Commentary on the economic , geopolitical and simply fascinating things going on. Served occasionally with a side of snark.
Friday, April 4, 2014
Bitcoin Updates April 4 , 2014 China uncertainty continues as Huobi stops voucher deposits amid regulatory murkiness ......Bulgaria tax guidance issued for digital currencies ... Texas offers guidelines regarding bitcoin exchanges..... Additional news of interest on digital currencies including bitcoin !
China-based bitcoin exchange Huobi is reporting via its website that it has not yet received word from any of its four third-party payment processors that they will be taking action to close its trading accounts.
However, Huobi has said that one of its processing partners did call it directly to talk about the potential risk of continuing the partnership. The processor, which was not named in the release, reportedly wants to very strictly enforce guidance from China’s central bank that was issued on 5th December last year.
Perhaps most notably, Huobi will be halting voucher deposit services due in part to recent reports that the People’s Bank of China (PBOC) is looking to further restrict domestic financial institutions from working with bitcoin exchanges effective 15th April.
Huobi works with third-party processors ICBC, Agricultural Bank of China (ABC), China Construction Bank (CCB) and China Merchants Bank (CMB).
More service closures
Huobi says that none of its financial partners have received formal notices from the PBOC confirming or denying the rumors first reported by Chinese news service Caixin earlier this month.
As mentioned, yesterday’s announcements by rival exchanges OKCoin and FXBTC indicated that some deposit services would be halted due to unwillingness by financial partners to work with the bitcoin businesses in the current regulatory atmosphere.
It is unclear if any of those account closures were made in response to official notice or were proactive measures given that there is a growing consensus that Caixin’s initial news report accurately reflects PBOC’s change in enforcement.
Key to the situation is whether the People’s Bank will look to more actively enforce earlier guidance that China-based exchanges could not work with third-party processors.
Major China-based exchanges have been circumventing this rule by accepting deposits into commercial accounts, however, it now seems the new guidance is meant to close this loophole.
Freeze on voucher deposits
Citing uncertainty regarding the current regulatory environment in China, however, Huobi did indicate that it plans to shut down prepaid voucher deposits effective from midnight, 5th April.
Voucher services played a key role in the revitalization of the Chinese bitcoin market following the PBOC’s 5th December guidance, in particular helping BTC China regain volume this January.
Further, Huobi indicated that its bank transfer deposit services are now being manually serviced 24 hours a day to ensure customer funds are deposited quickly.
The voucher system was different than a third-party processing agreement, as anyone who wanted to enter the bitcoin market would need to first purchase a voucher code, which they could in turn use to buy bitcoins. Withdrawals worked on a similar system.
The exchange reported that renminbi withdrawal services, as well as bitcoin and litecoin deposits and withdrawals, were not affected.
Despite the lack of negative news from ICBC, ABC, CCB and CMB, Huobi was unable to confirm whether or not the update is indicative of its ability to operate smoothly in China. It indicated that any news it has heard on the subject has been reported by the media, and that it has no way of evaluating whether or not these reports are accurate.
Translations of its statements indicate that it clarified that the news it was providing was all firsthand, but that the news received across platforms has been inconsistent.
It suggested the difference could be indicative of how certain regions or service providers are responding to the news, but provided the caveat that this was merely speculation.
Price trends up in China
As of press time, the price of bitcoin on the CoinDesk USD Bitcoin Pricing Index (BPI) was down roughly 2% for the day. The price was $428.80, down from an open of $437.51.
However, the situation in China was different. Prices were up 0.62% for the day’s trading. The price of bitcoin on the CoinDesk CNY BPI, which tracks trading on BTCChina and OKCoin, was ¥2,593, up from an open of ¥2,575.
Bulgaria’s National Revenue Agency (NRA), the government organisation in charge of administering state taxes and social security contributions in the eastern European nation, has issued new taxation guidelines for digital currency.
In a 2nd April post, the NRA indicated that income from the sale of digital currencies such as bitcoin will be treated as income from the sale of financial assets and taxed at a rate of 10%.
Effectively, earnings from bitcoin trades will be taxed on the same level as ordinary income and corporate income in Bulgaria.
