Bitcoin Tax Confusion Has Accountants Turning to Specialized Software

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Every time you convert Bitcoin to anything, be it goods or services, other cryptocurrencies, or even tax payments, it might be a taxable event, depending on your local regulations. It’s not something a lot of cryptonaughts think about when carrying out their daily lives, but potential penalties can be steep for tax evasion. Node40 is a company that originally started out hosting Dash Masternodes for a fee – and they still do this – but then realized that their background as coders could potentially help people in the US blockchain industry accurately assess their cryptocurrency tax liabilities.

Node40 is one of the few providers in the space, having developed what amounts to a QuickBooks for blockchain tokens.

CCN spoke to Perry Woodin and Sean Ryan, the co-founders of the company, recently about the significant increase in demand for their product since Bitcoin blew up last year and many thousands of Americans, potentially millions, entered the cryptocurrency market for the first time. In Sean’s view, there is a woeful lack of education among cryptonaughts as regards their tax liabilities and burden to the US government.

“If people are transacting in digital currency, it’s important that anyone understands that there’s a tax obligation on their part. Whether they’re paying their taxes or whether they’re day traders trying to make it big in the crypto world – it doesn’t matter. Any time you’re interacting with digital currency, it’s important that people understand there is a tax liability.”

The software allows a user to easily integrate with the crypto exchanges and wallets that they use, determines the values that were traded and what needs to be reported. It streamlines the process for the users, who may otherwise find it very difficult to determine what amounts were actually traded. Ryan believes that the 1099-K forms that traders will be receiving from exchanges in the next tax season will be quite inaccurate, not telling the whole story, and that his company can help people by enabling them to have a much more detailed picture of their trade history. Perry Woodin said of the forms:

“Many people are going to be receiving 1099-K forms this year from the exchanges they’ve interacted with, and we know that those forms are likely not going to be accurate. Our system will be able to deliver a more accurate number, and people are likely to need that.”

The ‘QuickBooks of the Blockchain World’

IRS bitcoin tax cryptoThe Internal Revenue Service (IRS) has said that it intends to bring down the hammer on bitcoin tax cheats.

Node40 has three product tiers, and users who just want the basic service can sign up for free. Users who need more advanced features can pay $750 a year, although right now it’s 50% off. They believe that demand for their product is only going to increase. Unlike most blockchain industries, they say, tax accounting software doesn’t rely on market performance. If Bitcoin goes down, people need them. If the Bitcoin price goes up, people need them even more.

Sean Ryan said that Node40 had seen a serious increase this year in the number of professional accountants and law firms who have had requests from their own clients on how to deal with cryptocurrency and the government. He said, “While we are not lawyers or accountants, we’ve developed a product that serves them. What we’re seeing is an increase in CPAs and law firms who want to see how we can fit into their world.”

On the subject of Ohio’s tax collectors accepting Bitcoin in lieu of fiat payment, Ryan said that it actually creates a federally taxable event for the user, so the user has to consider whether they are saving enough in fees to pay in that method to offset the obligations that might be created at the federal level. “Ohio doesn’t care,” he said, pointing out that in some cases it could be beneficial to spend cryptos in that manner.

“This is a good year because if I receive Bitcoin from my customers paying my January invoices in Bitcoin, I am receiving it at a very high value. Say $8,000. Now the price of Bitcoin is plummeting throughout 2018, I’m continuously getting less and less value. So the cost basis of what I’m receiving changes. Every time I receive it, it has a different value. So at the end of the year when it comes time to pay taxes, I’m using that Bitcoin that I’ve received at all different cost bases, and Ohio doesn’t care, but the federal government certainly cares that I’m disposing of Bitcoin now.”

In a press release put out after our interview which focuses on how 2018 will be the year that a lot of people report crypto losses to offset their other tax liabilities, co-founder Perry Woodin said:

“It is clear that, with the huge falls in cryptocurrency markets during 2018, many people will be weighing up whether this is a good opportunity to reveal the losses they have suffered. In doing so, they will be looking to take advantage of these losses in order to offset other tax liabilities. Having not reported their crypto activity up to now though, those choosing to reveal losses this year will need to report their crypto positions every year from now on, giving the tax authorities much better visibility of people’s crypto involvement.”

