Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Siân Jones: All About Regulation, IRS Guidance, UK Statements, Isle of Man & More

Episode Date: March 31, 2014

On today’s show we have Sian Jones as a guest host. Sian is a consultant at Coinsult and specialized in cryptocurrency regulation. She helps us get to the bottom of recent rulings and guidances about Bitcoin. Episode links: Coinsult IRS Virtual Currency Guidance Tax treatment of activities involving Bitcoin and other similar cryptocurrencies HMRC scraps VAT on virtual currency Bitcoin (BBC) Isle of Man Welcomes Digital Currency Exchanges ‘No License Required’ (Coindesk) UK Digital Currency Association (UKDCA) This episode is hosted by Brian Fabian Crain and Sébastien Couture. Show notes and listening options: epicenter.tv/013

Hello and welcome to Episode 13, a weekly podcast about Bitcoin and Cryptocurrencies. Today is March 30th. And my name is Sebastian Kutjou. I am a Canadian-born user experience designer and developer based in Lille, France. And I'm Brian Faram-Faim-Benzkian-K entrepreneur. And I'm a fan of to Bitcoin Service Billing Group. And we've got a guest on today. So joining us is Sean Jones.

Hello there, you two How are you today? I'm very well I'm very excited to be participating in this podcast Well thank you very much for joining us It's really great to have Guests on that can help us And understanding these very complex topics

So could you just tell us briefly what you do In the Bitcoin ecosystem Sure I'm a regulatory and compliance person at the moment anyway, and most of my time is spent on advising start-ups in the cryptocurrency field. We have a lot of folks working in exchanges and some investment funds who are starting up here in the UK. and they need help and advice on the regulatory environment here in the UK and in Europe more widely, particularly in the European Union. It sounds like very challenging work.

Well, it's interesting. There's so much data coming in virtually daily now, but it isn't always very substantive, although the last three or four months have been typically, by very broad brush statements, largely warnings of one sort or another from different regulators and authorities around the world. The last week or two has seen some more hard information. So we've had some exciting information come out of the USA from the IRS on the federal tax position in the US. and we've had some information published earlier this month from the UK Tax Authority, HMRC. And there's even been some news just in the last couple of days from the small, pretty independent states of the Isle of Man,

which is a British Crown dependency, but is a separate financial centre and has its own laws. And they've also come out with some announcements. So it's starting to get more tangible right now. Yeah, we're going to talk about all of these topics in-depth now. And it's great to have you on, since we've talked about these before, some of them at least, for example, the UK guidance and coverage regulation a number of times. But it's, of course, something different when you have someone who's really focusing on that and kind of understands the nuances as well.

Well, you mentioned something very important, though, which is nuance. At the moment, with such a huge gap in clarity on the regulatory front, we have to look at the nuances of the various statements that come out and try and understand them against the cultural background of that jurisdiction, the financial background, the financial regulatory background. of those jurisdictions and try and interpret the lightly direction that they're going in. So, nuance is really important. Absolutely. I mean, I think especially if you think back to China, for example, right, they were making some statements and taking different actions and then understanding just what exactly was their intention, where was that going,

was often extremely difficult. And I think it's the same maybe to a lesser extent in other points. places. Yes, and indeed in Asia generally, I think it's hard sometimes to interpret exactly what is going on. There's often a lot of different agencies involved. Well, that's true of anywhere. So it's sometimes easy to say this is the situation, for example, in China, but it may only be a situation as expressed by one particular body and unfortunately often not accompanied by publicly available information. So the news that came out of China in the last few days is essentially hearsay. And in fact, there's nothing published that we've been able to identify on the People's Bank of China website.

