It had to happen eventually... Crypto weeding out ICOs and BTC & ETH look safe

in bitcoin •  last month

Interesting news story crossed my desk today. Didn't seem to get much attention, but I think it should...

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Federal judge says SEC rules apply to initial coin offering

The full news article on CNBC is here: https://www.cnbc.com/2018/09/11/federal-judge-says-sec-rules-apply-to-initial-coin-offering.html

Why is this important? Well if I read this correctly, it appears that the SEC are treating Bitcoin and Ethereum as "currencies" and everything else as an investment. Under these court rules (and I'm sure someone will try and challenge them, but that costs serious cash to do it), it pretty much means any other token would be seen as a speculative investment and comes under their umbrella to manage it (at least in the USA).

Notice that this didn't exempt Steem. But with over 1,000 other tokens out there, this looks like the first step to weed them out in the USA with regulations and if history repeats, when the USA apply regulations like this most other countries follow. At least Western economies. They are all tied to the $USD for their own currencies, so they tend to follow rather than break free of the good ol' USA.

In the USA, there are conflicting regulations all over the place with crypto-currencies. The IRS treats them as property, and FINCEN treat them as (well "currencies" I guess)? I'm not a lawyer so don't quote me on all of this. All I know is that it is really stupid and contradictory. But now the SEC have weighed in through this federal court ruling, and have specifically exempted BTC and ETH from being treated as investments. My guess is that this might be something that the other agencies follow, since it is clear that there needs to be a rule that they can all live with.

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I sense the USA may be taking the first step to trying to kill off crypto, or at least wrangle it so that they can find a way to manage this beast. The government cannot be seen to turn their backs on little old lady's investments and Bitconnect sure as hell didn't help. There are states putting pressure on Indian officials to hand over Bitconnect founder(s) who were recently arrested. They don't need to have these out of control Ponzi schemes occurring under their watch.

My guess is that as the mainstream news starts to unravel this story, it will have a negative affect on anything that isn't BTC or ETH. And possibly as a result of this shift in BTC market dominance, we might see BTC itself dropping further in value in the short term. There has to be something to lasso in all the ICOs and the tokens out there, and this seems like the ideal method that the US congress might use to do it.

After all, a judge has passed judgment. They all seem "judge crazy" right now anyway.

What do you guys think will be the net effect on Steem as a result of this ruling?

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I'm wondering if this will hit Steem really hard @k0d3g3ar possibly knocking it to 10 cents per Steem or lower.

I think it's good to compare the market cap of Steem with small-cap or even penny-stock companies.

If we can buy in at the very bottom, and Steem survives somehow and gets licensed by the SEC, we might get rewarded for making a calculated risk.


Thank you for writing about this @k0d3g3ar I noticed this ruling a while back too but I don't think I gave it as much importance as I should have.

Good job 👏👏👏

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The SEC is a US entity, so the impact will be US centric. That said, if US courts define and/or uphold laws, that is often used as a standard for other countries. For example, Australia usually follows US trends 1-2 years later. In the case of ICOs, if other countries see a problem where investors are being ripped off, then they will act and will point to US courts for what they have done and interpret & enact similar laws. No government will sit by quietly while 90% of all ICOs are fraudulent. They will look for the fastest method to enact law and that typically means just doing what the US do.

As typically happens, there is legislative overreach. Laws will be too broad and it will take years to pull them back because contesting them takes a lot of time & money. If their policy is to treat BTC and ETH as currencies, yet everything else is considered subject to the "Howey test" - a test based on Supreme court ruling. The SEC's position is: "The question is whether the 'elements of a profit-seeking business venture' are sufficiently alleged in the indictment, such that, if proven at trial, a reasonable jury could conclude that 'investors provide[d] the capital and share[d] in the earnings and profits; [and] the promoters manage[d], control[ed] and operate[d] the enterprise.'"

In the case of Steem, you buy the token through an exchange. Therefore it would be subject to judicial oversight under the auspice of the SEC. It is specifically not exempted from this by way of law, precedent or policy. Even if you are earning Steem by posting, the fact that you can buy it means that it is an investment asset and subject to these laws.