Explained the NRA:
“Taxable income … is the sum of the gains realized during the year specified for each transaction, reduced by the amount of losses realized during the year designated for each specific transaction.”
This differs from guidance from the US Internal Revenue Service, which called for digital currency to be taxed as property, thereby allowing capital gains taxes to be imposed on each trade.
One source in Bulgaria suggested that the guidelines merely prevent its citizens from declaring bitcoin as non-taxable income, and that gains realized on purchases are not subject to taxation.
Timing and impact
The release comes in advance of the NRA’s 30th April 2013 tax deadline, and includes guidance on where bitcoin gains should be reported on tax forms.
Perhaps most notably, however, the announcement does not seem to have big-picture implications for how digital currencies will be classified or regulated. The NRA’s announcement compares bitcoin as a financial instrument, not a currency.
Further, Stamen Gorchev, founder of Bulgaria-based bitcoin informational website Hash.bg and member of the newly launched Bulgarian Bitcoin Association, stressed that the guidance amounted more to an ad-hoc announcement, and that the NRA has no legal authority to determine the status of bitcoin.
Bulgaria’s Financial Supervision Commission has reviewed the matter, but does not have the authority to determine the legal status of a currency in the country, according to Gorchev.
He indicated that the FSC sent a letter to the National Bank asking for regulation on the matter in August, 2013.
Gorchev indicated that the move was perhaps motivated by a desire on the part of the NRA to reduce the risk that citizens would use bitcoin to avoid tax payments, however, he suggests this intent may backfire.
He notes the NRA does not require taxpayers to submit documentation that proves income from bitcoin trading, and that this comment has been raised on social media outlets by the local community.
As a result, Gorchev explained, this could cause problems for the local government:
“It’s a very easy way for someone in Bulgaria who gets some dirty money just to sell some bitcoins, pay the back tax for it, and this way, it’s very easy to launder money.”
Gorchev indicated Bulgaria’s guidance differs from the recent IRS guidance in that it mostly covers those who earn income from trading digital currencies.
“If a miner sells bitcoins, he must pay tax on the sale price and he cannot subtract the cost of producing the bitcoins.”
Furthermore, Gorchev indicated that gains realized on bitcoin purchases aren’t taxable:
“If you buy one bitcoin at $500 and then later purchase goods for $600 with this bitcoin, you are not liable to pay taxes on the realized gain of $100.”
Regulation to follow?
A member of the European Union since 2007, the announcement is notable as it illustrates how different states are approaching taxation and regulation in lieu of formal guidelines from higher authorities.
The news notably follows calls from member state financial officials for the EU to take action on regulating bitcoin, and as more European countries – such asGreece and Lithuania – indicate that they are looking for the EU to take a leading position on the matter.
Still, Gorchev indicates that Bulgaria is likely to wait for such guidance from the EU as opposed to issuing its own regulation.
The Texas Department of Banking released a supervisory memorandumon 3rd April, outlining its regulatory stance on digital currencies within the guidelines set by the Texas Money Services Act.
The document draws a line of distinction between bitcoins and other digital currencies and sovereign currencies like the dollar. According to the memorandum, digital currencies are not recognized as legal tender in Texas because they lack backing from an institution like a central bank, do not have intrinsic value and do not carry any guarantees of redemption.
Overall, the statements clarify the statutes which govern the establishment of third-party bitcoin exchanges that handle sovereign currencies, providing a clearer path for those who might seek licensure in Texas.
As a result, the exchange of digital currency and sovereign currency does not qualify as a money transmission:
“Because cryptocurrency is not money under the Money Services Act, receiving it in exchange for a promise to make it available at a later time or different location is not money transmission. Consequently, absent the involvement of sovereign currency in a transaction, no money transmission can occur.”
The memorandum likens the purchase or sale of bitcoins or other digital currencies to a transaction involving a commodity or product, stating:
“Exchange of cryptocurrency for sovereign currency between two parties is not money transmission. This is essentially a sale of goods between two parties. The seller gives units of cryptocurrency to the buyer, who pays the seller directly with sovereign currency. The seller does not receive the sovereign currency in exchange for a promise to make it available at a later time or different location.”
