CoinDesk Crypto

The IRS has clarified some questions around crypto disclosures for the upcoming tax season. A popular DeFi application appears to have been attacked. JPMorgan analysts see “considerable” upsides to bitcoin.

Top shelf

Crypto guidance
The U.S. Internal Revenue Service has clarified that simply holding cryptocurrencies does not need to be disclosed. A published set of draft instructions for this year’s 1040 tax form spells out that returnees must disclose any crypto sales, exchanges for goods or services, or exchanges for property (including other crypto assets). Respondents must also reveal if they received any cryptocurrency for free, including via airdrops or hard forks. “The draft is likely to stand unless there are ‘unexpected issues’ or new legislation requiring changes, the IRS said in the document,” CoinDesk’s Daniel Palmer reports. 

DeFi drain
The $1 billion Harvest Finance protocol appears to have been attacked, draining $25 million worth of bitcoin and stablecoins. The anonymous team behind the popular DeFi application tweeted they are “working actively on the issue of mitigating the economic attack,” adding the malicious actor manipulated stablecoin prices on Curve Finance, another DeFi protocol. DeFi analyst Chris Blec earlier claimed Harvest Finance’s administrators held an “admin key that can drain funds” locked in the protocol’s contracts – though it’s unclear if that level of control is related to the recent exploit. The platform’s native token, FARM, tumbled 65%, and the protocol’s TVL dropped to $673 million (as of 5:00 UTC) on the news. 

Related: First Mover: Bitcoin Steady Over $13K as JPMorgan Has Eureka! Moment

Tether forfeits
The U.S. government is pursuing a civil forfeiture claim on more than 300,000 units of the tether (USDT) cryptocurrency after they were reported stolen in a hack earlier this year, CoinDesk’s Sebastian Sinclair reports. The funds, co-owned by Shixuan Cai and business partner Lin Jian Chen, were frozen by operator Tether after Cai reported the theft to the Los Angeles Police Department (LAPD) in April, court documents show. “Tether routinely assists law enforcement agents and seeks to further their legitimate objectives,” Tether CTO Paolo Ardoino told CoinDesk. “Tether will always play by the rules, obey the law and try to be supportive of the wider digital token community.”

Speech rights
The case against Ethereum developer Virgil Griffith, who is charged by the U.S. government with violating sanctions law and executive orders by allegedly discussing how to bypass economic blockades while speaking at a North Korean cryptocurrency conference, stands without merit, the defense claims. In a motion to dismiss, attorney Brian Klein alleges Griffith only provided information that was already in the public domain and that the President of the United States does not have the authority to prohibit the transmission of information, among other claims. Griffith’s arrest last November is the first sanctions case in a U.S. court involving cryptocurrency.

Denial of service
PayPal has dropped controversial domain registrar and hosting service Epik as a client, according to Mashable. The payments giant said it had ceased servicing the company over concerns about financial risk, potentially related to Epik’s digital currency, a source “close to the situation” suggested. The crypto, Masterbucks, is used to pay for domain services and can be exchanged for U.S. dollars and allegedly has been touted by Epik as a way to avoid certain taxes. PayPal previously raised money transmission and laundering concerns about the digital currency. For its part, Epik is claiming the blockade shows “anti-conservative bias” because the service has become a lifeline to far-right organizations including Gab and the Proud Boys.

Quick bites

• Open interest on Augur prediction markets passes $1M (The Block)
• Quantstamp Says Ethereum 2.0 Ready for Launch (Decrypt)
• ‘It’s This Really Precious Thing.’ Lex Sokolin on DeFi’s Next Chapter, and Frances Coppola on the End of Banks (Opinionated, CoinDesk)
• Why the PayPal Rally Isn’t What It Seems, and Why That’s OK (Crypto Long & Short, CoinDesk)
• Carlyle acquires Calastone, one of largest financial users of enterprise blockchain (Ledger Insights)

At stake

Millennial drivers
Bitcoin’s narrative as a store of value received some juice this year – seen by the spate of firms adding BTC to their treasury holdings and support from legacy investors like Paul Tudor Jones. Though a question remains about how the decentralized money may fit itself into the larger investor scheme. 

Related: Crypto Long & Short: Why the PayPal Rally Isn’t What It Seems, and Why That’s OK

Part of the issue here is the investor universe is a moving target, especially as more millennials enter the fray. Last week, JPMorgan’s Global Quantitative and Derivatives Strategy published a note, obtained by CoinDesk’s Zack Voell, detailing how this changing investor landscape could contribute to “considerable” upsides for bitcoin.

Comparing bitcoin to gold, the client memo argued that bitcoin should be seen as a “risk” asset rather than a hedge, based on its positive correlation with the Standard & Poor’s 500 Index. The analysts pointed to millennial investors’ interest in cryptocurrency and the demographic’s increasing role in the larger financial scheme. 

CoinDesk’s Voell notes that bitcoin’s market capitalization would have to increase by a factor of 10 before it could match the total private-sector investment in gold. Though “even a modest crowding out of gold as an alternative currency over the longer term would imply doubling or tripling of the bitcoin price from here,” JPMorgan’s note reads.

That said, the analysts suggest bitcoin is  “currently overbought for the near term.”

