Daily Digest - 30 March 2023

Headlines

▌The IRS may impose a 28% tax rate on NFT gains

The US Internal Revenue Service is formulating NFT taxation rules. Long-term capital gains from NFTs classified as collectibles may be subject to a 28% tax rate, which is higher than 20% for other capital assets.

The notice states that "Treasury and the IRS are considering the extent to which digital files may constitute 'artistic works.'" Feedback on the issues outlined in the notice will also affect how the regulator defines "any work of art."

Popular NFT collectibles, such as Bored Ape Yacht club and Crypto Punks, are likely to be classified as collectible art, and holders of these NFTs may be subject to higher long-term capital gains taxes when sold.

Cryptocurrency

▌Gemini plans to launch an international cryptocurrency exchange

Gemini, a cryptocurrency exchange founded by Cameron Winklevoss and Tyler Winklevoss, has been preparing to launch an international cryptocurrency derivatives exchange, according to two people familiar with the matter.

Last November, the collapse of FTX, one of the top international exchanges with a significant market share in derivatives trading, opened the door to more potential competitors looking to fill the void. U.S. cryptocurrency exchange Coinbase has also been working hard to build its overseas presence.

However, the U.S. Commodity Futures Trading Commission (CFTC) recently prosecuted Binance because the exchange violated the U.S. derivatives trading law, so overseas cryptocurrency business has attracted market attention.

▌FTX and the debt committee objected to SBF using the company's insurance policy to pay its personal lawyer fees

FTX lawyers stated in court documents that it is unfair for SBF to consume $10 million in the company's insurance policy to pay for his legal fees.

The FTX Official Committee of Unsecured Creditors also objected to allowing insurance companies to pay SBF only under the terms and conditions of the policy and denied SBF's request to use the policy to reimburse its legal fees.

▌Informed sources: Coinbase plans to stay in Canada, Binance may withdraw from Canada

According to a person familiar with the matter, as Canada tightens cryptocurrency trading rules, Coinbase is negotiating with regulators to stay in Canada. However, larger competitor Binance looks likely to pull out.

"We remain committed to the Canadian market as always, making it a core component of our international roadmap," Elliott Suthers, Coinbase's director of communications, said in a statement.

Meanwhile, another person familiar with the matter, who requested anonymity, said Binance may exit Canada. However, a spokesperson for Binance said the exchange “has not yet drawn up clear plans” and that its CEO, Changpeng Zhao, is a Canadian citizen.

Canada set a March 24 deadline for companies to commit to tightening rules around cryptocurrencies in the country, which suffered a high-profile exchange collapse when QuadrigaCX collapsed a few years ago. Earlier this month, OKEx announced its withdrawal from Canada.

▌U.S. Treasury Department official: The encryption industry should not be blamed for the bank run in the United States

Nellie Liang, Deputy Secretary of the U.S. Department of the Treasury in charge of domestic financial affairs, stated that the encryption industry should not be responsible for the run on Silicon Valley Bank (SVB) and Signature Bank.

She told a hearing of the House Financial Services Committee on Wednesday that she does not believe cryptocurrencies played a direct role in the two bank failures. Asked whether digital assets were an indirect factor, she noted that Signature was particularly active in the space, but she gave no further details.

Martin Gruenberg, chairman of the Federal Deposit Insurance Corporation (FDIC), has previously said that by the end of 2022, about one-fifth of Signature's deposits were related to crypto customers.