One thing is for sure: neither cryptocurrency nor the federal government are going away anytime soon, and the IRS has shown a definitive willingness to adapt to the changing times. Ryan and Woodin believe that people will be more willing to pay their taxes if they have an easier means to do so, and that by solving the education gap that intersects taxation and crypto, they will help create a more equitable and sane environment for blockchain entrepreneurs to operate in.

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Its ICO Portfolio ‘Could’ See 25 Percent Refund Rates Over Non-Compliance, Says Pantera Capital

Blockchain and cryptocurrency-focused investment firm and hedge fund Pantera Capital has warned that a quarter of its ICO projects could be found to violate the United States’ securities laws.

According to the company’s most recent newsletter cited by a Bloomberg article Dec. 13, the ongoing crackdown by U.S. regulators means many ICOs, which have already felt the pinch from declining markets, may have to repay investors.

“While we believe the vast majority of the projects in our portfolio should not be affected, approximately 25 percent of our fund’s capital is invested in projects with liquid tokens that sold to U.S. investors without using regulation D or regulation S,” the publication quotes co-chief investment officers Dan Morehead and Joey Krug as saying.

“If any of these projects are deemed to be securities, the U.S. Securities and Exchange Commission’s (SEC) position could adversely affect them. Of these projects, about a third (approximately 10 percent of the portfolio) are live and functional and, while they could technically continue without further development, ending development would hinder their progress.”

Included in the likely victims is cannabis-focused ICO project Paragon, one of two schemes the SEC ordered to repay millions of dollars in refunds and fines in November for breaching securities rules.

Data has since confirmed the downward pressure regulators have had on the ICO industry, with the amount of funding accrued dropping significantly.

Barry Silbert, founder of fellow investment giant Digital Currency Group, told CNBC earlier this month he considered the ICO market to be “dead.”

“You now have the lack of demand from ICOs and then you have all the sponsors of the ICOs who raised a bunch of Bitcoin (BTC) and primarily Ether (ETH) who are now starting to sell that,” he explained.

‘Wasteland’ Director’s New Blockchain Gaming Store Signs up 22 Publishers

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Co-founded by veteran game developer Brian Fargo, Robot Cache will purportedly be the first blockchain-based digital marketplace for video games.

Brian Fargo Launches Blockchain-Based Steam Competitor

The PC games platform is set to launch sometime in 2019 but has already signed up 22 publishers and 700 games for its blockchain-based competitor to Steam.

brian fargo blockchain“Wasteland” director Brian Fargo | Source: Wikimedia Commons/Jean-Frédéric

Robot Cache has several unique features. It plans to offer the option for game users to re-sell their game purchases and mine a “virtual currency” called IRON when their machines aren’t in use.

Lee Jacobson, CEO of Robot Cache, told VentureBeat:

“Reselling games is huge, with the publishers getting a cut, and gamers being able to make money. Some users want to monetize their digital library. They can play a game for a few months and then sell it back. Then they can use it to buy more games.”

The new platform has also committed to giving game publishers and developers in the region of 95% of the value of new game sales. In comparison, Steam gives back 70%.  Selling used titles on Robot Cache will still reward the publisher with 70% of the revenue and give the gamer 25%.

Robot Cache is based in San Diego, California, and co-founder Brian Fargo has also created game developers Interplay Entertainment and InXile Entertainment. He has delivered titles for Activision and Apple and directed the wildly popular “Wasteland” RPG.

So far, the platform’s Partner Portal for game publishers to register is open, and it hopes to offer a combination of big and indie labels.

The latest publishers to join Robot Cache include 1C Publishing, Bigben Interactive, Ci Games, Dankie, Devolver Digital, Headup, Hyperkinetic Studios, Revival Productions, and Running with Scissors. They join 14 others. Jacobson says Robot Cache is talking to “everybody in the industry” and that the platform will “have the largest launch library in the history of video games.”

IRON Won’t be a Cryptocurrency

The company had planned to create an ERC20 token called IRON but has shelved those plans as the U.S. Securities and Exchange Commission (SEC) cracks down on utility tokens and initial coin offerings (ICOs). Jacobson explained to VentureBeat:

“We didn’t want to go down that road of upsetting governmental authorities.”