Here's the other thing that most US crypto holders still haven't gotten the memo on. Last year, the Trump administration pushed through "Tax Reform". In that bill, they changed a very subtle and important tax ruling that says if you buy one crypto token (ie. BTC) and you exchange it for another (ie. Steem), then you have created a taxable event. This means that the BTC that you spend has to be determined if there was a profit made on each coin used, and tax is now applied at that time on that profit. And if you convert Steem back to BTC, that's a taxable event. The value of the Steem at the point when you realize the token to something else (ie. BTC) is then taxable. Let's say you earn Steem that cost you $0, and you post a lot and build up $1,000 of value, and decide to cash out. You are then subject to the taxation on the $1,000 earnings at the rate of tax consistent with your total filings. You have to show the capital appreciation on your tax return for those assets when you file. If you have any questions on this, contact your CPA.

And further to this, as a US Person, specifically citizens, you are subject to taxes earned on worldwide income and you are responsible not only to file US tax returns annually regardless of where you are in the world, but there are additional forms required by FINCEN (managed by the IRS) for FBAR and FATCA laws based on if you have a total asset ownership (combined) anywhere outside of the USA of more than $10,000 at any one time. This burden further complicates things because Steem would be an asset, but where the asset is held is not yet settled law from what I can tell. My general sense is that at some point, FINCEN and the IRS will require all US persons to disclose their crypto assets under the auspice of the FBAR regulations, and failure to do this have severe penalties incl. jail time. Penalties that START at $10K per year, and the statute of limitations on them are not necessarily limited.

You can get the general idea. The US have a lot of laws here to reel in crypto under its control, and that just drives down pricing. Sure, technically crypto assets are free and in some cases completely anonymous, but just as you can have a big stash of cash buried in the backyard, if someone finds out about it, the penalties negate the benefits.

The price of crypto went sky high not because everyone's grandma went and bought some. It went high because investment organizations were able to trade it on the futures market, and some heavyweights started to show interest in it (e.g. Goldman Sachs, etc.). They have since pulled back a bit from their positions on it, and the price is reflective of that. If you add some extensive regulation to this space, then you get a BTC price at about where it should be, and likely that it will stabilize. My prediction is that this price is not $6K. Unless BTC is being used regularly in retail trade and there is demand at the cash register from stores to accept it, I think a more realistic price point is $2K. But that's just my speculation and nothing in this (or any of my) post(s) should be considered financial advice. I'm just sharing my thoughts on how I treat my own asset holdings. Steem falls into that category and as we've seen, when BTC drops so does all the alt coins (incl. Steem) and as you have recently seen the alts drop at a far greater velocity than BTC. ETH is a great example of this. Remember Steem was $6 each not too long ago. To drop to $0.75 each is a massive drop as a percentage, wheres even at the peak with BTC ($20K) to drop to $6K is nowhere near as substantial drop as a percentage. That means alts are speculative and highly volatile vs. BTC which is still speculative but less volatile. Even so, a reduction to 1/3rd of an asset's value is about 2x worse than the drop in real estate value we saw in the 2008 GFC.

For every starry eyed crypto investor thinking that they can cash in on the big wins here, there are 10x as many subject to losses. And the SEC knows this. They can't allow investments to have this level of volatility and consequently the laws are coming out, and policies enacted.

I'm not totally negative here. I mean I bought BTC $11 each back in 2011. I sold them at or near the highs. I wrote Uncle Sam a massive tax check and I look at that as a savvy investment. I've invested in many other things that didn't go anywhere near that well. Some lost money. Some made money. Some broke even. But these investment returns are fickle and few & far between. My advice to anyone in this space is to look to external factors constantly. Just like my blog article about learning to surf. You have to pick the wave you want to ride well ahead of it coming to you. Sometimes you have to just sit it out and not go into the water. There are a lot of sharks out there.

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Thank you for all this information and your perspective. I think I will refrain from trading Steem so that I avoid having to pay a lot in taxes. Otherwise I might suffer a net loss in trading Steem and still owe taxes on top of that!


I think taxes is a good topic you can write about, and it would help inform your readers + the general public.


The house I bought was under my wife's name since foriegners are not allowed to own land in the Philippines, but the condo is under both of our names (foriegners are allowed to own condos).

I hadn't reported it to the United States since I thought I only needed to report it once I sold it, or made money via rentals.

I am not sure if I should call the IRS first, to let them know I failed to report my condominium, or if I should contact someone else first. Paying a CPA would be difficult for me at this time.

Thanks for all your insight!

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Ouch... OK, so here's my $0.02 worth on this (and it's not legal or financial advice)...