So very difficult to measure exactly what's going on. Yeah, not to mention the obvious difference in cultural context. I think what's missing a lot of times from these statements coming out of China is the cultural context. Here in the West, for those who have admitted to China is completely beyond them. But so there's that, and like you said, there's also the lack of the lack of, of actual public information. Like you said, it's mostly hearsay. Well, let's get started with our first topic,

because, I mean, it's exactly what we're talking about. No, I think it's the IRS tax guidance, which was kind of long-awaited, very important event. So just very briefly, and then maybe, Sean, you can go in more depth about what it means, but very briefly, the IRS, which is, the UK, it's for internal

revenue service. So the tax authorities in the US, they issued guidance that basically Bitcoin is a property for tax purposes. So that means, for example,

you are supposed to pay capital gains tax on the appreciation of the value of Bitcoin's. And this is, something's been long-awaited and it's also kind of confusing because now you have the IRS classifying as property, but then you have other U.S. government authorities who treated more as money.

So perhaps Sean, do you want to talk a bit about this, about what exactly happened and what it means? Well, yes, as you say, it's long-awaited. There's been a lot of criticism, I think, in the States of the, of the, of, of the there having been no clear tax guidance. And I think this time of year is of a great concern to US taxpayers which have to file various returns. And taxpayers in the US haven't understood how they should treat Bitcoin and cryptocurrencies generally.

So a particular department, in fact, a named author, which is always interesting, within the IRS has published a document which is an official, officially recognized by the IRS and forms a set of guidelines to clarify how cryptocurrencies or as they refer to them as virtual currencies should be treated. As you rightly say, Brian, they have said it's property. that's really the key issue. So it's treated like assets and so is very much subject to capital gains. The big distinction of it being treated as an asset is that it's not a currency in tax terms.

The language that's used recognized is that crypto-tribed, currency, virtual currencies are used as a means of payment. So it recognizes, if you like, it's currency-like application, but makes it clear as indeed most authorities who have said anything on the subject at all have made it clear that it isn't legal tender, not legal tender in the states or anywhere else in any jurisdiction. And so it has no no role, if you like, as currency, as money in that sense. Norwithstanding that other entities, for example, Fin Sen, who are responsible for administering anti-money laundering laws and so forth, have considered it to be more like money,

and exchanges are money transmitters and so forth. for tax purposes and there isn't necessarily a problem in different authorities viewing Bitcoin as something slightly different in different spheres but so far as tax is concerned

it's a bit like any other asset, any other property. So are there other examples of types of goods, assets or similar things where you have this difference where

let's say FinCen considers money but the IRS consider this property? I don't know of any specifics. I'm not an American specialist particularly and my scope is largely in Bitcoin and cryptocurrencies.

So I don't have any other examples but it's certainly not unheard of in most tax regimes for different approaches to be taken and indeed here in the UK there is a

maybe we'll talk about that later but there is a difference between the way the financial conduct authority who deal with regulation in the financial sector how they treat cryptocurrencies from how the tax authority treats it

so you don't think this is going to be a problem in the long run what that there are a different interpretations of what Bitcoin is in relation to whether or not it's currency. No, I don't think so. I don't think that's the problem. I think the real difficulty for American taxpayers is the amount of record keeping they

will have to keep because they use Bitcoin, quite understandably, as most of us in the Bitcoin space treat it as most. money-like as currency, but they'll need to keep track of their purchases and disposals on a cup of coffee by cup of coffee basis. It's a nightmare. That's, I mean, that's what I read in different places, and I guess it's kind of a logical conclusion from the IRS guidance we've seen. I'm wondering about the practical reality of that, is the IRS actually going to enforce that?