Daniel Wood, assistant general counsel for the Texas Department of Banking, explained in an interview with CoinDesk that the regulations focus primarily on businesses that operate exchanges and handle sovereign currencies.
“Under the money transmission and currency exchange statutes, there is no direct regulation of cryptocurrencies. So for a company that wants to, say, start up an exchange site, the question for us will always be: what do you do with, and how do you handle sovereign currency?”
“Our statutes define money and currency very narrowly,” he added.
Steven Wilkinson, co-founder and treasurer of the Texas Bitcoin Association, said in an interview he sees the clarification of money transmission rules as a way to better govern the behavior of third-party exchanges.
“[Regulation] will keep third-party exchanges doing what should be proper and right, and we can avoid the Mt. Gox issue.”
He went on to state that he thinks of the rule clarification as one part of a broader regulatory evolution in regards to digital currencies, both in Texas and beyond.
“I think it’s more of a first step. Texas is a large player. It’s really gonna be who else comes along with this particular way of thinking, which I think is the proper way of holding new technology. But, I definitely see this as a step in the right direction instead of as just another step into the fog.”
Exchanges based in China are also beginning to feel pressure from state regulators, though in a more negative way.
For example, Huobi announced on 3rd April that it would halt voucher deposits. On 2nd April, BTC38 announced the suspension of fiat-to-digital currency trading while FXBTC and OKCoin both detailed complications involving their payment processors.
Hull introduced its very own citywide cryptocurrency. John Bannon / Wikimedia
The UK-based Hull City Council recently launched what is, perhaps, the first ever local government digital currency. The currency’s architects view cryptocurrencies as a unique opportunity to foster social justice. They hope that the project will help ease the pain of welfare cuts in the midst of a global economic slump.
When I read this yesterday, I quickly Googled to check if it was an April Fool’s joke. But it’s not a surprising development. Everyone seems to be experimenting–successfully or unsuccessfully–with altcoins. Numerous altcoins have cropped up to facilitate various charitable and social projects. Clean Water Coin was launched by a long-standing charity dedicated to spreading clean water. Memorycoin democratically apportions proceeds to charitable projects such as the Electric Frontier Foundation. There’s SaveaPetCoin, Potcoin, and so on and so forth. On the other hand, governments have toyed with local, non-digital currencies time and time again. While many have speculated on the creation of government-sponsored cryptocurrencies, Hull might be the first government, big or small, to actually attempt it.
The city is a consistent supporter of enigmatic technological projects. CNET reports:
Named as the UK City of Culture for 2017, Hull is notable in technology circles for being the only city in this green and pleasant land with its own independent telephone network, complete with unique cream phone boxes and its own local broadband provider, Karoo.
Hullcoin is a cross between Ven and Feathercoin, an engineering choice intended to foster stability. If all goes well, the currency will buttress a new form of welfare. City residents facing troubling times can complete minor tasks for the city government. In return they will receive Hullcoins. Dave Shepherdson, Financial Inclusion Officer for Hull, told CoinDesk:
“It’s about people on low incomes, in financial distress, being able to subsidise to an extent and complement their incomes. As the currency matures, we can extend, so people can pay their rent and utilities, (or) pay for food through this sort of service.”
But the effort is two-pronged. It will help the needy, but the city also hopes the currency will help drive the local economy. Coin users will only be able to purchase products made by merchants that accept the coin, in other words, local merchants and manufacturers. So, the motives are partially protectionist.
Rather than a citizen-sponsored attempt to replace government currency, like Auroracoin in Iceland, Hullcoin is a government-led effort. In fact, while the Icelandic government warnedagainst using digital currencies, this UK city government is embracing its own.
The last few weeks of March were rife with misinformation out of China regarding a mysterious notice from the PBOC supposedly sent to regional banks and 3rd party payment processors. Original news of the notice was misinterpreted and leaked on 3/21/14 leading many to dismiss all news out of China in subsequent days. On 3/27/14, Chinese reporters from Caixin claimed to have seen the PBOC document and published a synopsis of its contents. The title of the supposed notice is this: 关于进一步加强比特币风险防范工作的通知, or the Notice on Further Strengthening Bitcoin Risk Prevention Measures. In the notice, the PBOC called for strict adherence to its 12/05/13 statement, informing these entities that they needed to halt all business with Bitcoin related companies and sites by 4/15/14.
