Singapore Reveals Draft to Remove Tax on Cryptocurrencies

The Singapore government’s taxation agency has put forward a proposal to remove goods and services tax (GST) from cryptocurrency transactions that function or are aimed to function as a medium of exchange.

The news was published in a draft e-tax guide by the Inland Revenue Authority of Singapore (IRAS) stating that the supply of digital payment tokens in exchange for fiat currency or other digital payment tokens will be exempt from GST. Therefore, the supply of such tokens will not contribute to annual taxable turnover for the determination of liability for GST registration.

The agency has stated that the effort to end GST liabilities on cryptocurrencies follows worldwide development and growth within the crypto space, which has in turn led various jurisdictions to have reviewed their stance. Similarly, the IRAS has decided to review its GST stance to keep up to date with these developments.

Under the current legal framework, the supply of digital payment tokens is still seen as a taxable supply of services.

“Therefore, the sale, issue or transfer of such tokens for consideration by a GST-registered business is subject to GST. When the tokens are used as payment for the purchase of goods or services, a barter trade resulting in two separate supplies arises — a taxable supply of the tokens and a supply of the goods or services.”

The proposed exemption, if approved, will come into effect on January 1, 2020. The IRAS is currently receiving public comments from crypto-related businesses, which need to be submitted by July 26th.

According to the proposal, the following changes to taxation rules will take effect once it is approved:

  • (i) The use of digital payment tokens as payment for goods or services will not give rise to a supply of those tokens
  • (ii) The exchange of digital payment tokens for fiat currency or other digital payment tokens will be exempt from GST.

The draft further defines digital payment tokens as having the following characteristics:

“(a) it is expressed as a unit; (b) it is fungible; (c) it is not denominated in any currency, and is not pegged by its issuer to any currency; and (d) it is, or is intended to be, a medium of exchange accepted by the public, without any substantial restrictions on its uses as consideration.”

The agency cites Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Dash, Monero (XMR), XRP and Zcash (ZEC) as examples of digital payment tokens. Notably, IRAS excludes fiat-pegged crypto assets such as stablecoins from its definition of a digital payment token and will continue to be taxed under GST after January 2020.

Meanwhile, Singapore is not the only country considering exempting cryptocurrencies from GST taxes. In October 2017, lawmakers in Australia passed a piece of legislation to end what was called double taxation, exempting the liability for paying goods and services tax (GST) on cryptocurrency purchases.

UK Financial Watchdog Proposes Ban on Crypto Derivatives

U.K.’s financial watchdog, the Financial Conduct Authority (FCA), has announced its rule proposal to ban the sale of cryptocurrency derivatives and exchange-traded notes (ETNs) to retail investors.

In a press release the Financial Conduct Authority (FCA) said it is consulting over an outright ban on the sale, marketing and distribution to all retail consumers of derivatives such as CFDs, options and futures, as well as exchange-traded notes (ETNs) linked to unregulated cryptoassets by firms operating or based in the U.K.

The FCA stated that financial products are “ill-suited” to retail investors due to the volatile nature of the underlying assets and the lack of reliable valuation possibilities. Furthermore, the inherent risk of cybertheft is also prevalent in cryptocurrency markets.

While the FCA states that there is no clear need for derivative products, the authority estimates the potential benefit to retail consumers from banning these products to be in a range from £75 million to £234.3 million a year.

Christopher Woolard, Executive Director of Strategy & Competition at the FCA, said:

“As with our work on the wider CFD and binary options markets, we will act when we see poor products being sold to retail consumers. These are complex contracts built on top of complex assets.”

The initiative follows their public commitment within the UK Cryptoasset Taskforce Final Report, which was published in July 2018, and updated in October 2018. The FCA emphasized that the new rules will replace the final regulation of crypto-based contracts.

A plan to consult on a ban of cryptocurrency derivatives was previously announced by the FCA last November. Christopher Woolard said at the time that the watchdog has concerns that retail investors are being sold complex, volatile and often leveraged derivatives products based on cryptocurrencies with underlying market integrity issues.

On Monday, the FCA also announced in a policy document that it has finalized rules restricting the sale of CFDs and CFD-like options to retail clients. The rules include limiting leverage to 2:1 on CFDs that reference cryptocurrencies.

The FCA said that it also expects to publish its final “Guidance on Cryptoassets” later this year after a period reviewing which crypto assets fall in this category.

Upcoming Crypto Exchange ErisX Receives CFTC Approval for Bitcoin Futures

The U.S. Commodity Futures Trading Commission (CFTC) has granted upcoming cryptocurrency exchange ErisX a license approval to offer futures contracts.

ErisX – backed by U.S. brokerage TD Ameritrade – announced that the CFTC has granted a derivatives clearing organization (DCO) license, serving as a secondary approval on top of an existing designated contract market (DCM) license, which the exchange had already held.

“Under the DCO order, Eris will be authorized to provide clearing services for fully-collateralized virtual currency futures. Eris’ indirect parent company, Eris Exchange, LLC, is registered with the CFTC as a designated contract market,” reported a CFTC press release.

Following the announcement, the company can now launch crypto futures products under the authority of the U.S. regulator.

Although no definite timeline has been provided, the news further reports that it will launch its futures contracts later this year. The future contracts will be physically-settled, meaning customers receive real Bitcoin and not the cash equivalent. In addition to that, ErisX will also certify its futures contract market participant rules prior to launch.

