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Hey Crypto Tax Pros!

Welcome to another edition of Chain Reactions, where we analyze only the most relevant developments in cryptocurrency taxation and regulation.

This week’s roundup focuses on the rapid and surprising shifts in the crypto regulatory landscape, highlighting key changes and their potential impacts:

🚀 Spot Ethereum ETF Approval: The SEC’s unexpected approval of eight spot Ethereum ETFs and what it means for the crypto market.
📜 FIT21 Bill Advances: A deep dive into the FIT21 bill, its implications for crypto regulation, and the ongoing debate.
🔄 Overturning SAB121: How the recent vote to overturn SAB121 will ease the way for banks to offer crypto services.

Let’s dive in!

Turning the Tide - Key Crypto Regulatory Changes and Their Impacts

Just a few weeks ago, the US regulatory landscape for crypto looked pretty bleak.

Ethereum ETFs were getting rejected, the SEC was ramping up its enforcement, and SAB121 was in force.

But then, in a matter of weeks, everything changed.

In this issue, we lay out the major policy changes, their statuses, and how they could impact the

Spot ETH ETF Approval

In a move that shocked everyone, the SEC approved eight spot Ethereum ETFs this week!

Big financial companies like BlackRock, Fidelity, and Grayscale are behind these ETFs. Here are the key impacts of this approval:

Regulatory Clarity: Perhaps more important than the ETF itself, the approval provides regulatory clarity where it was previously lacking.
Mainstream Adoption: The approval will attract both institutional and retail investors, legitimizing Ethereum as a recognized investment asset.
Price Surge and Liquidity: Ethereum’s price surged after the approval, reaching a 12-month peak. This increased liquidity could lead to more stable prices and less volatility.
Simplified Investment: Spot Ethereum ETFs offer a regulated way to invest in Ethereum without directly holding the asset, reducing complexities for investors.
Broader Market Implications: This approval could pave the way for ETFs for other cryptocurrencies, boosting their acceptance and market value.

While the ETFs have been approved, they still aren’t cleared to start trading. For a full rundown on the ETF approval process, see my LinkedIn post from this week.

FIT21 Bill (Financial Innovation and Technology for the 21st Century Act)

The FIT21 Act was passed by the House of Representatives on May 22, 2024, with 71 Democrats and 208 Republicans voting in favor. This bill aims to provide clear rules for digital assets and protect consumers.

FIT21 would give the Commodity Futures Trading Commission (CFTC) more oversight of crypto spot markets, labeling them as “digital commodities.” Meanwhile, the Securities and Exchange Commission (SEC) would oversee “restricted digital assets.” Representative Patrick McHenry highlighted the current “food fight” between the SEC and CFTC for control over these assets, which the bill aims to resolve.

However, not everyone is on board. Representative Maxine Waters warned that the bill could lead to a regulatory “no man’s land,” potentially deregulating crypto and some traditional securities too much. Crypto lawyer Gabriel Shapiro echoed concerns, stating that FIT21 creates a dual regulatory regime, with the SEC retaining significant power and giving the CFTC new authority over spot markets.

Brian Armstrong, Coinbase CEO, praised the bill as a “resounding win” for clear crypto rules and consumer protection, promoting American innovation. However, others, like Clusters founder “0xfoobar,” argue that simply shifting oversight from the SEC to the CFTC doesn’t solve fundamental issues, as crypto tokens don’t fit neatly into either regulatory framework.

The bill now heads to the Senate, where its future remains uncertain. Some industry watchers believe it might be better if FIT21 doesn’t pass, fearing it might not bring the needed regulatory clarity.

SAB 121 (Staff Accounting Bulletin 121)

Congress recently voted to overturn the SEC’s SAB121 rule. This rule required companies holding customers’ cryptocurrencies to list them as liabilities, which was tough for banks. Overturning this rule is important because it makes it easier for banks to offer crypto services.

This decision had strong bipartisan support, showing that lawmakers are changing their views on digital assets. If President Biden signs this into law, it could open up more financial services based on Bitcoin and other cryptocurrencies.

CBDC Anti-Surveillance State Act

The House of Representatives voted to stop the Federal Reserve from creating a central bank digital currency (CBDC). Republicans pushed this bill because they worry a CBDC could be used to control people.

The bill, introduced by Tom Emmer, passed with mostly Republican support. Its future in the Senate is uncertain. This debate highlights the tension between innovation and concerns about government overreach.

These rapid regulatory changes mark a significant turning point for the crypto industry.

With Ethereum ETFs on the horizon, the FIT21 bill progressing, and SAB121 overturned, the landscape is becoming more favorable for investors and institutions alike.

Stay tuned as we continue to monitor these developments and their implications for the future of digital assets.

Treasury Trove of Resources

Hand-picked resources to help you dive deeper into our main story, learn crypto without confusion, and master crypto tax:

The Ethereum Investment Framework by The DeFi Report: The industry standard investment framework for evaluating the Ethereum ecosystem.
The Unintended Consequences of FIT21’s Crypto Market Structure Bill by Coindesk: An analysis of the potential side effects of the FIT21 bill on the crypto market, providing critical insights for tax practitioners.
Bitcoin's Rising Tide and the Overturning of SAB 121 by Forbes Explore the implications of the recent changes to SAB 121 and how they may influence Bitcoin and the broader financial market.
Crypto Tax Outsourcing: We constantly get calls from other CPA firms that don’t have the capacity or desire to prepare their clients’ crypto taxes but still want to help by sending them to an experienced crypto tax professional. If this sounds like you, we’d love to chat about how we can help!

Feel free to schedule a free strategic partner consultation Zoom call on our calendar HERE.

Crypto Tax Pro Tip Of The Week

Here’s my favorite tip about client management of the week.

This completely changed the way I thought about delighting clients.

Here’s a quick breakdown:

Overcommunicate Everything: Always keep your clients in the loop. If there’s a delay, let them know immediately and set new expectations. Clients appreciate honesty and reliability over perfection.
Work Independently: Take the initiative to find and use resources. Show your clients that you respect their time by doing as much as possible without needing their constant input.
Regular Updates: Send updates every five days, even if there’s no significant progress. Let them know where you are in the project and what’s next, and remind them if you’re waiting on anything from them.

If you can do these three things, you will get emails like this in your inbox:

Hope this helps!

Curated Crypto News

Want to stay on the cutting edge?

Here's what else is happening in crypto tax, policy, and markets that you should know about:

Want to stay on the cutting edge?

Here's what else is happening in crypto you should know about:

📁 SEC told spot Ethereum ETF issuers to get first round of draft S-1 forms in by Friday: According to The Block, the SEC has instructed prospective spot Ethereum ETF issuers to submit their amended S-1 forms by Friday. This is a big deal because it signifies that the approval process is moving forward, bringing us closer to trading these ETFs. This means we could see spot Ethereum ETFs trading by next month.

💰Gemini Announces Full Recovery of Earn Users’ Digital Assets: According to CoinDesk, Gemini announced that its Earn users have received all their digital assets back, with a 232% recovery from the value when Genesis halted withdrawals. This is a big deal because it shows Gemini’s commitment to its users and sets a precedent for other exchanges. We think this means increased trust and credibility for Gemini, potentially attracting more users and partners.

🥽 SEC Commissioner pitches safe space for digital securities experiment: According to Cointelegraph, SEC Commissioner Hester Pierce proposed a sandbox for cross-border blockchain experiments between the U.S. and the U.K. This is a big deal because it could foster innovation and collaboration without the fear of regulatory reprisals. We think this means we might see accelerated development and adoption of tokenized securities, which could revolutionize financial markets.