If you are a US citizen (or your wife is), then you are obligated to disclose the ownership of any foreign asset where the collective value of all assets combined exceeds $10K. This is called a FBAR statement and it is an annual form you are required by law to file. It is actually a FINCEN form, but a number of years ago they turned over the management of this to the IRS. It is usually filed with your tax returns per year.

The IRS have a problem with labor resources. There is not enough of them. Congress constantly reduces their budget. So they have moved to a more effective policy of reducing down the number of human audits, and focus on penalties for not filing (or incorrectly filing) forms. For example, a single missing FBAR form for a year is a $10K penalty. And this goes back year or year. My wife has a retirement account in Australia with more than $10K in it, and a few years back we discovered the obligation to file this, and had to employ attorneys to fix the mess. That cost me $1500 in legal fees, but thankfully because it was not a willful error, they were able to get away with no IRS penalties at all. However this was at a time that the IRS had a voluntary disclosure program in effect and we took advantage of that. I'm not sure if that is still available.

Being a US citizen and living offshore is a nightmare these days. You get caught up in some politician's mission to capture all tax avoiders with Cayman Island bank accounts, and you get thrown into that pile. Most retirees that I know who are living in Mexico or Costa Rica or something like that face this every year and you can hear the screams here in the USA from far away.

What I would suggest is that you research this carefully. This is our attorneys, and thankfully they have a HUGE YouTube channel with all the details on it: https://www.youtube.com/user/irsmedic

They can guide you if you need assistance. I'm not trying to freak you out - you have enough on your plate, but you should be informed and aware of this stuff as it may have impact to some of the things you are doing or plan on doing in the future.

Hope this helps.

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Thank you @k0d3g3ar I appreciate your help. I'll look at the link you supplied.

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It's a good article @k0d3g3ar and I resteemed it 👏👏👏

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I just got off the phone with IRS Medic @k0d3g3ar.

The lawyer I spoke to said that I didn't need to report the real estate I purchased, and the income I received from the sale of our house didn't meet the $10,000 USD threshold, but I once had more than $10,000 USD in a Philippine bank while I was here. That needs to be reported!

He said that a program for serious non-reporters who were more willful is now closed, but that non-willful reporters like myself can still avail the non-penalty route.

I am very grateful for his help and advice but it will be really difficult for me to convince my wife to pay the $1,500 USD retainer. If I had no choice than I would have no choice but I think I might be able to do the paperwork myself.

I have a lot of documentation covering a mental illness that I've been getting treatment for, and I think I can make an obvious case that I was a non-willful non-reporter, but I plan on paying the lawyer I spoke with $100 - $200 USD for the free consultation they gave me on the phone - I just have to discuss it with my wife first. He was so helpful and so informative!


What an excellent law firm!!!


P.S. Maybe I will write a blog post about them ☺

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I'm very happy for you that you chose to address the situation with the best professional advice. I was a bit worried that if you went directly to the IRS without the knowledge of this from proper professionals that you could be trapped into something you didn't need to be in. I take it that if you need a retainer of that size, then there are past filings needed to be done by them. We encountered the same situation and it took 6 years of past filings to cover our previous liabilities for non-willfull lack of filings. They took care of all of this for us, and it was pretty simple - we provided the documentation they needed, and then signed the appropriate forms and they did the filing. I actually hired them again for the 2017 tax year to do the FBAR filings for us (nowhere near the $1500 "cleanup" fees), but just because I don't need to make a mistake in this and the complexities are deep. If you get a chance to review a lot of Anthony Parent's videos on YouTube you will see just how tricky this can be if you don't know what you are doing. I think a simple FBAR is not complex, but often if it is a retirement fund then you have this issue of whether it is a "trust" and then it comes down to whether you have control of it or not. There are different filing requirements for each case and that's why I just chose to pay them to do it. In the end it is peace of mind.

You do start to resent the way that the IRS think they can extort Americans no matter where on this planet they live. There are only a handful of countries that do this - everyone else (incl. my home country of Australia) just do residence based taxation (that is you pay tax where you reside, not both in that local jurisdiction but also to your home country). There's another guy on YouTube you might enjoy "Nomad Capitalist". His name is Andrew Henderson and he is an American who recently renounced his citizenship and chose to live offshore in a number of countries and live the nomadic lifestyle. Not sure if I could do that, but it is interesting to see how someone like him has many passports and does pretty well for himself.

Anyway glad all this information helped you out. I agree - write a blog post about it. These posts live on for a long time and Google will index it and you may just help out the next guy out there too.