Because it seems impossible. Even going back, most people probably don't have complete records of when they bought the bitcoins, definitely not when they spent them if they've spent it, as you say, money-like. So do you think people are going to get in trouble because of that? Well, interestingly enough, they say that this interpretation of existing rules, which they're now answering the questions on and making clear guidelines, is effectively not something new, but something that has always been the case. And so they're saying, yeah, you know, you should have filed your returns in the past based on this,

set of guidelines. But having said that, they do say that if you've got a kind of reasonable excuse and maybe the lack of guidelines, I guess, is something you could argue as a reasonable excuse, means they might not impose penalties for failure to file proper returns in the past. hopefully folks will be able to make a good argument that in the absence of guidelines they shouldn't be penalized but as you say in terms of keeping records wow you know every time you spend money on anything I know where you are Brian in Berlin you've got a big Bitcoin cafe culture imagine every time a some cafe and

Cuchen had been purchased with it's it's frightening to think what the implications

might I mean I think of kind of actual behavior I'm pretty sure that

no one's actually going to do that or very few people will do that I mean

people may do that with large purchases and then thing or you know you bought for a substantial

amount of money as a kind of investment thing and you hold it for a while

then you know this kind of thing works but for people you use it regularly I think in reality people just won't do it there is a small exemption actually which

perhaps makes the cup of coffee example a little unreal there is a $200 per transaction exemption from capital gains tax so the individual

cup of coffee Coffee actually doesn't necessarily create a capital gain. The gain arises because you've crystallized the value. So you start with a base value, the dollar equivalent of what the Bitcoin cost you. Or indeed, if you mind, the value of Bitcoin on the day it was mined. That's the base value. and as we've seen over the last two, three years,

a huge increase in the value of Bitcoin. So when you come to spend it, a day, a week, a month later, you crystallize its value by virtue of the value of the thing you've purchased with it. So, yeah, if an amount of Bitcoin cost you a dollar as a base value six months ago, and it's now worth or will buy you a $2 cup of coffee than you've made a capital gain on the day that you buy your coffee. You've crystallized or realized the gain and you've now got a $1 capital gain.

So I'm curious, is there $200 that's per transaction or total per year or how does that work? Our understanding is that it's per transaction. That's interesting. So that also means if you spend it all kind of in chunks below $200, you don't have to pay any capital gains tax. Well, that's something we're investigating at the moment, but that's certainly our understanding right now. I'm quite willing to be put right by an American tax accountant, but as it stands with this news only having come out in the last week, that's our interpretation.

My question about this guideline, so it is a guideline, what's the legal value that this document has? I mean, does this have any legal value in court where it's not enacted into law or tax law, or do these guidelines actually have weight? Well, the guidelines say what the IRS's understanding of the existing laws are. So it's subject to interpretation, basically. particularly in somewhere like the USA, if you've got loads of money to spend on taking something to court, then yes, anything can be challenged. So their interpretation of the law could potentially be challenged by someone who interprets it differently?

Indeed, sir. That's really interesting because then in that case, this guideline may evolve in the future. I think they go as far as to say that that is the case, that it is likely to change. Interestingly enough, the UK's brief that came out, which is a similar set of guidelines in a way, says something very, very similar. I think they even specifically pointed out, right? They do. They make it very clear that, you know, it's an evolving area.

They're trying to plug a gap. And indeed, how Bitcoin is treated by our... other agencies. So coming back to your earlier point, Brian, how it's treated by other agencies and indeed by the law may have an impact on how it is then treated for tax purposes later. Now, what are your thoughts on actual enforcement? So we talked about this. So what do they call it, they call it materiality? So this is the idea that anything under a certain amount is not considered capital gains. Yes, there seems to be a specific exemption on capital gains below $200 per transaction. So it's written in the existing tax codes. That would be the

case with other. I think it was mainly put there to cover foreign currency situations where you, you know, you buy some foreign currency. Because I mean, I may be wrong about this. I mean, you definitely know this better. But I feel like I saw somewhere that someone said the exemption, there is an exemption specifically for foreign currency, but it doesn't in generally apply the capital gains thing and that it was kind of put specifically for the foreign currencies and that there was a possibility the same thing would be done for bitcoin which would be desirable but i wasn't aware it was already well the case yeah i need perhaps also to to clarify something um this 200 pound exemption um applies as we understand it um on a per transaction basis and

