Telegram Delays Token Sale as the SEC Files for Injunction

Telegram is ready to push back their token sale following an injunction initiated by the US Securities and Exchange Commission over the sale of its Gram tokens.

The SEC ordered Telegram to stop the token sale with an emergency restraining order against Telegram Group, Inc., and TON Issuer, the two issuers of Telegram’s tokens listed in the Regulation D filing with the SEC in February and March 2018.

Telegram is ready to follow the SEC’s order for now and delay the token sale.

“Telegram has agreed to stipulate that it will not make any offers, sales, or deliveries of its expected cryptocurrency, called “Grams,” in order to maintain the status quo until this Court can resolve the legal issues at the heart of the matter,” the document reads.

Last Friday, the SEC filed the emergency action against Telegram to prevent it from distributing its Gram tokens, which the agency deems as unregistered securities. The regulator said Telegram failed to register a securities issuance and “committed to flood the U.S. capital markets with billions of Grams by October 31, 2019” — the deadline for TON’s launch.

In a letter to investors following the SEC filed order Telegram said that it has been working with the SEC over the past 18 months and has been surprised to see the lawsuit initiated by the agency. The company also accused the SEC of failing to advise Telegram on its blockchain project and token sale.

By voluntarily stopping the sale and distribution of Gram tokens, Telegram states that the injunction is no longer required, asking the court to deny the SEC‘s motion.

With all the issues around the token sale, it looks like Telegram‘s token launch definitely won’t stick to the schedule.

Following Telegram’s response on October 16, where the company argued that its native crypto is not a security and the preliminary injunction should be denied, the SEC has responded with a new filing in the U.S. District Court on October 17.

In the document, the agency insists that Telegram has actually violated the U.S. securities laws and that a preliminary injunction should be granted to prevent Telegram from further violation, mentioning that the company is likely to violate the law again.

Should the motion pass, this would be a massive blow to Telegram’s efforts who already raised over $1.7 billion in two pre-sale rounds, with major venture funds, including Lightspeed Ventures, Sequoia Capital and Benchmark as investors.

Bermuda – First Government to Accept USDC for Tax Payments

Bermuda has become the first government to accept the USDC stablecoin – a U.S. dollar-pegged stablecoin, managed by major players in the crypto market, Circle and Coinbase –   for tax payments, marking a milestone for cryptoasset adoption.

Global financial services company Circle published a report on Wednesday, confirming that the government of Bermuda will accept payments in USD Coin (USDC) “for taxes, fees and other government services.” The country will be supporting USDC as a method of tax payment for all its residents, which accounts for circa 65,000 people.

The latest development is a part of a broader initiative by Bermuda’s government, as stated by Circle, as its goal is to support the usage of USD-dollar backed stablecoins and decentralized finance protocols and services. The stablecoin launched a year ago by cryptocurrency exchange Coinbase and Circle. Up until now, over $1 billion worth of USDC has been issued between the two startups.

Circle co-founder and CEO Jeremy Allaire stated:

“Bermuda’s Premier made a broader announcement today about embracing stablecoins as the future of the financial system, with a focus on innovations in fintech that can deliver value not just for Bermudians, but also globally via company’s licensed under their Digital Asset Business Act.”

Allaire further explained that the country’s economy already relies on a United States dollar-backed currency, namely the Bermudian dollar. As such, he believes that “it’s natural that they would both embrace USD-backed stablecoins for their own government services.” He further added that Bermuda is currently focused on enabling financial services to be created and delivered using cryptocurrency and digital assets.

Allaire strongly believes that this new development reinforces the idea of global mainstream adoption of stablecoins for everyday payments and commerce.

Circle has also been granted awarded a “Class F” license under Bermuda’s Digital Assets Business Act (DABA) of 2018. According to the company, the DABA license makes the company the first major cryptocurrency exchange and wallet service ever to receive such a permit.

Allaire commented:

“Through the DABA, Bermuda is one of the first countries in the world to create a comprehensive regulatory framework for digital currency and digital asset-based products and services, including licensing of firms operating payment systems using stablecoins. It will be interesting to see how other governments will respond to this fundamental innovation.”

The Bermuda government launched a blockchain task force in partnership with the Bermuda Business Development Agency (BDA) in late 2017. It went on to pass legislation on initial coin offerings (ICOs) as well as establishing a regulatory sandbox for cryptocurrency companies.

