Deep Sea Fishing on a Taxpayer Mission
There’s no such thing as a quiet day in bitcoin. The last 24 hours has witnessed record-breaking trading volume, widespread exchange outages, all-time-highs, the largest red candle ever witnessed on a BTC chart and the fastest recovery in dollar terms ever seen. Much of that drama circled around Coinbase, a broker which dominates the bitcoin market, both in the U.S. and abroad.
Whilst dealing with unprecedented demand, with traffic levels hitting 8x their peak from June, the platform – whose iOS app has surged into the top ten, passing Netflix and Spotify – has had its hands full fighting an ongoing dispute with the IRS. Coinbase has been pushing back against what it believes to be an unjustified investigation into the actions of hundreds of thousands of its users.
A Pyrrhic Victory for Coinbase
In a blogpost filed November 29, Coinbase claimed a “partial victory” over the IRS, though many commenters would be less charitable, and award the latest round to the taxman. Coinbase was nevertheless keen to stress reasons to be happy, noting:
Thanks to Coinbase’s efforts, more than 480,000 customers’ records were preserved from disclosure. This is a 97% reduction in the number of customers impacted by this summons. Second, the quantity of data we must produce for the approximately 14,000 customers who remain in scope has been significantly reduced.
In what could be interpreted as sarcasm, CEO Brian Armstrong tweeted the following:
The Coinbase case stems from tax authorities realizing there was a woefully low number of tax returns being filed that included gains due on virtual currencies, despite their soaring popularity. To atone for this reporting black hole, the IRS took it upon itself to do some digging, and by digging read: investigate the finances of half a million Coinbase customers. In defense of the exchange and its customers, cryptocurrencies, as an emerging asset class, were vaguely defined at the time, and it would be unrealistic to have expected Americans to include them in their tax returns en masse.
The latest Narrow Summons request now pertains to 14,355 account holders who bought, sold, sent, or received more than $20,000 between 2013 and 2015. The IRS filing specifies “far fewer, but still more than 10,000, Coinbase account holders.”
Gross Governmental Overreach
Yesterday, a California court ruled in the IRS’ favor, almost a year after the case was first filed. While Coinbase has tried to spin the ruling as a victory, it may prove to be a pyrrhic one that will leave the bitcoin broker licking its wounds and counting the cost. Financially Coinbase is fine, with record customer numbers, trading volume, traffic, and every other metric that constitutes a thriving business.
The greatest loss the company faces however is one of trust. Despite Coinbase struggling valiantly against the IRS, it will now be forced to hand over a swathe of customer data. Had a similar request been granted spanning the present day, it would have effectively included every single customer who ever bought or sold more than 2 BTC at a time. Despite being accused of gross overreach, the IRS has remained undaunted. The court ruling sends out a clear warning to U.S. customers: buy or sell even moderate quantities of cryptocurrency, and the authorities will be watching.