IRON will instead be a virtual token limited to the Robot Cache platform, any IRON users “mine” on the platform can be used to pay for game titles.

The SEC classes most ICO tokens as securities, despite the increase in the use of the term utility token. It has promised to look at each ICO on a case by case basis, deterring even credible ICOs from launching due to the complication of securities legislation. The latest statistics on ICOs may also indicate that the funding model is a dying trend.

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Business Models Should Be ‘Re-Imaged’ for Blockchain, Says Barclays Rep

A Intrapreneur from financial services giant Barclays has expressed the idea that blockchains should be built with regulatory compliance in mind, tech news website The Next Web (TNW) reported Dec. 14.

Speaking at a Hard Fork Decentralized event, Barclays’ Julian Wilson stated that when building blockchains, developers need to “reconfigure our approach and way of thinking.” Wilson argued that not all business models require blockchains and that the tech should not be used, as TNW paraphrased his words, “as bolt-ons or additions to current business models.”

TNW also reports that Wilson presented an integrated concept of regulation and development, arguing that “to make a blockchain legally compliant, it should be built with the law in mind, and not the other way around.”

Speaking about using blockchain at Barclays, he noted that for a bank with over 300 years of activity, changing its business model to a blockchain-based one would not be simple, and that a blockchain solution would need to be “bespoke.”

As Cointelegraph reported in August, Barclays sponsored a blockchain hackathon to explore the technology’s potential in the processing of derivatives contracts.

While this summer Barclays denied plans to open a cryptocurrency trading desk, the banking giant demonstrated interest in crypto and blockchain tech recently, filing two digital currency and blockchain patents with the United States patent office in July.

Romanian Bitcoin Exchange CEO Helped Launder Stolen Funds: Report

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According to a Cluj, Romania-based newspaper, the case of bitcoin exchange executive Vlad Nistor is much deeper than the simple illegal operation of a cryptocurrency firm. Their most recent report on the case speaks to some much more serious allegations as to the behavior of Vlad Nistor.

More Details Emerge in Bitcoin Exchange CoinFlux CEO’s Arrest

The paper reports that Nistor was part of a group that executed phishing attacks on United States soil between 2014 and 2015 when CoinFlux was just getting started. A total of 14 Romanians have been indicted by federal authorities based out of Kentucky, Vlad Nistor just being one of the more notable due to his business ties and outward appearance as an upstanding citizen.

He is said to have advised some of the active cyber criminals via Telegram and helped them launder the proceeds of their illegal activity. They apparently executed a number of phishing attacks on US soil, some even traveling to the US to better succeed.

From the report (roughly translated):

“Two of these methods were run online via phishing or through various fictitious sale ads (via eBay or through online platforms ). For example, Romanians were sending e-mails using instant messaging programs or telephone numbers where the user is advised to give confidential data to win certain prizes or was informed that they are necessary due to technical errors that led to loss of original data. A web address containing a clone of the site of a financial or trading institution was indicated in the e-mail.”

After stealing funds from phishing victims, the criminals would use the newly created CoinFlux exchange to wash funds through various crypto methods. That alone would not normally be enough to indict an exchange operator, as most exchanges have some form of user agreement which bans illegal activity and absolves itself of wrongdoing on the part of its clients. Provided they following know-your-customer and anti-money-laundering regulations, they are usually free of responsibility.

However, in the case of Vlad Nistor, according to allegations, he actually advised the phishers on how to dispose of their proceeds using his crypto exchange.

Nistor Extradition Delayed, Others Involved in Progress

coinflux cluj, romania bitcoin vlad nistorVlad Nistor is CEO of CoinFlux, a Cluj-Napoca, Romania-based bitcoin and cryptocurrency exchange.

The most recent reporting from the Cluj newspaper indicates that the court has given Nistor and his lawyers until Dec. 20 to make arguments as to why he should not be extradited. He appears to be what we would call in the US “free on bond,” but he is currently banned from using bitcoin or any other sort of digital currencies for any reason and must report to the court if they request his presence at any time.