Due to the favourable crypto conditions in the country, Circle has recently moved its exchange operations to Bermuda.

Following this news, it has also been reported that Bermuda will be partnering up with blockchain startup Shyft Network to launch a digital identity program, which will benefit business individuals, claimint that it will be easy to use and will provide better transparency and place the individuals in control of their identity-related data.

Libra Marches on Following the Association’s First Member Meeting

The Libra Association – a consortium of companies who governs over Facebook’s proposed stablecoin Libra – held its first meeting on Monday in Geneva, Switzerland.

Following the meeting in Geneva, the twenty-one organizations formally signed the Libra Association charter as well as named its board of directors and formalized the consortium’s executive team.

As such, the five-member board is comprised of Calibra cofounder David Marcus, Andreessen Horowitz general partner Katie Haun, Xapo CEO Wences Cesares, PayU general counsel Patrick Ellis, and Kiva chief strategy officer Matthew Davie. PayPal veterans Bertrand Perez, Dante Disaprte, and Kurt Hemecker will comprise the Association’s executive team.

Most major decisions will require a majority vote of the ruling council, whilst proposed changes to membership or management of the reserve must pass by a two-thirds majority.

In addition to Calibra, the association consists of Coinbase, Xapo, Anchorage, Bison Trails, Creative Destruction Lab, Andreessen Horowitz, Thrive Capital, Ribbit Capital, Union Square Ventures, Breakthrough Initiatives, Illiad, Vodafone, Farfetch, Uber, Lyft, Kiva, Mercy Corps, Women’s World Banking, Spotify and PayU, according to a press release.

The news follows a string of significant departures of major companies such as Visa, PayPal, MasterCard, Stripe, eBay and Booking from the Facebook-led stablecoin project. Most announced their withdrawals from Libra citing concerns over the regulatory backlash faced by the project.

Still, according to the Libra Association more than 1,500 institutions have expressed interest in joining the project, with 180 meeting the organization’s membership criteria. In June, Facebook claimed a consortium of 100 companies would back the cryptocurrency project at launch.

However, the association shared no updates regarding those plans nor the exact launch date. Although Facebook initially targeted an early 2020 launch date, recent statements by CEO Zuckerberg have put this timeline into doubt.

Meanwhile, financial regulators around the globe have expressed their opposition to the project, citing fears that Libra could destabilize the global monetary order. Ministers in France and Germany stated they were against Libra and India announced that Libra may not even be legal in the country. Most recently, U.S. Rep. Maxine Waters (D-Calif.) called for a moratorium on the project until all regulatory questions could be cleared.

However, Calibra’s Marcus has claimed that these fears are misplaced. He recently testified before the U.S. Congress, trying to dispel the concerns of both the Senate Banking Committee and the House Financial Services Committee.  Mark Zuckerberg is also slated to testify about the project before the House of Representatives Financial Services Committee.

Despite regulatory backlash, the Libra Association remains optimistic about going forth with the project. Dante Disparte, the head of policy and communications at Libra Association, stated that the recent flight of major backers is “a correction; it’s not a setback.” Nonetheless, he admitted that any delay to the launch will be a result of its regulatory issues, rather than technical concerns.

United States IRS Releases Questionable Tax Guidelines for Cryptocurrencies

The United States Internal Revenue Service (IRS) has announced its first guidelines in five year for tax reporting regarding cryptocurrency airdrops and hard forks.

The guidance notice published on October 9th addresses common questions of taxpayers as well as practitioners. For instance, common issues such as the tax liabilities created by cryptocurrency forks, the acceptable methods for valuing cryptocurrency received as income, as well as how to calculate taxable gains when selling cryptocurrencies.

Upon the release of the guidance notice, IRS Commissioner Chuck Rettig has stated:

“The new guidance will help taxpayers and tax professionals better understand how longstanding tax principles apply in this rapidly changing environment. We want to help taxpayers understand the reporting requirements as well as take steps to ensure fair enforcement of the tax laws for those who don’t follow the rules.”

The IRS requires taxpayers to track their crypto transactions to prove how much they bought, so they can determine how much they owe when they sell. In addition to that, an investor must also record transfers of coins between two wallets in order to prove to the IRS that the transaction is tax-free.