Market intel

Whale parade
The number of bitcoin “whales” – clusters of addresses held by a single network participant holding at least 1,000 BTC – is standing at a four-year high. As of Sunday, there are now 1,939 whales, the highest since Sept. 2016, representing a 2.2% increase since last week. CoinDesk’s Omkar Godbole notes the increase is likely tied to the prevailing bullish pressures around bitcoin’s price, which jumped 13% last week to register its best single-week performance since April.

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Lending and borrowing rates on all the top decentralized finance (DeFi) platforms are dizzyingly variable.

Enter Notional, a new protocol that lets users lend and borrow crypto at fixed rates. After 10 months in stealth, the platform launches in beta on Ethereum today. The startup also announced Monday a $1.3 million funding round from a total of eight investors, including Coinbase Ventures, 1confirmation and Polychain.

Notional enables fixed-rate debt on Ethereum using a new on-chain automated market maker (AMM) that can be used by DeFi, CeFi and institutional traders, the startup said in a statement. 

Related: Harvest Finance: $24M Attack Triggers $570M ‘Bank Run’ in Latest DeFi Exploit

“Today, DeFi is a jungle full of high net-worth speculators, self-identified degenerates and meme chasers,” said co-founder Teddy Woodward. “With Notional, you can take advantage of volatility instead of getting hurt by it.”

To accomplish that, Notional lets DeFi traders lock in borrowing rates on dai (DAI) to finance yield farming activities for up to six months, all while accessing fixed rates on levered long ether (ETH) trades for the same amount of time using a token called fCash. 

How fCash works

“It’s a token like any other but it’s got one specialty,” Woodward told CoinDesk in an interview, “which is that upon a certain date, its maturity date, it can be converted or redeemed for one unit, or even have an associated currency.”

For now, fCash represents DAI at a future date in time. By trading between DAI and fDAI, “the rate at which I exchange DAI today for DAI in the future implies an interest rate that is fixed over the period of time until its maturity date,” he added.

Related: Uniswap, Curve Daily Trading Volumes Surges Past $2B, Likely Driven by Harvest Attack

Notional seeks to tap into the established demand for fixed-rate loans in traditional markets.

Investor Nick Tomaino, founder of 1confirmation, told CoinDesk in an email, “We’re excited about bringing fixed-rate loans to people in a current Ethereum lending environment where variable-rate loans dominate.” 

“Ultimately, we want to move DeFi forward,” Woodward said, adding:

“The ability to lend and borrow at fixed rates is going to open up a brand new dimension, or financial design space, for DeFi and Ethereum’s ecosystem.”

Related Stories

• Harvest Finance Token Plummets 65% After Attack Saps DeFi Site of TVL
• ‘It’s This Really Precious Thing.’ Lex Sokolin on DeFi’s Next Chapter, and Frances Coppola on the End of Banks

The privacy-centric monero (XMR) continues to rally despite lingering regulatory concerns.

• The cryptocurrency rose to $139 early Monday, the highest level since September 2018, according to data compiled on the CoinDesk 20.
• At press time, monero was changing hands at $135, up 200% on a year-to-date basis.
• Monero has rallied by over 50% the past seven weeks.
• A month ago, the U.S. Internal Revenue Service (IRS) announced a bounty to anyone who can develop solutions to trace monero’s transactions.
• “The U.S. Internal Revenue Service (IRS) wants the same level of insight [into monero] as they have over digital dollars in bank accounts; however, cryptographers and researchers are always going to be one step ahead on privacy,” the protocol’s maintainer, Riccardo "Fluffypony" Spagni, told CoinDesk.
• The European Union’s law enforcement agency Europol cited popular privacy-enhancing cryptocurrency wallets and other technologies as “top threats” in Europol’s “2020 Internet Organized Crime Threat Assessment” published earlier this month.
• Regulatory scrutiny has likely garnering more attention for monero amid an upward-trending broader market.
• “Speculators, algorithmic traders look to have fueled the price rally,” David Jevans, CEO of blockchain forensics firm CipherTrace, told CoinDesk earlier this month.

Also read: Cryptographers Are Always Going to Be ‘One Step Ahead’ of Regulators: Monero’s Spagni

Related Stories

• Number of Bitcoin ‘Whale’ Addresses at Highest Since Autumn 2016
• First Mover: As Bitcoin Tops $13K, Analyst Explains How Blockchain Gives Clues on Next Move
• First Mover: The FOMO Takes Over as PayPal Play Sparks Bitcoin Rally to $13K
• Back at $13K: Bitcoin Unfazed by Profit Takers After Rise to 2020 High

Newcomers in the budding cryptocurrency space have pushed the idea for years, but now that the big wigs are interested, well, so is everyone else.

Automated market makers Curve and Uniswap traded volumes above $2 billion on Monday, benefiting from one of decentralized finance protocol Harvest Finance’s darkest days.

• Daily trading volume on Uniswap surged by over 1,200% to a record $2.04 billion, surpassing the previous record high of $953.59 million registered on Sept. 1 by a big margin.

• “Volume on Uniswap surged, as the Harvest Finance exploiter likely ran money through the automated market maker,” Denis Vinokourov, head of the research at the London-based prime brokerage Bequant, told CoinDesk in a Telegram chat.
• Daily trading volume on decentralized exchange Curve Finance also surged to over $2 billion.
• A malicious entity exploited Harvest Finance early Monday and drained $24 million from the yield farming protocol launched in early September.