Three criminals in the conspiracy have had their extradition requests approved: Popescu Bogdan-Ştefan, Dobrică Alin-Ionut and Arvat Florin. In the view of the Cluj reporter, the only difference between their actions and Vlad Nistor’s is that they carried out their illegal activities directly on US soil. The work of Nistor’s attorneys and the government of Romania is to determine whether or not Nistor acted in sufficient violation of US laws to warrant an extradition.

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Blockchain Startup Civic Appoints Apple Veteran as Executive Director of Identity.com

Blockchain startup Civic has appointed Apple veteran Phillip Shoemaker as executive director of Identity.com, its Ethereum (ETH) blockchain-based, decentralized identity platform. The news was announced in a press release published Dec. 13.

Identity.com is Civic’s open-source, decentralized and tokenized digital identity ecosystem that uses smart contracts to provide on-demand, blockchain-based identity validation.

Shoemaker joins the initiative after working over seven years as senior director of the Apple App Store Review team, which he reportedly built “from the ground up, taking his team from 4 to over 300 employees,” under the company leadership of founder Steve Jobs. Since leaving Apple in 2016, he has worked advising multiple blockchain projects and startups.

The company has said the appointment comes at a “key time” as it prepares to add external organizations to its ecosystem, “both as collaborators and participants.”

According to the press release, Shoemaker’s responsibilities will include managing identity.com’s objectives and team growth, “defining the parameters around the Civic relationship,” and taking charge of establishing a “governance structure” for the ecosystem that prioritizes “trust and transparency.”

Shoemaker’s other past experiences include a role as developer relations director at the open-source, neuroscientific software engineering firm Numenta, which has been working to reverse-engineer the neocortex to study how the brain works and evolve approaches to enhancing machine intelligence.

As previously reported, Shoemaker is not the only Apple veteran to embrace blockchain innovation; in October, the tech giant’s co-founder Steve Wozniak was announced as a co-founder of recently launched blockchain-focused venture capital fund EQUI Global, having made a solid endorsement of Bitcoin this summer, arguing that it is the only “pure digital gold.”

In October, Civic announced that credit report repair service Progrexion, along with its subbrands law firm Lexington Law and consumer advice portal Credit.com were set to use its blockchain identity solution, with the Civic (CVC) native token surging 22 percent in value following the news.

As of press time, CVC is trading at $0.050, down just over 6 percent on the day, according to CoinMarketCap.

Facebook Aggressively Hiring Blockchain Devs, Discussed Launching Cryptocurrency: Report

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Facebook has embarked on an aggressive hiring spree to woo crypto experts to expand its blockchain group amid speculation that the social media monopoly is considering launching its own cryptocurrency.

Facebook formed its blockchain unit in April 2018 with David Marcus, the former president of PayPal and VP at Messenger. Marcus is a longtime cryptocurrency advocate and a former board member at Coinbase, the largest US-based cryptocurrency exchange.

FB’s blockchain group now has 40 employees — including a half-dozen ex-PayPal executives that Marcus poached from his former employer, Cheddar reported.

FB Eyes Blockchain-Based Payment Product

The secretive unit includes people who have worked on Google Pay and Samsung Pay, a mobile payment and digital wallet service from Samsung — the world’s largest manufacturer of semiconductors and smartphones.

“They’ve been very quiet about what they’ve been working on, very stealthy,” said Cheddar’s Alex Heath (video below). “But it’s definitely going to be some kind of blockchain-based cryptocurrency payments product.”

Facebook is also considering launching a cryptocurrency that would enable its 2 billion users around the world to make electronic payments without the need for a traditional bank.

“They’ve already got policy people in D.C. to ramp this up,” Heath said.

Accordingly, Facebook is trying to hire crypto-savvy engineers, product managers, academics, and legal experts to expand its blockchain group.

“They’re actively, actively recruiting,” said Cheddar’s Alex Heath. “They’re also trying to scoop up crypto start-ups that are at the white-paper level, which means they don’t really even have a product yet.”

Facebook Is ‘Going Really Hard’ After Recruits

Health said Facebook is in hot pursuit of gifted recruits because the talent pool is relatively shallow since the crypto ecosystem is still in its infancy.

“The talent in this industry is so finite, and there are so many big players wanting these talented cryptographers and academics,” Heath said. “So Facebook is going really hard at them. And they’re having difficulty.”