It's only on personal transactions. So this was, as we understand it, something that was to cover a situation where you would buy foreign currency for your personal use when traveling. And that you weren't, when you bought your cup of coffee abroad outside of the US, that you weren't going to be creating taxable events, a realisation of any profit or, loss. That $200, I think, we've identified is a real amount and it is a real exemption on a per transaction basis. Okay. So one thing we should probably touch on is we've been talking about consumers right now are just regular people using Bitcoin, but this guideline really kind of sets the stage for how miners are going to have to declare their gains,

investors, exchanges, just regular consumers, also merchants and companies who pay their employees in Bitcoin. So there's like a wide range of different types of people that this could affect and that all have their own specific. Yeah, specificities. But by and large, any gains are treated as are taxable in the same kind of way, right? And the income as well. So if you are an employee and paid in Bitcoin or yourself employed and you earn your income in Bitcoin, that's just the same as if it was something that was paid in dollars or euros or any other currency. It's income at the time that you earn it. If you're a miner, then it is income. at the point in time where you successfully mine. So if you are successful in mining a block,

then the value of the Bitcoin that you have mined on the day you've mined it is income. If you are a trader, you create income. If you're an exchange, you create income from your fees. Are there any situations where you could be potentially taxed twice? I know this in France, maybe we could kind of touch on

if you're familiar with the guidelines in France, but there's something where perhaps if you're using Bitcoin as a merchant, you'd be paying the VAT at the sale of the product, but you're also paying VAT when you're signing the Bitcoin or something like that. I don't know if you're familiar with that. Well, VAT is a different situation altogether.

That's a consumption tax. Okay, right. And maybe we can talk about that one later on because that's a minefield. VAT is largely a European tax, although there are sales taxes in the U.S. They don't work in the same kind of way. and there's something called GST, which works in, for example, Australia, which is something similar to VAT. But there's something quite different from either a corporation

or an individual's income from his earnings or profits or gains. So in that case, with regards to this guideline by the IRS, are there scenarios in which you could be paying twice for some reason? Like paying coming in, I don't know how that would work. I haven't seen anything that would imply double taxation. So what's the view of you? What's the effect going to be on the Bitcoin economy, Bitcoin startups in the US? I think that clarity is, or the lack of clarity, I should say, has been a stumbling block.

It's something that's caused businesses to be slow to get underway. I think uncertainty means you don't know how to price something, you don't know how to cost it, You don't know what the implications on your business model might be. So I view this generally positively. It's a positive statement. People know where they stand, at least for now. I think that's a good thing. I think if the rest of the regulatory space becomes equally clear over this next few months,

maybe the rest of this year, then that will... definitely let US companies and U.S. entrepreneurs get underway and will be good for business and will be good for Bitcoin. Unfortunately, the U.S. has a tendency to regulate and regulate quite heavily and regulate at a state level and at a federal level. And that all works out as something very expensive, to be something very expensive. So some, you know, some American entrepreneurs look to start their businesses outside the US. But broadly speaking, I think it's a positive step. People know where they stand. I don't know if the stance about capital gains realization will, you know, the practicality of keeping track of every Bitcoin and unit of a

Bitcoin that's spent is going to work. But as it stands at the moment, that's the treatment and it's probably a common sense treatment given the rest of a U.S. federal tax system. So what's the one area or what are the areas that still need regulatory clarification so that we do get to the point that startups know what the situation is in the U.S. in Penn establish their companies. Whether or not they need to register as money transmitters, I think the general feeling is that they do, and in some parts of the US,

that's already been made quite clear. FinCEN have already issued guidelines. I think that clarity across the states on financial regulation is really, crucial. Of course, we've heard this thing about bit licenses coming out of New York, and that will be quite an interesting development. Again, some may view it as being a burden, but I actually think that it's been floated as an idea to allow businesses in New York to have clarity, be able to do what they need to do. Interestingly enough, do it with something that's very very important.