• “The economic attack was performed through the curve y pool, stretching the price of the stablecoins on Curve out of proportion and depositing and withdrawing a large amount of assets through harvest,” Harvest Finance said.
• The attacker took a flash loan to manipulate prices on Curve Y Pool to drain USDT and USDC many times. The entity then converted the funds to tokenized bitcoin in form of renBTC and exited to bitcoin.
• The anonymous team behind Harvest Finance has announced a $100,000 bounty for the first person or group to reach out to the hacker.
• The Harvest Finance team is actively tracking the funds and has identified 10 bitcoin addresses of the flash loan attacker.

Related Stories

• Harvest Finance Token Plummets 65% After Attack Saps DeFi Site of TVL
• ‘It’s This Really Precious Thing.’ Lex Sokolin on DeFi’s Next Chapter, and Frances Coppola on the End of Banks
• Market Wrap: Bitcoin Sticks Around $13K While Ether Locked in DeFi Dips
• Lossless Lottery PoolTogether Opens Up to More Coins, More Prizes

How things have changed since spring of 2019, when Agustin Carstens, general manager of the Bank for International Settlements (BIS), was issuing his latest warning over the need for caution when considering central bank digital currencies (CBDC).

Now, according to Chinese news source The Paper, the very same institution – dubbed the central bank for central banks – is planning its own trial of a CBDC in collaboration with the Swiss central bank.

Revealed by Benoit Coeure, head of the BIS Innovation Hub, at the Bund Summit in Shanghai, Oct. 23–25, the proof-of-concept initiative would be underway before then end of the year and would open a route to experimentation looking at use cases for a retail – i.e. cash equivalent – CBDC.

Related: Should We Care if the US Is Falling Behind on CBDCs?

These could include how the digital currency might interoperate with existing payment systems, a role in digital identity and tracking financial compliance, per the report.

Such use cases would require more work on the blockchain technology underlying the CBDC, Coeure said.

BIS will also look into how to facilitate cross-border payments using digital currency between central banks such as including the Hong Kong Monetary Authority and the Bank of Thailand.

Also read: CBDCs Mean Evolution, Not Revolution – Benoit Coeure

Related: Digital Ruble ‘Promising,’ Pilot Likely in 2021, Says Bank of Russia Chief

According to Coeure, the BIS Innovation Center is already carrying out experiments in Singapore, Switzerland and Hong Kong, and has plans to expand the work to Germany, France, the U.K., Sweden and Canada.

The comments from Coeure, who sat on the executive board of the European Central Bank (ECB) until last year, come soon after the BIS and seven central banks issued a report setting out the core principles for national digital currencies.

While many central banks are still publicly saying they are evaluating the technology, there appears to be a general movement towards rolling out national digital currencies in coming years. A digital euro is looking very likely, according to leaders at the ECB, and CBDC trials are planned in Russia, South Korea and Japan.

Driving the movement, has been the People’s Bank of China, which has been in full development mode for several years and appears to be in the final stages before a live launch of a digital yuan.

Beating all nations to the final post, though, was the Bahamas, which launched its “sand dollar” CBDC last week.

Related Stories

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Silvergate Bank added $586 million in new deposits from firms and individuals in the cryptocurrency industry in the third quarter of 2020, according to an earnings report released before the market opened Monday.

The cost of those deposits dropped from 0.37% down to 0.01% and the bank’s fee income for digital currency customers increased by nearly 40% to $3.3 million with more than 68,000 transactions on the Silvergate Exchange Network, a fiat on-ramp for bitcoin markets.

The bank added 47 new digital currency clients, bringing its total customer base from the industry up to 928. 

Related: Eyeing EU Banks, Hex Trust Teams With SIA on Crypto Custody

The majority of new customers – 33, Silvergate reported – were institutional investors. 

The bank also saw a $13 million increase in its bitcoin-backed fiat loans, called SEN Leverage, up to $35.5 million in the third quarter. 

“Silvergate continues to perform at a very high level as the network effect and competitive barriers of the SEN further expand, the credit metrics of our loan portfolio remain strong, and the Bank remains well capitalized, with a strong liquidity position, to support future growth,” Silvergate CEO Alan Lane said in the release. 

This story is developing and will be updated following the Silvergate earnings call later today.

Related: Signature Bank Gains $1B Deposits in Q3, With Notable Growth From Stablecoin Issuers

Read more: Silvergate’s Bitcoin-Backed Lending Product Grew 80% in the Last Quarter

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Social money startup Roll is announcing the raising of $1 million from Fabric Ventures, IOSG, William Mougayar and others. The additional capital brings its total funding to $2.7 million.

Launched in summer 2019, Roll allows people with followings to create their own currency and define the usefulness of that currency. For example, users might be able to redeem the social currency for access to the currency’s creator.  

In a press release, IOSG’s Joyce Lin wrote, “Roll lets each creator have the freedom to determine the rules within their social economy.” 

Related: Atari Plans November Premiere for Video Game Cryptocurrency

As one example, the musician Harrison First announced his social money, $FIRST, in August, promising it would allow people guest-list access when he’s on tour. 

As of this writing, one $FIRST trades for about $0.05 in ETH on Uniswap. By buying an artist’s token early, though, a fan can theoretically make a bet on that creator’s future success (provided, of course, they continue to support the token). 