Facebook is having a lot of trouble with their recruiting efforts due to its numerous recent data-privacy scandals that have eroded the public’s trust in the corporate juggernaut.

‘A Lot of People Don’t Trust Facebook’

“A lot of people obviously don’t trust the Facebook brand right now, especially people in the crypto/blockchain world,” Heath said. “A lot of them got into this industry because of the centralization and the data misuse of companies like Facebook.”

Many users are furious after learning that Facebook has been selling their personal data — without their consent — to third parties for profit.

Facebook CEO Mark Zuckerberg has apologized for the debacle, but the damage to his credibility and to Facebook’s brand continues to reverberate.

“So the idea of Facebook creating a cryptocurrency and a digital economy within its ecosystem is either incredibly exciting — if you talk to some people — or one of the scariest things in the world, if you talk to others,” Heath said. “It’s very polarizing, but they are actively building this up. I think we can expect to see Facebook buy some companies up in the crypto space in the next year.”

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Top Cryptos See Mixed Gains & Losses, Bitcoin Fights to Stay Over $3,200

Saturday, Dec. 15: the top 20 cryptocurrencies report a mix of moderate gains and losses, with Bitcoin (BTC) briefly dipping under $3,200 before climbing back above the price mark by press time.

coin360

Market visualization from Coin360

Bitcoin started the day around $3,228, but after a mid-day high of $3,275, it fell back to the current price of $3,232, after touching its lowest point of $3,191 earlier today.

At press time, Bitcoin is down a fraction of a percent over the last 24 hours. On the weekly chart, the prices in the past two days have been the lowest, down from a weekly high of $3,600.

btc

Bitcoin 7-day price chart. Source: CoinMarketCap

Ripple (XRP), the second largest crypto by market capitalization, lost 1 percent in the last 24 hours. It started the day at $0.286 and is currently trading around $0.284 after a mid-day high of $0.292. On the weekly chart, the current price is the lowest, seven days ago Ripple was worth about $0.32.

Ripple

Ripple 7-day price chart. Source: CoinMarketCap

Ethereum (ETH) remains the third cryptocurrency by market cap, losing just a under half a percent of its value in the last 24 hours. At press time, ETH is trading at $84.33, after having started the day around $84 and trading sideways during the day.

On the weekly chart, the current ETH prices today are the lowest. Seven days ago Ethereum was trading at $87, but then shortly peaked at $98.90 last Sunday, Dec. 9, before starting a decline towards the current price.

ETH

ETH 7-day chart. Source: CoinMarketCap

Among the top 20 cryptocurrencies, several coins are seeing more notable growth. EOS (EOS) is up a solid almost 6 percent, while IOTA (MIOTA) is up 4.29 percent on the day, and Dash (DASH) is up almost 5 percent.

The only top ten cryptocurrency reporting more than 2 percent losses is Bitcoin SV (BSV), having lost close to 5 percent in the last 24 hours.

As Cointelegraph reported Dec. 13, according to a study, while crypto prices have been decreasing, this year the number of verified crypto users nearly doubled. A Bloomberg analysis of the report says that the growth of crypto’s user base while markets are declining “could signal that an eventual recovery could be coming.”

Jeremy Allaire, the co-founder of cryptocurrency company Circle, recently told CNBC in an interview that in three years time, Bitcoin will be worth “a great deal more” than it is now.

Status, an Ethereum-based open source chat platform has recently laid off one-fourth of its staff due to the recent decline in cryptocurrency prices. In an announcement, the startup’s co-founder said that Status is “much larger than we can sustain.”

Downturn or Not, Bitcoin Has Still Outperformed Apple Since Last January

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In January of last year, the U.S. stock market went through one of the largest bull markets in recent history, with technology stocks like Alphabet and Apple achieving record high numbers.

Within the past two years, the stock price of Apple (AAPL) increased from $115 to $165, by 43.7 percent. Alphabet (GOOGL), the parent company of Google, saw its share price surge from $792 to $1,071, by 32.7 percent.

During the same period, the Bitcoin price increased from $1,000 to $3,155, by 215 percent, even after an 85 percent plunge in value.