Furthermore, the new IRS document gives a thorough answer to a long -standing question, that of tax liabilities created by cryptocurrency forks. Accordingly, new cryptocurrencies created from a fork of an existing blockchain should be treated as “an ordinary income equal to the fair market value of the new cryptocurrency when it is received.”

That is to say tax liabilities will apply when the new cryptocurrencies are recorded on a blockchain or if the forked cryptocurrency is received by a holder. The cost basis for calculating tax liabilities in such cases is the coin’s “fair value” in the markets at the time it was received, regardless of whether it can be spent, exchanged, or transferred.

The document further explained that if a cryptocurrency went through a hard fork and a person didn’t receive any new digital currency, whether through an air drop – a distribution of crypto to multiple taxpayers’ ledger addresses – or some other method of transfer, then that person doesn’t have a taxable income.

Meanwhile, legal experts within the cryptocurrency industry have pinpointed two questionable aspects of the guidance.

The first one is IRS’ apparent confusion about the definitions for airdrops and hard forks. In its guidance, the IRS conflates both definitions and assumes that hard forks are achieved through airdrops or distribution by exchanges. The pluralism in definitions results in several possibilities.

Jerry Brito, executive director at Coin Center has stated:

“While the new guidance offers some much-needed clarity on certain questions related to calculating basis, gains, and losses, it seems confused about the nature of hard forks and airdrops.”

The second problem would be the confusion over the method of receiving cryptocurrency and its ownership. Non-custodial wallets, where crypto owners have access to private keys, can exercise discretion over receipt of forked cryptocurrencies. However, the IRS’ guidance assumes receiving crypto through third-party exchanges.

Lokay Cohen, the vice president of crypto tax calculation platform Bittax, stated that the recent guidance follows a congressional request to the IRS which sought clarity on tax reporting for digital currencies.

Earlier this year, the IRS sent thousands of letters to cryptocurrency investors to clarify crypto tax filing requirements. An estimated 10,000 crypto investors received post from the agency, asking some to amend their tax filings, while compelling others to pay back taxes and/or interest and penalties.

EU Commissioner Calls for Legislation Framework for Cryptoassets

The European Union’s financial services commissioner, Valdis Dombrovskis, promised on Tuesday to propose new regulatory framework for virtual currencies, as a response to Facebook’s Libra initiative, which the EU considers to be a risk to financial stability.

The commentary has been brought to light in a recent confirmation hearing seeking for reappointment on Tuesday with the EU policy makers.

According to Dombrovskis “Europe needs a common approach on crypto-assets such as Libra. I intend to propose new legislation on this.”

Valdis Dombrovskis has been a vice president of the European Commission for the Euro and Social Dialogue since 2014. He is also one of the 28 commissioners in the European Commission from 2014 to 2019 and has been in charge of financial stability, financial services and capital markets within the EU.

Prior to this he served as Latvia’s prime minister and finance minister as well as a member of the European Parliament in 2004–2009. Now Dombrovskis seeks reappointment as the executive vice president of the European Commission.

If reappointed, he would be tasked with a brief labelled “An Economy that Works for People” and continue to be responsible for the Commission’s financial services portfolio and its work to expand Europe’s economic and monetary union.

Dombrovskis’ pledge follows an increased level of scrutiny by the European Commission over Facebook’s Libra cryptocurrency initiative. According to several reports, France and Germany have already stated that Libra could limit their monetary sovereignty.

In addition to that, Germany’s finance minister Olaf Scholz has expressed his skepticism of Facebook’s Libra project. The EU has no specific regulations on cryptocurrencies, which, until Libra was announced in June, had been considered a marginal issue by most financial regulators as only a fraction of bitcoins or other digital coins are converted into euros.

Prior to the Libra initiative, Dombrovskis had abstained from regulating cryptocurrencies within the five years he has served. He further affirmed that his change of mind stemmed from the possibility of systemic effects on financial stability that the stablecoin could bring. Aside from that, Dombrovskis further argued that law makers should focus on protecting consumers and tackling the risks of money-laundering using crypto-assets, which can easily cross borders.

Meanwhile, Dombrovskis recently sent a questionnaire to Facebook and the Libra Association, requesting them to address various issues regarding financial stability, money reserve and private risks related to Libra.

Apparently, the questionnaire was part of a push by Dombrovskis to examine how the EU should allow or regulate crypto initiatives like Libra and whether new laws will be in need. It said Dombrovskis has indicated there is a “strong willingness to act at an EU level” when it comes to Libra.