This seems to be the burning question…
Will Coinbase Inc. survive one of the most unprecedented moves by the Internal Revenue Service (IRS) in recent years — its overreaching and unreasonable attempt to search and seize millions of private financial records and kill bitcoin — our digital gold?
It’s nothing new. They’ve done it before. The IRS has gone after deep pockets. And they are doing it again.
Deep pocket in question: Coinbase. But not all that deep.
Coinbase – according to their website:
No doubt the IRS has been investigating cryptocurrency exchanges for some time. The Coinbase investigation is just another domino, in a long line of dominoes, from the United States to China, from Russia to Australia and beyond. The very public Coinbase investigation is meant to strike a very real financial fear into the hearts of the American cryptocurrency enthusiast.
According to the Coinbase website, they have about 5,000,000 users on their platform. These users have 11,000,000 electronic wallets, which may or may not actually contain bitcoin or ethereum cryptocurrencies. Add to that mix, 45,000 merchants utilizing their platform and thousands of software applications from developers.
Again, according to their website, over $5,000,000,000 in cryptocurrency has been exchanged on Coinbase. The number is high, but are we talking about fours years of exchanges?
Coinbase is also in over 30 countries worldwide. Which means that only portion of profits and losses were had by Americans. Which means that foreigners probably owe the IRS money for doing business with an American Company. Foreigners who will now likely ignore the IRS, but whose banks and financial houses will likely not.
Why? Just ask UBS Bank in Switzerland. No longer are Swiss banks the go to gurus for wealth management and privacy. The IRS went after those who failed to report their foreign bank accounts at UBS, cited them for filing false tax returns. The result? Millions of dollars in fines, federal probation and prison sentences.
And the list goes on. We’ve all heard of the Panama Papers, where another two trillion dollars sought a tax haven, but a data leak exposed the process.
But why did the IRS investigate such a small company? Coinbase Inc. and UBS are like the proverbial elephant and mouse. With over two trillion in assets, UBS had far deeper pockets. Look at the larger picture.
UBS took years to accumulate the wealth it managed. Bitcoin transactions or sent bitcoins in 24 hours, approaches about 1.5 million — in bitcoin. In today’s dollars, it would take over two years, at that rate, to send a trillion dollars worth. Not even Panama Paper worthy.
What about the world’s biggest holder of bitcoin? It’s probably still the million bitcoin owned by Satoshi Nakamoto. Current dollar value? It fluctuates, but as of January 1, 2017 it approaches a cool billion dollars.
Eliminating the non-U.S. based cryptocurrency exchanges would certainly help plug the fund hole many banks are no doubt reporting. How many wealthy citizens are moving their money, not to foreign lands, not under the mattress, but on a ledger kept by millions of people the world over. Then going abroad to trade that cryptocurrency for local currency or other property? Maybe.
Another hint that things are not what thy seem? Constant dribbles of news about how companies like Circle are jettisoning bitcoin sales, but are also continuing to investigate the technology behind bitcoin. Whose on their side? Goldman Sachs Group Inc.
Given just these brief snippets of information, can we assume that the IRS will also apply the foreign bank rules when American bitcoin users choose to hold their bitcoin in online wallets abroad?
In the end, if Coinbase continues to deny the IRS access to essentially all user records, expect a raid on the main offices in sort order and frozen accounts, as a result. It would be advisable for one to remove any cryptocurrencies stored at Coinbase. It would also be advisable that Coinbase encrypt all user account information and hand the keys over to their customers. At that point, only banks would have information as to who sent money to Coinbase.
Alas, the hope that Coinbase would keep customer accounts private and not allow the IRS access, is a mere pipe dream. People would need to go to jail or flee the country and be chased by the Feds for the rest of their lives. Not worth the sacrifice, unless these people have the backbone of Thomas Jefferson and pledge their freedoms — and fortunes.
If anyone thinks this is no big deal, think again. One of the largest cryptocurrency exchanges on earth is about to go down — in the land of the free and the home of the brave.
(Image compliments of flickr.)