Read more: Roll Wants to Take Power From YouTube With Cryptos for Content Creators

One of Roll’s new investors, Mougayar, gave another example. Roll has a partnership with blockchain development platform Abridged that makes it possible to gate Discord communities with its tokens, so that only people who hold a certain one can get in. 

Related: New Bipartisan Bill Would Classify Digital Tokens as Commodities, Not Securities, in US

“That’s an emerging use case I like,” Mougayar wrote in an email. “This is interesting because a Roll wallet is more user-friendly and more mainstream-looking in its experience.” 

According to the team, there’s $500,000 worth of daily volume moving through the Roll system, which is now used by 250 creators, including one current member of CoinDesk staff and two alums.

“This marks a fundamental shift towards user-generated capital as the basis of evolution of the social web,” Roll co-founder Sid Kalla wrote in a press release.

Related Stories

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• Polkadot Projects Will Be Able to Mint Their Own Tokens in 2021

Nasdaq-listed bitcoin mining company Marathon Patent Group signed a contact to purchase an additional 10,000 Antminer S-19 Pro miners from Bitmain, according to a Monday press release.

• The machines, when delivered and fully installed, will add 1.10 exahash to the company’s existing mining power.
• Delivery of Marathon’s new machines is expected to begin in January 2021 with all miners fully deployed by the end of Q1 2021, according to CEO Merrick Okamoto.
• This latest contract marks the continued rapid expansion of Marathon’s mining power after signing another $23 million deal with Bitmain for 10,500 additional miners in August, as CoinDesk reported.
• The Las Vegas-based company also formed a joint venture early this month with Maryland-based Beowulf Energy to supply power to Marathon’s miners at a rate 38% lower than its current costs.

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Bitcoin was higher, appearing to hold above $13,000 for the first time since January 2018. 

But the most drama in crypto markets came after an exploit of the decentralized finance protocol Harvest Finance sent the platform’s native FARM token tumbling by 65% in less than an hour.

In traditional markets, European stocks slid as Spain declared a COVID-19 state of emergency and Italians were urged to stay home. U.S. equity futures pointed to a lower open on signs of a resurgence in the coronavirus and dimming hopes for a big stimulus package prior to the election. Gold was little changed. 

Market moves

Related: Number of Bitcoin ‘Whale’ Addresses at Highest Since Autumn 2016

Bitcoin bulls are accustomed to the put-downs. The largest cryptocurrency has been lambasted in recent years as a “fraud” for having ” basically no value” and for failing to qualify as “a suitable investment.”

Now, as bitcoin mounts what might be its most durable rally in almost three years, the bulls may have to get used to a new sensation: vindication.

Analysts for JPMorgan, the largest U.S. bank, wrote Friday in a report that bitcoin has “considerable” price upside in the long term, as reported by CoinDesk’s Zack Voell.

Bitcoin’s increasing use as an alternative to gold is amplified by millennials’ interest in cryptocurrency, according to the report, written by JPMorgan’s global quantitative and derivatives strategy team.

Related: Crypto Long & Short: Why the PayPal Rally Isn’t What It Seems, and Why That’s OK

“Even a modest crowding out of gold as an alternative currency over the longer term would imply doubling or tripling of the bitcoin price from here,” the analysts wrote.

Such plaudits from the biggest of big U.S. banks represent a remarkable milestone for a digital asset launched in early 2009 with the specific aim of eliminating middlemen in payment systems.

And it’s pretty hard to resist dredging up JPMorgan CEO Jamie Dimon’s memorable remark in 2017 that bitcoin was a “fraud.”

“If you’re stupid enough to buy it, you’ll pay the price for it one day,” Dimon said at the time.

Lately, that price just keeps going up, buoyed by the growing belief among many crypto investors that bitcoin might serve as a hedge against trillions of dollars of central bank money printing.

Bitcoin has climbed 82% in 2020, and it has doubled in value since Dimon made the disparaging remark in October 2017. Those who bought the cryptocurrency are looking smart compared with shareholders in JPMorgan, whose shares have tumbled 26% in 2020, leaving the stock price roughly where it stood three years ago.

Bitcoin watch

Bitcoin’s technical charts are showing signs of temporary bull fatigue.

The cryptocurrency carved out a spinning top candle on Sunday, which occurs when an asset sees two-way price action during a specific period. It is widely considered a sign of indecision in the marketplace, especially when it appears following a notable rally, which is the case here. 

The candle validates signals from another technical indicator, the 14-day relative strength index, where its reading of over 70 suggests the market is overbought. The immediate support is seen at $12,500 (horizontal line on the daily chart). 

Dips could be short-lived, as the cryptocurrency’s long-term bull case has been bolstered by the online payments giant PayPal’s recent decision to announce support for bitcoin.

Also, several top public companies have recently disclosed their bitcoin holdings, providing a strong vote of confidence in the cryptocurrency’s future. 

Besides, the recent rally from $10,000 to $13,300 is backed by increased accumulation by large investors and looks sustainable. 

As of Sunday, the whale population – clusters of addresses held by a single network participant holding at least 1,000 BTC – rose to 1,939, the highest since September 2016, according to data source Glassnode.

