $218 million at the end of the third quarter due to impairment charges from a decline in bitcoin's price. At the end of the third quarter, the price of bitcoin was slightly under $20,000, while at the end of the fourth quarter it was around $16,500.
Tesla also made no changes to its bitcoin holdings in the third quarter, but in the second quarter the company surprised some investors by selling $936 million worth of bitcoin, or approximately 75% of its total holdings, in order to raise cash due to uncertainty over COVID-19 lockdowns in China. But CEO Elon Musk said at the time the company was open to increasing its bitcoin exposure in the future and that the sale “should not be taken as some verdict on bitcoin."
Overall for the fourth quarter, Tesla reported adjusted earnings per share of $1.19, ahead of the consensus of analyst estimates reported to FactSet of $1.13 a share, on revenue of $24.3 billion, below analyst estimates of $24.7 billion. Shares of Tesla were down 0.3% to $143.95 in after-hours trading Wednesday.
3. Moody’s Developing Scoring System for Stablecoins: Bloomberg
The move comes as the quality of stablecoin reserves continues to receive scrutiny.
Global ratings agency Moody’s is working on a system to score up to 20 stablecoins based on the quality of their reserves attestations, according to a report from Bloomberg, citing a person familiar with the plans.
The project is in its infancy, however, and won’t be issuing official credit ratings, another person told Bloomberg.
The resiliency of stablecoins and whether they're backed by a reliable pile of money is a longstanding issue in the crypto industry. Stablecoins are meant to closely track the value of something else, often the U.S. dollar. So if investors have put, say, $10 billion into a stablecoin, there should, in theory, be $10 billion sitting somewhere to back it up.
The largest stablecoin, Tether's USDT, has been dogged for years by concern that it has not been fully backed. In 2021, Tether was forced to pay $18.5 million in penalties after New York State found that it had falsely claimed that its stablecoin was fully backed 1-to-1 by U.S. dollars.
Moody’s did not immediately return a request for comment.
4. VeChain partners with United Nations to improve sustainability - VET jumps 8%
The VeChain (VET) blockchain is making steady progress toward its goal of being the central component of blockchain-based sustainability in the real world.
Indeed, the VeChain Foundation disclosed on January 25 that it would be using the VeChain blockchain in order to achieve the 17 sustainable development goals (SDGs) established by the United Nations (UN).
VeChain enthusiasts are bullish about the network’s prospects in 2023. This confidence is echoed by the VeChain Foundation, which announced that it could weather any crypto market storm with a war chest of assets worth at $397 million as of Q3 2022.
All in all, the native token of the enterprise-grade L1 VeChainThor blockchain, VET, has traded well so far in 2023, climbing over 50% since the start of January.
5. Stablecoin Regulation Is First on New Subcommittee’s To-Do List, Says Chairman
Rep. French Hill said the digital assets subcommittee plans to use its stablecoins draft as a model for how it will approach digital asset regulation moving forward.
Stablecoin legislation will be one of the top priorities for the newly formed U.S. House of Representatives subcommittee on digital assets, financial technology and inclusion, Rep. French Hill (R-Ark.) said told CoinDesk TV’s “First Mover” on Thursday.
“That’s a starting point for the committee,” Hill said. “But we want to also pursue … a privacy statute federally, which I think is important to a digital future [and] part of the foundation of moving from an analog financial services environment to a more digital environment.”
Hill, the chairman of the subcommittee, added, "We're also going to do oversight hearings on both the regulators and some of the actions of last year so that we can learn from that ..."
One such action was the "Ugly Baby" bill stablecoin bill worked out by then-Chair Maxine Waters (D-Calif.) and raking Republican Rep. Patrick Henry (R-N.C.) of the House Financial Services committee.
Stablecoins, which are backed by an asset such as the U.S. dollar or gold, appear to be the most straight-forward, or “low-hanging fruit,” tied to crypto. Hill said the committee’s current draft on stablecoins will serve as a model of how it will approach digital asset regulation.
Who should regulate?
Hill said “that’s not clear yet” when asked whether the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC) should be the primary regulator of spot crypto markets. He said that will be something else the subcommittee will sort through this year.
To that end, he said the subcommittee will work with both House and Senate agriculture and banking committees and the House Financial Services Committee.
Hill said the goal of lawmakers on Capitol Hill is to work together to “pick the right direction” that will help “produce innovation” that is beneficial to developers, consumers and investors.
What is critical to the development of crypto in the broader market now is “accurate [and] timely information,” according to Hill, and that depends on developing “definition and expectations,” to better understand what, when and how crypto-related assets are reported.
“If you want to see financial innovation in this space, you're going to have to have accurate information,” Hill said.
