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Highline Wealth Partners Digital Asset Weekly for 3/4/22

Rich Barnett
4 min readMar 7, 2022

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It’s baaack! Here is our summary of the key developments in digital assets last week. This is meant to be a fast read, so we keep it to two pages.

TLDR: Money continued to pour into blockchain and Web3, and we included a special focus on tax issues for crypto and NFTs. Message me if you would like to receive this by email on Friday’s.

Summary: A significant turnaround in the Digital Assets landscape continued this week, as Bitcoin and the crypto complex became uncorrelated to the larger universe of risk assets. Federal Reserve Chair Jerome Powell told Congress Wednesday he supported a quarter-point increase in interest rates in March but that factors — including the war in Ukraine — will play into coming decisions. Bitcoin traded towards $44,000, Ethereum towards $3000. While competing Layer 1’s Solana and Avalanche reached $100 and $80 respectively. Terra continued its massive rally towards $100 due to the report of a 1 billion dollar Bitcoin reserve backing . Gaming phenomenon, Axie Infinity recouped some losses back towards the $60 area.

  • The Securities and Exchange Commission (SEC) is investigating whether certain non-fungible tokens qualify as securities and thus should be regulated, according to a report from Bloomberg, citing sources familiar with the matter. Over the last few months, SEC attorneys have sent subpoenas to NFT creators and various crypto exchanges requesting more information, according to the report.
  • The Securities and Exchange Commission (SEC) is investigating whether certain non-fungible tokens qualify as securities and thus should be regulated, according to a report from Bloomberg, citing sources familiar with the matter. Over the last few months, SEC attorneys have sent subpoenas to NFT creators and various crypto exchanges requesting more information, according to the report.
  • ConsenSys is seeking to use NFTs as a way to onboard the next wave of users into its main product, Metamask, as the company expects the segment to greatly broaden over time. MetaMask is a mobile app and browser extension that functions as a cryptocurrency wallet for interacting with the Ethereum blockchain.
  • Crypto venture capital firm Electric Capital has raised $1 billion, its largest fundraise to date, to deploy capital to Web3, NFT and DeFi projects.
  • In what has been billed as the largest-ever NFT-backed loan, an anonymous borrower just took out an $8 million loan collateralized by their collection of 101 CryptoPunks.The loan has an APR of 10% and a 30-day duration. It was facilitated by liquidity scaling solution MetaStreet on peer-to-peer lending platform NFTfi.
  • With the invasion of Ukraine came a discussion on the invasion’s effect on Crypto. Speculation that Russia could use Crypto to circumvent currency and financial sanctions, especially the exclusion from the SWIFT system, causing a regulatory backlash from Western governments.

Friday Focus: Tracking Your Crypto Uses for Tax Purposes

Because the IRS treats cryptocurrency as property, you’re required to track every single transaction you make and calculate your capital gain or loss. So, let’s say that you decided to use crypto to buy a cup of coffee at your local coffee shop. It’s not enough to just save the receipt. You need to track the amount of capital you have gained or lost. Obviously, that’s challenging to do. You will need to know the cost basis for each transaction. You must also file Form 8949 with the IRS, on which you will need to provide specific information, including the cryptocurrency in question, when you bought it, when you sold it/disposed of it, the amount you earned in the deal, your cost basis, and the total gain or loss you incurred. Note that this process must be repeated for every single taxable event. If you use crypto to buy a cup of coffee, that would be another taxable event. Most people don’t use Bitcoin to get their morning java, and for good reason.

How Crypto-Based Income Is Taxed

While the rather labyrinthine process above might make it seem different, cryptocurrency-related income is actually taxed just like regular income at the end of the day. So, what’s considered crypto income? If you mine crypto and receive rewards, that’s considered income. Staking crypto also results in taxable income, as does lending it and receiving interest. Of course, if someone pays you for goods or services in cryptocurrency, that’s also considered income.

https://www.natlawreview.com/article/recent-court-case-leav . . .

What If You Have Gains or Losses?

In addition to your income from cryptocurrency being taxed, you also need to consider capital gains taxes. As mentioned, the IRS treats crypto like real estate (or stocks, if you prefer), and you’ll be responsible for capital gains after disposing of it. Currently, the capital gains taxes for crypto gains are the same as for stock gains. Moreover, if you purchased and sold an NFT, this is a taxable event and may be taxed at a higher rate. The IRS may classify an NFT as a collectible.

https://www.natlawreview.com/article/taxation-purchase-and-sale-nft

In Conclusion:

While cryptocurrency has been around for many years at this point, it’s still relatively new for many people. Understanding how it is taxed, as well as what the government considers taxable and nontaxable events, is critical to using this financial tool to your benefit and not to your detriment.

Wealth Management
Digital Asset Management
Taxes
Nft
Portfolio Management

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Rich Barnett
Rich Barnett

Written by Rich Barnett

24 Followers
104 Following

Chief Investment Officer and Advisor at Highline Wealth Partners in LA. Interests in Capital markets, stocks, bonds, commodities, hedge, PE, VC, PC, & crypto

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