CEO Thomas Chippas has stated that the company is unique because it divided the trading and settlement functions using traditional DCM (exchange) and DCO (clearing) models.

He further added that it reflected the structure that institutional investors expect from other asset classes and will help drive these markets toward greater relevance and accessibility.

Apart from its DCO approval, ErisX received no-action relief from the CFTC for certain aspects of its offering. Primarily, the CFTC Division of Clearing and Risk granted ErisX relief from aspects of Part 39 of the Code of Federal Regulations Title 17.

Companies apply for no-action relief when they believe their product can fit the spirit of the law, but not necessarily the letter. When no-action letters are granted, the applicants must adhere strictly to the list of requirements laid out within.

Meanwhile, ErisX’s approval comes a week after competitor LedgerX received its own DCM license. Likewise, LedgerX has yet to announce a definite timeline for the launch of its bitcoin futures contracts.

Other exchanges such Bakkt – subsidiary of NYSE parent firm ICE – and Seed CX, a US crypto derivatives provider, are planning as well launching their own physically-settled bitcoin futures soon. Bakkt is currently awaiting a trust company license from the New York Department of Financial Services.

Cryptocurrency Exchange Bitrue Falls Prey to Hack – Will Refund Users

Singapore-based cryptocurrency exchange Bitrue has suffered a major hack, losing around $4.2 million in user assets, mainly 9.3 million XRP and 2.5 million Cardano (ADA) from its hot wallet.

The exchange platform revealed the news in an official statement published on Twitter, stating that the hack had been identified at around 1 AM local time on June 27.

At the time of the breach, the stolen funds would have been worth over $4.5 million in XRP and $237,500 in ADA.

The exchange further explained that a single hacker initially exploited a vulnerability in the Risk Control team’s 2nd review process to access the personal funds of about 90 users,  and consequently used that to access the exchange’s hot wallet and steal the assets.

According to exchange, the hack had been quickly detected and the hacker’s activity suspended. In addition to that, Bitrue said it was working with the Huobi, Bittrex and ChangeNOW exchanges, which it credits with helping freeze the relevant transactions and associated accounts.

Following the hack, the platform issued a statement saying that user funds are insured and anyone who lost cryptocurrency would be refunded.

“First of all, please let us assure you that this situation is under control, 100% of lost funds will be returned to users, and we are reviewing our security measures and policies to ensure this does not happen again.”

In another tweet, Bitrue revealed it is currently conducting an emergency inspection of its systems and plans to return to live functionality again as soon as possible. It is expected that log-in and trading support re-launch sooner than withdrawals, which will remain offline for a longer period.

Early this year, Bitrue said it was also affected by a 51-percent attack on the Ethereum Classic cryptocurrency in which a hacker had tried to withdraw 13,000 ETC but claimed the attempted theft had been stopped by its system.

In order to remain transparent, the exchange has provided the public with a link which can trace the flow of funds on the XRP block explorer and has disclosed that it was working closely with the Singaporean authorities in identifying the perpetrator.

Prior to this attack, a reported total of seven crypto exchanges suffered large-scale hacking attacks within the first six months of this year, including the $40 million hack of top crypto exchange Binance.

Bancor to Restrict Access to US-based Traders

Decentralized cryptocurrency exchange (DEX) Bancor has announced that it stop providing its trading service to US-based clients.

Bancor Stops Servicing the U.S.

According to the announcement, a lack of clarity from regulators is the main reason behind the decision to ban all users with a U.S. IP address from exchanging digital currencies.

“US citizens, domiciliaries or users from US IPs will no longer be able to use Bancor’s web application, https://www.bancor.network, to convert tokens,” the announcement noted. “This decision has been made in light of increased regulatory uncertainty; at this time, we believe this is the most judicious decision for all the members of our ecosystem.”

Bancor runs as a decentralized protocol using a peer-to-peer (P2P) architecture. This is the latest development in the uncertain regulatory market for decentralized trading applications.

Previously, DEX Ether Delta’s founder was charged with operating an unregistered exchange, resulting in a fine of $300,000. It’s not clear what the regulator requirements are for firms offering decentralized financial services, in which users trade peer-to-peer.

The company also clarified that any clients, who have been identified as US citizens and not staying in the country, cannot use its trading services, while people from overseas staying in the US can still trade on the platform.

“We would like to clarify that this functionality will be blocked to users accessing the website bancor.network, which offers an interface to blockchain activity. As the Bancor Liquidity Network is a collection of smart contracts on the blockchain, and a non-custodial system, we cannot restrict users from accessing the blockchain itself. This cannot be blocked.”

U.S. Being Excluded From Several Platforms

The non-existent regulatory guidelines from official institutions in the U.S. are forcing many cryptocurrency companies to stop servicing the region. Recently, Binance one of the largest crypto exchanges in terms of trading volume, announced that it will halt trading in the U.S. starting September 12th.

Another U.S.-based crypto exchange, Poloniex, delisted nine digital currencies from its trading platform only for US-based clients, citing the same unclear regulations. It is expected that the SEC and other financial regulators in the U.S. are preparing a regulatory framework that will see many digital currencies classified as securities.

New international recommendations from the Financial Action Task Force, set for publication this week, will place stringent new ID requirements on any entity facilitating cryptocurrency trading, both in the U.S. and elsewhere.