– Omkar Godbole

Read More: Active Bitcoin Addresses at Highest Since 2017’s $20K Price Record

What’s hot

An attack against decentralized finance (DeFi) protocol Harvest Finance has sent the platform’s native token, FARM, tumbling by 65% in less than an hour (CoinDesk)

Swiss central bank, Bank of International Settlements plan test of central bank digital currency by end of year (The Block) 

Lawyer files motion to dismiss U.S. government charges that Ethereum developer Virgil Griffith violated sanctions law by speaking at North Korean cryptocurrency conference (CoinDesk)

Proposed Chinese law outlaws all yuan-pegged tokens – except for Its own central-bank digital currency (CoinDesk) 

Analogs The latest on the economy and traditional finance

Central banks lap up 17B euro ($20B) common bonds issued by European Commission to finance coronavirus-relief programs (WSJ) 

Morgan Stanley’s chief U.S. equity strategist says to buy the dip if S&P 500 falls after election, since economic stimulus is near certainty no matter wins (Bloomberg) 

Coronavirus-induced sell-off in March came with record bid-ask spreads on U.S. Treasuries, showing limits of liquidity in world’s deepest bond market (Reuters) 

Mission creep?: European Central Bank President Christine Lagarde pushes organization beyond traditional monetary-policy concerns like global warming and gender imbalance (Reuters)

Ripple’s Brad Garlinghouse says tech companies have obligation to help solve societal issues, rejecting “apolitical” stance taken by Coinbase’s Brian Armstrong (CNBC) 

Tweet of the Day Related Stories

• Bitcoin’s Rivalry With Gold Plus Millennial Interest Gives It ‘Considerable’ Upside Potential: JPMorgan
• Bitcoin in Retirement Accounts with Adam Pokornicky and Adam Blumberg

The number of bitcoin “whales” – large investors with an ability to influence market trends – has jumped to four-year highs alongside the recent price rally.

• As of Sunday, the population of whale entities – clusters of addresses held by a single network participant holding at least 1,000 BTC – was 1,939, the highest since September 2016, according to data source Glassnode.
• The whale entities metric increased by 2.2% last week, possibly adding to bullish pressures around bitcoin’s price.
• The top cryptocurrency by market value rose by over 13% last week to register its best single-week performance since April.
• The uptrend gathered steam on Wednesday after PayPal announced support for bitcoin and prices reached 13-month highs above $13,300 on Thursday.

• The number of whale entities has increased by more than 13% this year alongside a 20% rise in the U.S. dollar supply.
• The data shows high net-worth individuals increasingly consider bitcoin a hedge against inflation, according to Willy Woo, an on-chain analyst and the author of The Bitcoin Forecast newsletter.
• Several top public companies have recently disclosed bitcoin investments, providing a strong vote of confidence in the cryptocurrency’s future.
• Hedge fund billionaire Paul Tudor Jones believes bitcoin’s rally has just begun.
• As per the technical charts, the cryptocurrency is looking north, having cleared resistance with a weekly close (Sunday, UTC) above $12,500.

• The focus now is on the June 2019 high of $13,800.
• Bitcoin is trading near $13,160 at press time, up 0.75% on the day.
• Disclosure: The author holds small positions in bitcoin and litecoin.

Also read: Active Bitcoin Addresses at Highest Since 2017’s $20K Price Record

Related Stories

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• Market Wrap: Bitcoin Pulls Back From $13K While Ether Falls on DeFi Cooling

Blockchain analytics firm TRM Labs has appointed former U.S. Treasury and Financial Crimes Enforcement Network (FinCEN) heavyweight Ari Redbord to help build the firm’s risk-based anti-money laundering (AML) programs for cryptocurrency and digital assets.

Redbord joins TRM Labs as the company’s head of legal and government affairs. At Treasury, he served as a senior adviser to the under secretary for Terrorism and Financial Intelligence. His resume also includes stints at FinCEN and the Office of Foreign Assets Control (OFAC), in areas related to cryptocurrency. 

Blockchain analytics is a hot space with the likes of Chainalysis tying up with law enforcement, Elliptic forensically following illicit money around the crypto ecosystem and CipherTrace building “travel rule” solutions and monitoring crypto compliance regimes. 

Related: PayPal Cuts Service to Crypto-Funded Domain Registrar Hosting Right-Wing Sites

So does the hire of Redbord mean TRM Labs is positioning itself alongside government crime-fighting agencies and law enforcement? 

“I don’t think the focus will just be on the long arm of the law,” said Redbord. “Actually, I think in a way it’s quite the opposite, because a company like TRM allows for less regulation, quite frankly, by allowing governments around the world to be more comfortable that they are able to identify suspicious activity and get those bad actors out of this.”

Read more: PayPal Joins $4.2M Round for Crypto Banking Compliance Startup

The analytics firm’s data insights can be applied evenly to three different segments, said Esteban Castaño, TRM’s co-founder and CEO. Those are government organizations, including regulatory and law enforcement, cryptocurrency businesses and traditional financial institutions that may not custody crypto directly, but are exposed to the cryptocurrency risk, he said.

Related: Crypto Long & Short: Why the PayPal Rally Isn’t What It Seems, and Why That’s OK

“It maybe goes against traditional startup wisdom to serve different types of customers, but we can deliver insights around the risk of an individual address and individual transaction or a cryptocurrency business as a whole,” said Castaño.

Founded in 2018, TRM is backed by PayPal, Initialized Capital, Blockchain Capital and Y Combinator. 

Castaño would not be drawn on the possibility of providing data insights to PayPal, but said he was “thrilled” by the fintech giant’s recent crypto announcement and “eager to see their journey.”

