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Edition No. 42
Stablecoin Showdown with CFTC; German Crypto Tax; ChipMixer Shutdown; EU Proposes Smart Contract Kill Switch; New Israeli Crypto Tax Proposal. Here's what happened from 3/12 - 3/18
Welcome back to Around the Blockchain, the weekly letter dedicated to keeping readers like you up to date on the fast-paced world of Crypto & Law by airdropping current stories directly to your browser.
Table of Contents:
1. On the Docket (Top Stories of the Week)
2. Bird Watching (Tweet, tweet!)
3. The Public Ledger
4. Podcasts, Videos, & Blogs (The faces, voices, and pens of Web3’s brightest contributors)
5. Closing Statements
On the Docket
Five things you might have missed last week:
CFTC Chair Rostin Behnam recently claimed fiat-based stablecoins–such as USD Coin (USDC), Tether (USDT), and Binance USD (BUSD)–are commodities under the CFTC's enforcement jurisdiction. This stance conflicts with SEC Chair Gary Gensler's assertion that almost all digital assets, excluding Bitcoin, are securities under the SEC's purview. Behnam's statements were made during a Senate Agriculture Committee hearing discussing Senator Kirsten Gillibrand's proposed digital asset regulation bill.
Behnam based his argument on the CFTC's 2021 enforcement action against Tether, in which stablecoins were analyzed as commodities pursuant to the Commodity Exchange Act. He acknowledged his colleagues might have differing opinions and algorithmic stablecoins might not be classified the same as fiat-backed stablecoins.
The longstanding jurisdictional battle for digital asset oversight between the CFTC and SEC appears to have no end in sight.
Income[ing] Tax on Crypto In Germany
The German Federal Fiscal Court (Bundesfinanzhof – BFH) confirmed capital gains from the sale of cryptocurrencies are subject to income tax. The court considers cryptocurrencies as 'other assets' under Section 23 (1) of the German Income Tax Act (Einkommensteuergesetz – EStG).
Capital gains from cryptocurrencies held as private assets are taxable as 'other income' if realized within one year of purchase. The BFH also ruled exchanging one cryptocurrency for another qualifies as a 'purchase and sale'. This tax treatment comports with the German constitution, as there's no tax enforcement deficit in the taxation of capital gains from sales of currency tokens.
The BFH's decision effectively confirms the rules published by the German Federal Ministry of Finance (Bundesministerium der Finanzen – BMF) in its circular dated May 10, 2022. The decision and the circular confirm cryptocurrency transactions fit within Germany's existing tax framework.
The ruling, however, does not cover all cryptoassets, and questions remain regarding the tax treatment of other tokens and profit-generating transactions, such as staking or DeFi lending.
Dirty Laundry Aired: ChipMixer's $3 Billion Crypto Cleaning Service Seized
International authorities have seized the cryptocurrency platform ChipMixer, accusing it of obscuring the digital money trail for online drug dealers, Russian military hackers, and North Korean cybercriminals.
According to Europol and the U.S. Department of Justice, the platform laundered over $3 billion worth of cryptocurrency. The unlicensed cryptocurrency mixer launched in 2017 and specialized in mixing–or obfuscating the origin and ownership of virtual currency assets.
The U.S. Justice Department charged Vietnamese national Minh Quoc Nguyen, 49, with money laundering and identity theft in connection with the platform's operation.
See Also: WSJ**
EU Parliament Looks To Outsmart Smart Contracts
The European Parliament passed the Data Act on March 14, aimed at fostering innovation by removing barriers to accessing industrial data. A notable provision within the act requires smart contracts to be alterable including "safe termination and interruption" provisions. Although the legislation grants smart contracts equal protection when compared to other forms of contracts, critics argue that mandating a kill switch undermines the immutability of smart contracts and introduces a point of failure.
Experts have expressed concerns over the legislation. Michael Lewellen, head of solutions architecture at OpenZeppelin, noted that many smart contracts, such as Uniswap, do not have kill switch capabilities. Professor Thibault Schrepel of the Vrije Universiteit Amsterdam stated that the act "endangers smart contracts to an extent that no one can predict" and highlighted the legal uncertainty surrounding the act, specifically regarding the lack of clarity on who can stop or interrupt a smart contract.
The act was passed with a 500-23 vote, and further negotiations will take place with the European Council and individual EU member countries to finalize the law's form.
Israel Tackles Digital Asset Tax Gaps
Israel's proposed Budget Law for 2023-24 outlines a series of tax proposals aimed at addressing the housing market, VAT receipts, tax debts, and cash transaction limitations. One of the major proposals targets digital businesses and digital asset dealings, including creating a VAT charge for certain digital services provided by foreign suppliers. The amendment seeks to obligate non-resident service providers to register in Israel and charge, collect, and pay VAT, which could generate substantial revenue for the Israeli treasury.
The draft bill also presents a framework for the organization and infrastructure related to digital assets and their trading, classifying digital currencies as assets subject to income tax and VAT law. The proposed legislation addresses the historical cost price, date of purchase, and location of digital assets for tax purposes, as well as providing a potential solution for the payment of tax on digital assets. The draft bill also deals with decentralized autonomous organizations (DAOs) and seeks to create infrastructure for backed digital asset services.
The final text of the proposal will be before the Israeli parliament for approval on May 29.
Tweet, Tweet, Tweet!
The Public Ledger
Highlights from the hundreds of sources gathered each week by our research AI. Always DYOR - but in case you don’t have time, here’s some of ours:
Podcasts, Videos, and Blogs
The brightest voices & sharpest pens:
Law of code - Jacob Robinson sits down with Jason Schwartz, tax partner and co-head of Fried Frank’s Digital Assets and Blockchain Practice, to discuss DAOs, Foundations & Taxes and much more!
Bankless - The Bankless team discusses all the crypto news that took place in the third week of March including the US Banking System, KuCoin and Credit Suisse.
Bloomberg Crypto - Bloomberg senior executive director Chris Nagi joins this episode to cover the recent collapses of Silvergate, SVB and Signature Bank.
DaoTalk - DAO Talk dives into content DAOs, web2 to web3 bridges and much more!
Unchained - Jim Bianco joins host Laura Shin for a deep-dive into the recent banking failures and whether DeFi can serve as a viable alternative.
We want to hear from you:
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If you didn’t enjoy it, let us know why! We value the opinion of our readers above all else. After all, this letter is for you. - Kyler, Chris, and the Around the Blockchain News team.
Quote of the Week:
“Unjust laws exist; shall we be content to obey them, or shall we endeavor to amend them, and obey them until we have succeeded, or shall we transgress them at once?”
-Henry David Thoreau
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