A few days ago, Chinese Bitcoin and altcoin exchange Bter was the first to announce the suspension of deposits. OKCoin, FXBTC, and BTC38 today join the ranks of Chinese Bitcoin Exchanges that have received notice of the PBOC’s notice from their banks or 3rd party payment processors. Notably, only FXBTC has received notice from its commercial bank, and in contrast has not received any notice from its 3rd party payment processor. In contrast, BTC38 has temporarily halted all trading in response. Obviously, Chinese Bitcoin exchanges are still in the process of receiving this news. Most of these notices were put up by the Chinese Bitcoin exchanges in the evening of 4/2/14 in China, it is entirely possible that the other 11 exchanges on the list have not yet informed their users of the changes to Chinese Yuan deposits. If the Chinese people have trouble getting Bitcoin into Chinese exchanges, they may end up trading at offshore exchanges like BTC-e, which recently launched offshore Chinese Yuan deposits. However, Chinese Yuan deposits would be limited to $50,000 USD per person per year due to strict Chinese laws.
I have provided human translations of the three new Chinese Bitcoin Exchange announcements. A translation of Bter’s announcement can be found here.
Because our 3rd party payment card dealer (payment processor) just received notification to suspend our payment channel, Starting at 0:00 on April 3rd we will stop prepaid card recharges. Bank transfer recharge cards for yuan withdrawals are not effected. We apologize for any inconvenience.
Hello, it is with deep regret that we must inform you, because of the Central Bank’s policy implementation, the 3rd party payment processor long used by BTC38 will tonight cease their usefulness, at the 24th hour they will stop working with us. As a result of additional requests, we will also simultaneously end the use of bank transfer cards as a recharge method.
In the recent past, the Internet circulated a statement calling for the ban of Bitcoin trading platforms by 4/15, the Central Bank has since denied those rumours. However, that the Central Bank has, in accordance with their December 5th notice, taken further marshaling steps seems to be true based on the extant facts and that we have today received this news from our bank and our 3rd party payment processor.
We plan to strictly comply with the Central Bank’s notice and rules by suspending RMB recharges and RMB withdrawals. Virtual Currency liquidity though, is still completely normal. BTC38 in total has over 100% of user’s reserves on hand, users do not need to raise questions about financial security.
To address this problem, we already have some operation optimizing developments planned, BTC38 will try to resume normal services. However, in this sensitive moment, we are unable to reveal more information at this time.
Meanwhile, we hope that everyone can learn something from times like these, today’s chaos has already been too much. Too much greed in this industry ultimately causes the most hurt on the industry itself. We encourage everyone to consider the health of the industry and to consciously resist the “chaos Elephant.”
Regardless where the future road takes us, we hope that everyone gives this industry a healthy atmosphere, to encourage the competitiveness of emerging platforms. BTC38′s service will always make you comfortable and BTC38 will continue to focus on healthy development in the virtual currency industry.
Today, FXBTC management along with some industry peers, received phone calls from commercial banks urging them to go to their bank to cancel their account as soon as possible. This is in order to strengthen the implementation of the Notice on Bitcoin risk prevention measures. Some banks requested that the accounts be closed as early as tomorrow. FXBTC would like to clarify that this incident is no longer a rumor. The Central Bank really did issue a notice forcing commercial banks and 3rd party payment processors to stop providing clearing services for Bitcoin businesses, as well as demanding the closure of accounts belonging to Bitcoin related sites. Even though FXBTC has been working hard on the behalf of its users by offering various prepaid withdrawal channels, the bank requires us to immediately cancel the account, or risk having the account frozen. The company has discussed and decided that starting 4/3/14 at 0:00 hour, we will no longer be accepting recharges via bank. After Sunday, we will also suspend bank card withdrawals. As of now, we have not received any notice from TenPay about withdrawals or deposits. We apologize for any inconvenience that we have caused you.