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The U.S. tax agency has clarified who needs to answer “yes” to a question over cryptocurrency activity included in the draft 1040 federal income tax form.

As reported in September, the Internal Revenue Service (IRS) revealed it would reposition a question on the 1040 form for 2020 that will require returnees to indicate if they “acquire[d] any financial interest in any virtual currency” over the tax year.

In its recently published set of draft instructions, the IRS now explains that tax payers would need to answer in the affirmative if they sold any cryptocurrency, exchanged cryptocurrency for goods or services, or exchanged cryptocurrency for property including other crypto assets.

Related: PayPal Cuts Service to Crypto-Funded Domain Registrar Hosting Right-Wing Sites

It also sets out that respondents must answer “yes” if they received any cryptocurrency for free, including via airdrops or hard forks.

Airdrops are free distributions of cryptocurrency to users or potential users, often in a bid to kick off adoption of a new coin.

Also read: Cryptocurrency Earned From Carrying Out Microtasks Is Taxable, Says IRS Memo

Hard forks, updates to a blockchain’s code that require users to update to the new version, sometimes arise in the division of a chain into two competing but similar networks, each with its own cryptocurrency.

Related: Bitcoin Critic Peter Schiff’s Bank Under Spotlight in Global Tax Probe

When such a fork occurs, holders of the original coins may also automatically receive the same number of assets on the new chain. For example, holders of 10 bitcoin automatically owned 10 bitcoin cash after a hard fork in 2017.

The IRS draft guidance also makes clear taxpayers need not check yes if they merely held cryptocurrency in 2020, or moved it from one wallet to another owned by them.

The draft is likely to stand unless there are “unexpected issues” or new legislation requiring changes, the IRS said in the document.

With the IRS’ paucity of guidelines on how to pay crypto taxes much criticized in recent years, the clarification may come as some relief to 1040 form returnees. The tax agency has been somewhat heavy-handed at times, ignoring its own watchdog’s advice when sending out “soft” warning letters broadly inquiring about unpaid or incorrectly filed crypto taxes.

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The U.S. tax agency has clarified who needs to answer “yes” to a question over cryptocurrency activity included in the draft 1040 income tax form.

As reported in September, the Internal Revenue Service (IRS) revealed it would reposition a question on the 1040 form for 2020 that will require returnees to indicate if they has “acquire[d] any financial interest in any virtual currency” over the tax year.

In its recently published set of draft instructions, the IRS now explains that tax payers would need to answer in the affirmative if they sold any cryptocurrency, exchanged cryptocurrency for goods or services, or exchanged cryptocurrency for property, including other crypto assets.

Related: PayPal Cuts Service to Crypto-Funded Domain Registrar Hosting Right-Wing Sites

It also sets out that respondents must answer yes if they received any cryptocurrency for free, including via airdrops or hard forks.

Airdrops are free distributions of cryptocurrency to users or potential users, often in a bid to kick off adoption of a new coin.

Hard forks, updates to a blockchain’s code that require users to update to the new version, sometimes arise in the division of a chain into two competing but similar networks, each with its own cryptocurrency.

When such a fork occurs, holders of the original coins may also automatically receive the same number of assets on the new chain. For example, holders of 10 bitcoin automatically owned 10 bitcoin cash after a hard fork in 2017.

Related: Bitcoin Critic Peter Schiff’s Bank Under Spotlight in Global Tax Probe

The IRS draft guidance also makes clear that tax payers need not check yes if they merely held cryptocurrency in 2020, or moved it from one wallet to another owned by them.

The draft is likely to stand unless there are “unexpected issues” or new legislation requiring changes, the IRS said in the document.

With the IRS’ paucity of guidelines on how to pay crypto taxes much criticized in recent years, the clarification may come as some relief to 1040 form returnees. The tax agency has been somewhat heavy-handed at times, ignoring its own watchdog’s advice when sending out “soft” warning letters broadly inquiring about unpaid or incorrectly filed crypto taxes.

Also read: Cryptocurrency Earned From Carrying Out Microtasks Is Taxable, Says IRS Memo

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PayPal has stopped working with controversial domain registrar and hosting service Epik, a company providing services to far-right groups.

• A report by Mashable on Saturday said Epik claimed in open letters that the PayPal block is due to “anti-conservative bias.”
• However, PayPal said it had ceased servicing the company over concerns about financial risk.
• Epik provides hosting for sites run by far-right organizations including Gab and the Proud Boys, a violent group U.S. President Donald Trump recently refused to condemn (though he later changed his mind).
• The firm has previously provided services for 8chan but eventually cut ties after it was used for posts by the perpetrator of a 2019 mass shooting in El Paso, Texas, the report said.
• A Mashable source “close to the situation” suggested that PayPal’s action may be over Epik’s digital currency, Masterbucks, that is used to pay for domain services and can be exchanged for U.S. dollars.
• The source said Epik had been touting the digital coin as a way to avoid certain taxes.
• A previous version (archived here) of the Epik website said Masterbucks has “tax advantages” for people “planning to dispose of domains in order to fund the development of other domains.”
• PayPal reached out to Epik a month ago to remedy the situation, according to letters to the payment firm posted on the domain registrar's blog.
• It asked questions about money transmission licenses, anti-money laundering, “offshore numbered accounts,” “cross‐border activities and law enforcement.”
• Epik called the questions “absolutely absurd and well outside of any knowledge or experience we have as a domain registrar,” and described the action as intended to “deplatform conservative voices.”