Critics: Bitcoin Will go to Zero

bitcoin price google alphabet apple stockBTC (blue) vs. Apple (red) and Alphabet (orange)

As the price of Bitcoin (BTC) dropped substantially against the U.S. dollar, outspoken critics against the digital currency have started to claim that Bitcoin will inevitably reach zero by losing all of its value.

However, such a claim disregards the abnormally strong rally of Bitcoin in the previous year during which its value increased by more than 1,850 percent against the USD, from $1,000 to $19,500. In any market, a rally of a similar magnitude is often followed by a long-lasting downtrend and a several-month-long consolidation period.

Every market goes through a bull and a bear cycle. In 2018, the Dow Jones and most tech major stocks in the likes of Apple, Alphabet, and Facebook deleted all of their yearly gains amidst an intense market sell-off.

As Balaji Srinivasan, the CTO of multi-billion dollar crypto asset brokerage Coinbase said:

“The reason this thing [cryptocurrencies] really had legs was after 2011 when there was a bubble and it went up, and it came down, and it didn’t go to zero. It kind of stabilized and kept coming back up. Around that time was basically when I said ‘okay, this is going to stick around, it’s got legs, it’s not going to zero.’ That was kind of a buidl year. We have this kind of bubble-crash-build phases in crypto, and that is really when i start to get involved.”

Fundamentally, the catalysts that fuel the growth of cryptocurrencies and traditional stocks are drastically different. But, all markets similarly go through bear and bull cycles, especially following an abnormal rate of growth that cannot be sustained in the long run.

Apple has gone through four major corrections in the past 11 years with every drop averaging at around a 30 percent decline in share price. In contrast, Bitcoin has experienced five major corrections with every drop averaging at nearly 85 percent. And, on average, it took the dominant cryptocurrency 65 weeks to recover and achieve a new all-time high.

Markets move solely based on the demand from investors, and if investors deem a large rally cannot be maintained throughout the years to come, even some of the largest markets can experience steep sell-offs as seen in the performance of the Dow Jones in the past week.

Argument is Wrong

Bitcoin could take a longer time to recover than in previous years because the market is more structured and a big portion of the mainstream is already aware of the asset class.

But, it is inaccurate to claim that the asset could drop to zero because of its 85 percent decline in price this year because, in the previous year, it demonstrated a 1,850 percent gain and a major correction was expected after such a large movement.

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Blockchain Payments’ Mass Adoption Is 3-5 Years Away, Says BitPay CEO

The CEO of crypto merchant platform BitPay Stephen Pair stated that speculation on future adoption drives Bitcoin’s (BTC) price more than “actual utility,” in an interview on CNBC Dec. 13.

Speaking on the reasons behind Bitcoin’s current value, compared to its historic price highs, Pair told reporters:

“A very big component of the [Bitcoin’s] price is certainly speculation. It’s investors that are speculating on the future usage and adoption of this technology. I’m sure a small component of that price is the actual utility.”

When asked about a Bitcoin ETF’s potential to stimulate a price rally, Pair argued that “not just ETF adoption or ETF launches” could be catalysts for price movement, but that “adoption will push the prices higher,” adding optimistically:

“I do think we’ll see those kinds of prices at some point in the future, if history is any guide.”

Answering a question about blockchain-based currencies’ use in daily transactions, the BitPay CEO told CNBC that he expects such adoption to occur on a mass scale in under half a decade, stating that:

“I used to say 10 years, but now I think it’s more like 3-5 years until you can go into a restaurant, a retail establishment, and just everybody’s going to expect that that store will be able to accept a blockchain payment.”

Pair then further noted that he was not just referring to “Bitcoin or the various tokens that we see today [but] also about issuing dollars on a blockchain or euros on a blockchain.”

According to Hester Peirce, a commissioner for the United States Securities and Exchange Commission (SEC), the approval of a Bitcoin ETF is not necessarily close at hand. As Cointelegraph recently reported earlier this month, Peirce said that an approval “could be 20 years from now” or “tomorrow,” urging the crypto community to not “ hold [its] breath.”

A study published by the Cambridge Centre for Alternative Finance this week stated that the number of verified cryptocurrency users nearly doubled this year. A Bloomberg analysis of the study claims that the increase in crypto’s user base, despite prices declining, “could signal that an eventual recovery could be coming.”