Case No.17-cv-01431-JSC: The United States Vs Coinbase
Last Wednesday, a federal court in San Francisco ordered Coinbase, the world’s biggest cryptocurrency exchange, to hand over information to the Internal Revenue Service (a.k.a., the IRS) on 14,335 of its users.
After a case that had been going on for over a year, U.S. Magistrate Judge Jacqueline Scott Corley signed on the court documents, allowing the IRS to have access to the names, dates of birth, addresses, and taxpayers ID numbers, of customers who have sought gains of more than $20,000 worth of Bitcoin.
David Farmer, the Director of Communication at Coinbase, commented the verdict in a blog post as being a “Partial Victory” of a “small company”, over a “large government agency” [The IRS, Ed.]. He added:
“Thanks to Coinbase’s efforts, more than 480,000 customers’ records were preserved from disclosure. This is a 97% reduction in the number of customers impacted by this summons”.
The IRS originally demanded records of all Coinbase customers. CBS News reported that the trial began when the IRS sued the company after they found that only 800 to 900 taxpayers properly filed their tax reports, declaring gains they have made from investing in Bitcoin.
The IRS argued that following the phenomenal explosion of wealth in just a few years from Bitcoin, little to no US taxpayers properly reported to the IRS that increase in income. It is worth mentioning that Bitcoin and other cryptocurrencies are regarded as property for U.S. federal tax purpose, not real money, as explained in the IRS Virtual Currency Guidance. Consequently, any earnings one would make from trading Bitcoin is taxable by law. Taxpayers should follow the general tax principles that apply to property transactions.
While some analysts think that users’ privacy is at risk, others mitigate the event’s repercussions. They emphasized on the legitimacy that may result from such an unprecedented trial. As a matter of fact, Bitcoin’s reputation took a big hit in its early days following the Silk Road marketplace scandal. The latter resulted in both Ross Ulbricht, and Charlie Shrem’s arrests, and polarized the general opinion on the very concept of digital currencies.
The five stages of grief
There is quite a similarity between the Kübler-Ross model, or the five stages of grief, and Bitcoin’s course of history. Especially when it comes to global recognition. It started with denial and anger among the global financial institutions only to develop into bargaining, then, to a certain extent, acceptance.
- Denial & anger
Cited by The Guardian last September, JP Morgan Chase’s CEO Jamie Dimon, sounded outraged when asked about Bitcoin. Calling it a fraud, he threatened to fire anyone working in the investment bank if found guilty of trading on the cryptocurrency. He even went as far as describing it only useful to drug dealers, weapon smugglers, and North Korea.
Goldman Sachs CEO Lloyd Blankfein, on the other hand, seemed obviously past this stage.
The banker told Bloomberg on November 30, that it is too early for the firm to adopt a Bitcoin strategy. He explained that such decision is based on Bitcoin’s high volatility, and lack of fundamentals driving its price development trend. He added that they will eventually “get to it” when the cryptocurrency matures.
- And finally, acceptance
On the other hand, during a Fortune Tech debate, Robert Hackett, a staff writer spoke about the huge run-up of the asset class, and the eventuality of it to burst. He said:
”[..] You have hedge funds strictly devoted to cryptocurrencies that have fired up in the last year, and you have interest from so many other companies. Fidelity [Fidelity Investments, Ed.] has its own mining rig […]. As soon as they start allowing people to trade Bitcoin, [..] you are going to have a flood of extra money entering this”.
Following the same trend, the second largest stock exchange in the world, Nasdaq, announced on December 1st, that Bitcoin future contracts will be offered by Cboe Futures Exchange and CME Group, the world’s largest future exchange, by December 18th 2017.
The major announcement is probably one of the biggest seen so far coming from the heart of Wall Street: the very cradle of the fierce opposing to the digital currency, since its launch. The big No, is obviously turning into a Yes. Discussing the announcement on CNBC’s Fast Money, Brian Kelly said:
“[…] What used to keep me up at night is that I wake up in the morning and the US would ban Bitcoin for some reason. With CME futures, Cboe futures and Nasdaq getting into the game, that takes this concern off the table”.
Fast Money trader Brian Kelly discusses the fact that bitcoin futures are coming to the CME in December. Source: CNBC
More than anytime before, Bitcoin’s legitimacy is gaining ground by the day. From governments all over the world embracing the asset, to Uncle Sam weighing in to get into the game, Bitcoin is undeniably going to shake the old financial system, as we know it, to its core.