Yesterday in Crypto - Issue #12

Read time: ~6 minutes

Happy August. Here’s what you missed yesterday, 7/31/23.

The meme coin named $BALD, which was launched on Coinbase's layer 2 blockchain, Base, experienced a significant price surge followed by a sudden drop, a phenomenon known as a "rug pull." The token's price rose by 4,000,000% within a few hours of its launch, reaching a market cap of $70 million. However, the developer of the token abruptly removed a large amount of liquidity from the token's trading pairs, causing the price to plunge by 90%. This can happen when the code has a built in back door - a huge red flag for any project.

The sudden rise and fall of $BALD garnered significant attention, with some traders making substantial profits. One trader reportedly turned a $500 investment into $1.4 million. However, the event also sparked controversy and speculation. Some blockchain sleuths have suggested a possible connection between the deployer wallet of $BALD and Alameda Research, a trading company founded by Sam Bankman-Fried. However, it's unlikely that Bankman-Fried himself is involved, given his current legal situation and restricted internet access.

The Base blockchain, despite not being officially open to the public, attracted around $68 million in Ether and over $200 million in trading volumes due to the $BALD frenzy. The incident serves as a reminder of the volatile and unpredictable nature of the cryptocurrency market, particularly when it comes to meme coins and new blockchains.

Florida Governor and Republican presidential candidate, Ron DeSantis, has criticized President Biden's administration for its approach to cryptocurrencies.. He accused the current administration of waging a "war" against Bitcoin and other cryptocurrencies. DeSantis pledged to end this perceived war if he is elected as President, allowing Americans to freely invest in cryptocurrencies.

DeSantis's comments likely refer to recent actions by the U.S. Securities and Exchange Commission (SEC) against cryptocurrency exchanges like Coinbase and Binance. The SEC, while independent from the government, has been active in regulating the crypto industry under Biden's administration. While Biden's direct actions on the crypto industry have been limited, his administration has leaned away from crypto and he has made many off-base comments on crypto himself.

DeSantis also expressed his opposition to the idea of a Central Bank Digital Currency (CBDC), stating that he would ensure a digital dollar "goes in the trash can" if he becomes President. He compared the U.S. government's plans for a CBDC to those in China and argued that "unaccountable elites" in the government could not be trusted to handle the potential rollout of a digital dollar.

We couldn’t agree more.

The Internal Revenue Service (IRS) has clarified that rewards earned from cryptocurrency staking are to be treated as taxable income. This decision has important implications for those participating in proof-of-stake (PoS) networks.

Before we delve into the details of the IRS ruling, let's first understand what proof-of-stake and staking are.

Proof-of-stake (PoS) is a consensus mechanism (a method to get multiple parties to agree on something used by certain blockchain networks to validate transactions and create new blocks. Unlike proof-of-work (PoW), which requires participants (known as miners) to solve complex mathematical problems, PoS relies on participants proving ownership of a certain number of cryptocurrency tokens. This system is seen as more energy-efficient and scalable than PoW.

Staking, in the context of PoS, involves participants locking up a certain amount of their cryptocurrency tokens in the network. By doing so, they help secure the network and in return, they receive staking rewards, which are additional tokens, freshly minted, on a pre-set schedule.

Now, according to the IRS's latest ruling, these staking rewards are considered gross income at the time they are received. This means that individuals who earn tokens through staking must report these earnings on their tax returns and pay the appropriate amount of tax. The IRS's decision is based on the premise that staking rewards are a form of payment for services, similar to mining rewards in PoW systems.

This ruling has sparked a debate within the crypto community, with some arguing that it could discourage participation in PoS networks. However, others see it as a necessary step towards regulatory clarity in the rapidly evolving world of cryptocurrencies. As the crypto landscape continues to evolve, it's crucial for participants to stay informed about such regulatory developments and understand their tax obligations.

That’s all for today. We’ll see you on on tomorrow.

“Bitcoin represents a threat to the current regime.”

- Ron DeSantis, Governor of Florida