Axios Crypto

A multicolored cube.

April 18, 2022

Hello! It's Tax Day in the U.S. More on that below. Plus: Meet a winner from crypto's retail investor ranks and more.

Thanks for responding to Friday's email prompt. Email [email protected] for more or @ me on Twitter: @BradyDale.

This newsletter was edited by Pete Gannon. It is 1,119 words, a 4-minute read.

💸 1 big thing: The IRS will see you now

Illustration of a calculator with bright green text reading "crypto" on the screen.

Illustration: Gabriella Turrisi/Axios

The deadline for Americans to file their tax returns is today, and crypto taxes remain unpleasant, Axios' Kia Kokalitcheva writes.

Why it matters: U.S. regulators and lawmakers have yet to introduce significant new rules or regulations when it comes to taxing digital assets.

What they're saying: "[In 2021] a lot of the major players… they showed an incredible amount of interest in helping people figure out their crypto taxes," CoinTracker head of tax strategy Shehan Chandrasekera tells Axios.

  • "But still, there’s a huge gap between the number of people who have crypto and the number of people who have filed taxes on crypto in the U.S.," he adds, pointing to a lack of awareness and information as the main reason.

State of play: The last time the Internal Revenue Service said anything about cryptocurrency taxes was in 2019 when it issued new guidance on certain issues (its first since 2014) and added a cryptocurrency question to its forms.

  • In short, for the purposes of U.S. taxes, cryptocurrencies are treated as property and taxed on their capital gains.
  • As part of the infrastructure bill package that passed in Congress last year, cryptocurrency exchanges will be required to issue 1099-B forms to their U.S.-based customers and the government starting in 2023 (though experts say that, in practice, that's more likely to begin the year after).
  • An ongoing court battle, Jarrett v. United States, could determine whether staking (earning tokens for acting as a transaction validator in proof-of-stake blockchains) is taxed as income.

Between the lines: "The nuance that makes crypto extra complicated is that many people don't know their cost basis when they acquire the asset," Compound CEO Jordan Gonen, whose company helps tech workers manage their finances, tells Axios.

  • Many people don't get in the habit of keeping detailed records of their crypto transactions necessary to calculate their gains and losses, though a number of software tools for this have cropped up in recent years.

The intrigue: The boom in non-fungible tokens in the last year could be the tax surprise many didn't think of amid the euphoria of purchasing a fun digital token.

  • Yes, NFTs are taxable — specifically, the sale of cryptocurrencies like ether to make the purchase (and the purchase of cryptocurrencies when selling the NFT) is a taxable event.
  • Airdropped tokens are another tricky event as the owner receives them for free. In 2019, the IRS said that airdrops, such as acquiring a new cryptocurrency following a hard fork, are treated as ordinary income.

🦄 2. Charted: The cryptocorns

Most valuable crypto companies
Data: Crunchbase; Note: *Dunamu figure and rough minimum Binance valuation from Forbes reporting. Ava Labs number from Bloomberg reporting. Chart: Axios Visuals

In light of all the recent dealmaking in the web3 space, we created a chart of the largest crypto companies by value. Notice the standout (and also that it's the one with the fuzziest data around it), Axios Pro's Lucinda Shen and Ryan Lawler write.

Why it matters: Many of these crypto unicorns raised at these valuations in just the last three months.

Details: Crypto startups used to be largely just exchanges, but now they include gaming, collectibles, security and whatever web3 is.

What we're watching: The valuations are getting larger, and the list is growing. With billions pouring into crypto-centric venture funds, we don't expect the momentum to slow anytime soon.

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👨‍💻 3. Meet a retail investor

Photo illustration of Darragh Grove-White, with a stack of coins surrounded by abstract shapes.

Photo illustration: Allie Carl/Axios. Photo: Courtesy of Darragh Grove-White

Today we're doing something a little different, talking with one of our readers, someone who has come out ahead through crypto investing — though not without some stomach churning reversals along the way.

Why it matters: Crypto is often spoken of as a democratizing opportunity, yet regular people seldom see the stories of non-professionals placing bets in the space. Here is one.

Details: Canadian marketing technologist Darragh Grove-White is ahead, but not without taking some painful hits.

  • "I made a lot of mistakes, for sure. I've had crypto exchanges take my money," he tells Axios.
  • He was one of many Canadians out of luck when the founder of the exchange QuadrigaCX, Gerald Cotten, died (?) in India.

State of play: Grove-White is one of the fortunate ones. By his account, since the Quadriga loss he's turned around. He's up around 11x on his principal, though there have been wild oscillations in that number recently.

  • Axios has verified the success of his portfolio.

The scoreboard: He has invested in over 180 coins, his first three purchases being bitcoin, Monero (a privacy coin — that trade is still down) and Verge, a coin with salacious affiliations.

  • "I have had a few that have done really well and even fewer that I knew would do really well," he said.
  • The biggest loss was a token that was the right idea (blockchain finance), but the wrong company at the wrong time. His biggest win was a lucky guess about which solution to fix Ethereum's speed problems would click with users first.

Context: While he only got into crypto in 2018 (a bear market year), he had some advantages. Given his day job, he's considerably more technically sophisticated than most people.

  • That has worked to his advantage. "I'm just super curious," he explained. In crypto, it's not enough just to read and watch charts. A person needs to get in to understand it, he contends.

Be smart: Having been in for four years, he sees new arrivals come in waves. The new investors are easy to spot on Twitter and in the Discord channels — they are always looking for the quick buck.

🏃‍♀️ 4. Catch up quick

🦊 Tornado Cash moved to block wallets on the U.S. sanctions list — particularly the wallet associated with North Korea that robbed Axie Infinity — from using its privacy service, but it hasn't really mattered. (CoinDesk)

🔧 A lawsuit has been filed against the permissionless decentralized exchange Uniswap after an investor lost money on tokens like Alphawolf and BoomBaby. (The Defiant)

🌱 DeFi project Beanstalk was drained for $182 million in crypto Sunday morning after an attack using a flash loan and a fake governance proposal. (The Block)

🙀 5. Culture hash: Surprise tax bill

A tweet about airdrops and taxes.

Screenshot: @andy8052 (Twitter)

As Kia notes up top, airdrops cause a tax bill.

Jargon check: Airdrops are tokens handed out for free. They are called that because, early on, they would just show up in a user's wallet unannounced (these days, users usually have to do something to get them).

Why it matters: An airdrop might land at a high valuation, but if the user doesn't sell it fast enough to get cash ready for the tax man, it might not be worth enough to cover the bill by the time he or she gets around to it.

  • Unsurprisingly, some crypto-denizens are not happy about how this works.

Axios' crypto-natives are smart. So, all of you have already done your U.S. taxes, right? —Brady