Also read: 93 Days Dark: 8chan Coder Explains How Blockchain Saved His Troll Forum

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The U.S. government is pursuing a civil forfeiture claim on more than 300,000 units of the tether (USDT) cryptocurrency after they were reported stolen in a hack earlier this year.

The funds, co-owned by Shixuan Cai and business partner Lin Jian Chen, were later frozen by operator Tether Ltd. after Cai reported the theft to the Los Angeles Police Department (LAPD) in April, court documents filed on Thursday show.

Now the U.S. government wants to finalize the legal seizure of those assets, saying they are in violation of section 1030 of the Civil Forfeiture code, for “fraud and related activity in connection with computers.”

Related: FBI Investigated Extortion Attempt Over Allegedly Negative Ripple Videos

Back in February, Cai purchased 300,900 USDT – a stablecoin linked to the price of the U.S. dollar – through the cryptocurrency exchange Binance. Cai then transferred those funds to a personal wallet co-owned and managed with Chen.

Just four minutes after Cai had transferred the tether from Binance to the personal wallet, the funds were transferred again, but without the business pair’s permission, to a wallet address ending in 8869.

Hours later the funds were split with two thirds (200,600 USDT) of the funds going to yet another wallet address ending in 44c2, while 100,301 USDT remained in the 8869 wallet.

Cai contacted Chen the following day attempting to uncover how the funds had been moved, learning Chen had recorded their private key, used for authorizing transfers from their wallet, in an Evernote account.

Related: Chinese Authorities Crack Down on Gambling Sites Using Tether Stablecoin

Evernote is a note taking and task management application that stores information on the cloud and is accessible across multiple devices owned by an individual, or individuals if shared.

Hackers masking their IP address through a virtual private network (VPN) found the wallet key in Evernote and conducted multiple intrusions between Jan. 26 and Feb. 5, Chen later learned.

The key was used to authorize the transaction from their personal wallet to the destination wallet ending in 8869. Cai reported the theft two months later on April 9 to both Tether Ltd. and the LAPD where the funds were temporarily frozen by Tether pending an investigation.

A week later, Special Agent Patrick Leighton of the U.S Secret Service (USSS) was contacted by a Tether representative who said an unidentified individual was requesting a lifting of the freeze on the USDT so that they could transfer the USDT to another cryptocurrency.

Leighton asked Tether to provide the unidentified individual’s contact details and request the individual to get in touch with the agent. Shortly after Leighton was contacted by an individual who identified himself only as “Kamil,” using the email address “qlYyq2t5iKIbBfxu@protonmail.ch.”

Kamil told Leighton the funds originally belonging to Cai and Chen were transferred to him by an unidentified business partner who in turn had received the funds from an undisclosed person in China.

The China-based individual was said to have asked Kamil to handle the transfer of Cai and Chen’s funds to purchase ether on the Kyber network because they were “not familiar with cryptocurrency.”

Kamil claimed he wanted to split Cai and Chen’s funds into equal amounts over three wallets and that he would receive 15% of the total funds for conducting the intended transactions on behalf of his partner.

No further details were provided to Leighton regarding the alleged partner, with Kamil claiming he had already destroyed evidence of his partner’s information.

By May, Judge Pedro Castillo of the U.S Central District Court of California issued a seizure warrant for the roughly 300,000 USDT and in June issued an order extending the time for the USSS to execute the warrant.

At that time, Tether Ltd. unfroze the stablecoin funds at the behest of the USSS before the warrant was executed and the funds transferred to a wallet controlled by the U.S. government.

The USDT shall remain in the government’s possession subject to the Court’s jurisdiction pending the U.S. government’s claim of fraud, court documents show.

The case is a reminder never to leave any wallet keys or recovery phrases stored online where they may be accessed by bad actors.

See also: Chinese Authorities Crack Down on Gambling Sites Using Tether Stablecoin

See court document in full below:

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A possible exploit in decentralized finance (DeFi) protocol Harvest Finance has sent the platform’s native token, FARM, tumbling by 65% in less than an hour, according to CoinGecko.

According to reports surfacing early Monday, upwards of $25 million in value has been drained from Harvest Finance pools and swapped for renBTC (rBTC) by an unknown attacker. Other funds have been mixed through Tornado Cash, an Ethereum obfuscation software. Following the attack, investors appear to have pulled roughly $350 million from the site.

“We are working actively on the issue of mitigating the economic attack on the Stablecoin and BTC pools, and will update in this thread in realtime as soon as additional details are available,” the anonymous team behind Harvest Finance said in a tweet.

Related: ‘It’s This Really Precious Thing.’ Lex Sokolin on DeFi’s Next Chapter, and Frances Coppola on the End of Banks

The team further said the “economic attack” was made possible by manipulating stablecoin prices on Curve Finance, another DeFi protocol that Harvest Finance contracts interact with. 

The project’s admins claim to have withdrawn “100% of stablecoin and BTC curve strategy funds” to the vault and “are moving to block deposits to the Stablecoin and BTC vault,” the Harvest Team said in the project’s Discord at 4:45 UTC.

Harvest Finance did not return questions by press time.

The attack comes after DeFi analyst Chris Blec claimed Harvest Finance’s administrators held an “admin key that can drain funds” locked in the protocol’s contracts. It’s unclear at this stage in the exploit what role the admin key or the anonymous team behind the protocol have to do with the sudden drain in assets. Blec did not return a request for comment by press time.