specifically targeted at Bitcoin or cryptocurrency businesses and then get on with we're starting up their businesses. Do you think that's the way to go in the future is that there will be specific Bitcoin or cryptocurrency specific regulation versus what's going on now where you take existing regulation and you kind of say this one applies to Bitcoin but not that one. Of course if one could wave a magic, I think I think one would love to have Bitcoin-specific or cryptocurrency-specific regulation. Cryptocurrent, I mean, not that I'm advocating that regulation is a good thing or not,

although there are many arguments for why that should or shouldn't be the case. I think the problem of making the square shape of cryptocurrency is, fit the round holes of existing regulation is, is a real challenge because cryptocurrencies don't exactly fit anything that's gone before. They're bits of various things. It's very much a hybrid. On one forum last week, a noted lawyer in this space referred to it as a funky hybrid, and I thought that was brilliant. And that's exactly what it is. So, We need clarity. We need to understand what it is in the law because legally it's unclear. What is this thing? You know, it's not tangible, but it has rights associated with it, but it's not issued by anyone.

I mean, the problem is that most regulation, particularly in the financial sector, is geared to some instrument or something having been issued by some entity. And there is no issuer. So immediately we have a problem of trying to find out. out what it is. We have something that is at the same time a payment system. And in many parts of the world here in Europe, of course we have very specific regulation of payment systems and payment services rather that go with payment systems. Real challenge. Yes, I would love to see such regulation as there will be, be very specific. But of course, that requires a huge amount of political will and a great deal of time. So I don't think we'll see that anytime soon.

I think this is expected, though. I mean, this is what we've talked about so much before, is that we, it's kind of expected that Bitcoin specific or cryptocurrency specific regulation isn't going to be coming out very soon. And for the meantime, or at least as governments and central banks start wrapping their head around it, it's going to be, like you said, fitting square pegs into round holes. there's something I wanted to get your guys' impressions on. So this is much needed guidance, and it really kind of clarifies for businesses and individuals

what needs to be done in terms of taxation, which has been awaited for a long time. But effectively, like, my impression is that this is very burdensome, like, from an administrative point of view. and it might in fact scare some companies away and just because of the burden and the time and money that it's going to take to track every transaction for instance and that companies might move to other places where regulation is a bit more lax

and where there isn't very clear guidelines but they're freer to do what they choose without much scrutiny from government bodies, like I don't know, the Isle of Man, for instance, or other European jurisdictions? There are certainly some lower and more lightly taxed jurisdictions. And I think you'll find that in any event in this space.

I mean, there was an exodus of American business down to Panama, around about a year ago because of the lack of clarity, the lack of certainty, and I'm sure because, you know, the tax regime there is beneficial, although the bureaucracy is greater.

So you have some different trade-offs. Yes, the Isle Man and perhaps some of the other more developed offshore jurisdictions are, you know, for businesses. It's certainly very attractive. I want to briefly talk about one more thing, regarding to this IRS thing and then maybe we can move on to the Isle of Man and those other topics.

From my understanding what I read is the because the question is also right now you spend you buy something with let's say one bit coin and you bought at different times in the past at different prices. So the question is like what's your the base level from which to calculate your capital gains. And I saw, I don't know what your view on this is, but I saw some people mentioned that the way this should be done is by something called first in, first out, things. So, yeah. There are, there are, there are, there are, there are, there are, there are, there are, there are, there are, there are, there are methods, although presumably they have to be applied consistently. But the default

method in the States, as I understand it, is first in, first out. So the oldest, you know, you consume your Bitcoin, you realize your gains, or indeed, I suppose, crystallized losses in some cases, based on the oldest that you purchased. Of course, you have, the most ideal scenario is when you've got an exact amount of Bitcoin that you've purchased in one transaction and you close it out in another transaction, like for like, that's dead easy. You can match them. But in reality, people are receiving bitcoins

and they're going into a pot and they're then being spent at a different rate. And in that situation, first in, first out is the default position. However, there are alternatives. one is last in first out so the newest in to your pot could be treated as the as the as the first to be spent and there's also a system of averaging your cost over time over that pot but you know in reality i think they're going to be even harder to administer unless you're doing it as a business and you set up your programs to your accountancy programs to handle it. all of that. I was thinking of one specific use case where, so let's say two years ago,

you know, you're very lucky, you bought a thousand bitcoins at, I don't know, whatever, you know, $10 a Bitcoin or something. And this is, you treat this like a retirement fund or something.

