Blockchain Bites: DeFi’s Harvest Hit, IRS’ Crypto Clarification, JPMorgan’s Buoyant Bitcoin Note

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. 

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. 

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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