Related: Market Wrap: Bitcoin Sticks Around $13K While Ether Locked in DeFi Dips

Harvest Finance had over $1 billion in total value locked (TVL) just prior to the possible exploit being unveiled. TVL has dropped to $673 million as of 5:00 UTC, according to DeFi Pulse. 

This is a developing story and will be updated when more is known.

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Virgil Griffith’s lawyer has filed a motion to dismiss the U.S. government’s charges that the Ethereum developer violated sanctions law by speaking at a North Korean cryptocurrency conference.

The motion, filed by attorney Brian Klein, claims the government’s late-2019 indictment of Griffith doesn’t “specify any alleged overt facts,” and contains no actual allegation of fact.

Griffith was arrested last November on charges he violated the International Emergency Economic Powers Act (IEEPA) and executive orders by going to North Korea and speaking during a crypto conference, where he allegedly taught government officials how to use the techology to bypass economic sanctions.

Related: OFAC Warns That Firms Helping Victims With Ransomware Payouts Risk Violating Its Rules

It’s the first sanctions case in a U.S. court involving cryptocurrency, and as such is likely to be closely watched. The results could hold a precedent for other cases the government might bring under the law, as the U.S. continues adding individuals and entities to its sanctions lists.

Read more: USA v. Virgil Griffith: What We Know (and Don’t) in the Bombshell Crypto Sanctions Case

Klein’s motion to dismiss claims that the President of the United States does not have the authority to prohibit the transmission of information, and that the Office of Foreign Assets Control (OFAC), the Treasury Department division overseeing sanctions enforcement, has “issued no regulations and published no guidance to clarify the definition of ‘services'” that are otherwise prohibited under executive orders.

“It appears that the government’s theory is that, by attending and speaking at a blockchain conference in Pyongyang, Mr. Griffith provided ‘services’ because he ‘provided the DPRK with valuable information on blockchain and cryptocurrency technologies, and participated in discussions regarding using cryptocurrency technologies to evade sanctions and launder money,'” the motion said.

Related: Iran Is Ripe for Bitcoin Adoption, Even as Government Clamps Down on Mining

According to Klein, Griffith only provided information that was already in the public domain.

The next step in the case is likely a government response to Klein’s motion.

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Bitcoin closed above $13,000 Saturday for the first time in over two and a half years following a week of positive news for the leading cryptocurrency.

• Bitcoin had last closed above $13,000 on Jan. 15, 2018, six weeks after bitcoin closed above $13,000 for the first time on its way to an all-time high of $19,892, according to Coinbase market data.
• Through late June and early July in 2019, bitcoin briefly traded above $13,000, revisiting that price level on Wednesday through Friday, but still failing to close above it.
• This week, news that PayPal is allowing its customers to buy and sell certain cryptocurrencies, along with recent investments in bitcoin by Square and MicroStrategy, has given the leading cryptocurrency a strong tailwind. Just yesterday, JPMorgan analysts wrote that bitcoin has “considerable upside potential.”
• Bloomberg Intelligence set $13,000 as a breakout price target for bitcoin in a July report that called the leading cryptocurrency a “caged bull”.
• Year to date, bitcoin has gained 82%.
• Bloomberg Intelligence Senior Commodity Strategist Mike McGlone, who authored the report, told CoinDesk in an email he was impressed by how bitcoin broke above $10,000 in late July and turned that level into support when it was revisited from the upside in early September.
• As for the future, bitcoin’s “fundamental and technical indicators remain positive,” McGlone said.

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Bitcoin closed above $13,000 Saturday for the first time in over two and a half years following a week of positive news for the leading cryptocurrency.

• Bitcoin had last closed above $13,000 on Jan. 15, 2018, six weeks after bitcoin closed above $13,000 for the first time on its way to an all-time high of $19,892, according to Coinbase market data.
• Through late June and early July in 2019, bitcoin briefly traded above $13,000, revisiting that price level on Wednesday through Friday, but still failing to close above it.
• This week, news that PayPal is allowing its customers to buy and sell certain cryptocurrencies, along with recent investments in bitcoin by Square and MicroStrategy, has given the leading cryptocurrency a strong tailwind. Just yesterday, JPMorgan analysts wrote that bitcoin has “considerable upside potential.”
• Bloomberg Intelligence set $13,000 as a breakout price target for bitcoin in a July report that called the leading cryptocurrency a “caged bull”.
• Year to date, bitcoin has gained 82 percent.
• Bloomberg Intelligence Senior Commodity Strategist Mike McGlone, who authored the report, told CoinDesk in an email he was impressed how bitcoin broke above $10,000 in late July and turned that level into support when it was revisited from the upside in early September.
• As for the future, bitcoin’s “fundamental and technical indicators remain positive,” McGlone said.

Related Stories

• Hedge Fund Billionaire Tudor Jones Says Bitcoin Rally Only in ‘First Inning’: Report
• BitMEX Accelerates Mandatory ID Verification After Charges of Lax Anti-Money Laundering Controls
• ‘Garbage’ Market Data Is Holding Bitcoin Back: MicroStrategy CEO
• Crypto Long & Short: Coinbase’s ‘Apolitical’ Stance Isn’t Nearly as Simple as It Sounds