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The Hard Fork – Weekly Market Commentary

This Week’s Topics:
1) Mastercard, Visa, and others pull out of Libra after Senate letter
2) IRS offers crypto tax guidance
3) SEC rejects latest bitcoin ETF


Indices Round-up

TradeBlock Index Asset1 Price ($) 7d∆2
XRX XRP 0.29 7.71%
ECX Ethereum Classic 4.82 5.49%
ETX Ethereum 183.23 5.37%
XBX Bitcoin 8,309.11 4.75%
EOSX EOS 3.15 4.74%
XLMX Stellar Lumens 0.06 4.14%
LTX Litecoin 57.00 2.63%
ZCX Zcash 37.14 1.35%
BCX Bitcoin Cash 226.02 -0.52%
XMRX Monero 53.19 -3.37%
1. Underlying asset sorted in descending order by 7 day price movers.
2. 7 day price movers monitored from 10/07/2019 06:00 ET thru 10/14/2019 06:00 ET.

7 day price movers

Digital currencies broadly traded higher on the week as the space continues to modestly recover following one of the largest crashes in recent months. After volatility spiked during the sell-off, prices have remained stable over the past two weeks. Among our indexed assets, XRX rose the most, gaining 7.71%, while XMRX declined the most, losing 3.37% on the week. Ether traded up 5.37% as the CFTC chair stated that the digital currency should be regulated as a commodity, which could pave the way for the launch of regulated ether futures.


Mastercard, Visa, and others pull out of Libra after Senate letter

Following last week’s move by PayPal to remove itself from Facebook’s Libra association, several high profile companies announced the same this week. Visa, Mastercard, Ebay, Stripe, and Mercado Pago have decided to opt out of the Libra association.

The move comes as the US Senate sent a strongly worded letter to companies listed in the Libra association, cautioning them against supporting Facebook’s launch. The letter warns that given concerns and lack of clarity from Facebook around the project, companies within the Libra association would be subject to enhanced regulatory oversight, not just around Libra, but in all their payment activities.

The companies have announced that, while they support blockchain based payment systems that can lower costs for users, they will be withdrawing from Libra to await for more clarity and more confidence from regulators in the project. Among the 28 initial companies announced as Libra members, six have now withdrawn. Interestingly, the companies deciding to withdraw have been payment companies, leaving just one payment processor still in the association, PayU.

Figure 1: Initial Libra Members

Members sourced from the Libra association at launch


IRS offers crypto tax guidance

This past week, the US Internal Revenue Service announced new guidance regarding digital currency tax obligations. While the document shows that the IRS understands decentralized digital currencies as independent, open source networks, there still remains shortcomings from the agency. The IRS’ new guidelines focus primarily on two areas: forks and air drops.

One of the most contentious points in the document surrounds tax obligations for token holders who receive an air drop following a fork. The IRS document states that if a digital currency undergoes a hard-fork and a new asset is distributed to token holders, who have control over these new funds, the token holders are subject to taxable income. This, however, presents a number of complications. For instance, newly forked assets often have undetermined market value and limited, if any, liquidity on secondary markets. In such a way, token holders may be subject to taxes on an asset that they have no way of realizing value from. Additionally, token holders may have keys to new forked assets but not appropriate software to actually access them.

The new guidance is just the second time the IRS has sought to clarify tax obligations associated with digital currencies. Additionally, this past week the IRS also announced plans to include a section on form 1040 asking whether an individual has held any virtual currency at any point in time over the past year.


SEC rejects latest bitcoin ETF

On October 9th, the SEC announced its decision on the latest bitcoin ETF put forth by NYSE Arca and Bitwise asset management. The SEC rejected the proposed rule change that would have allowed for the firms to launch a bitcoin ETF. In its decision to reject, the SEC states that “NYSE Arca has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements…in particular, the requirement that the rules of a national securities exchange be designed to prevent fraudulent and manipulative acts and practices.”

The SEC has long claimed that a bitcoin ETF will not receive approval as long as bitcoin spot markets exist without stringent oversight. While various spot exchanges have made it a priority to increase oversight, the SEC claims that even if exchanges have oversight, prices on these exchanges could still be impacted by those exchanges which do not employ strict oversight strategies.

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