So you have that somewhere stashed away in some paper wallets. But now you also want to, you know, buy some bitcoins, buy a beer, that type of thing, or perhaps buy a bed or a computer with Bitcoin, and you buy new bitcoins. Now, the issue, of course, is if you have this first in, first out, each time you make a transaction now, you essentially have to pay in other, you have to pay taxes on that whole thing, on the whole transaction, which of course

is a bit burdensome in a sense because you might you might not want to pay those taxes now you might want to pay those taxes later I'm curious if in that case they will be

also taking into consideration how you use them so if you can say okay I've segregated those those are different addresses there's no overlap and if you could do something like that If you have a separate Bitcoin address for every receipt of Bitcoins, it becomes much easier because you can identify exactly which Bitcoins you have then spent.

So you can look at the precise base that was used for those Bitcoins at the time you spend them. As you say, you use them as a retirement fund. That could be in many years' time. There is an advantage, by the way, that I ought to mention, which is that because it's treated a. property, there are advantages to holding on to property for extended periods of time. So if you hold your, if you don't crystallize your gain for at least 12 months, so if you hold that asset for more than 12 months, then you get a low, your capital gain, the increase in value, the tax on that increase in value, is at a lower rate than if you spend your Bitcoin

in under 12 months. Yeah, it's actually interestingly, here in Germany, it's free if it's over 12 months. So that is, in a sense, it's very attractive from that point of year. Absolutely, yes. Germany is a very good environment for encouraging a longer-term investment. There is a down, there's the other side of the coin, by the way, which is that if you are trading in Bitcoin,

and quite what might be classed as trading is itself, I suppose, going to have to be tested. But if you're trading, buying and selling, that's just what you do. Perhaps you're a market maker, for example, then your Bitcoin that you purchase is, considered like inventory. It's stock. You're buying it in as you're trading stock. And the disposal or sale of that stock is not a capital gain. So it doesn't come under capital gains.

It comes up as income. So just as if you were buying and selling widgets, you would be buying and selling Bitcoin. Now, if that is your business, then you're taxed on your profits as income. Admittedly, you have the other advantage. You can offset your business expenses, but you're taxed as if it was ordinary income. And if it's ordinary income in the States, that's the most expensive rates of tax that apply. Interesting. Now, what about crystallizing losses? So if you – I know that, for instance, in the Canadian tax law, when you have capital gains loss, you have tax deductions.

I don't know if this is the case in the state. There are provisions for capital losses. So if you make a loss, you can only set them off against gains. So you can't say set off capital losses against income. Although having said that there is a $3,000 sort of small loss. concession. So if you make small losses below 3,000 capital losses, that is, then you can offset those against your ordinary income. But otherwise, your losses can only be set off against capital profits. And if you don't use them up in the current year, then you can carry those losses forward. So you don't have the full advantage if you get hit badly in one particular a year and that is a consideration in a very volatile market yeah so how would this work so let's say you you buy um you buy say a thousand dollars in bitcoin and the price goes down and you sell them at

a hundred dollars uh and so you you have no gains for that period you've got a nine hundred dollar loss you've got a nine hundred dollar loss you can carry that Well, if that's the only loss that you've made, capital loss that you've made, then you can, because it's below the $3,000 threshold, then you can offset that against your ordinary income, so your earnings from salary and self-employment and so forth. What some might call tax deduction. It is.

It's say you can deduct that against tax. However, let's say that you, you'd made a a capital loss of $4,000 so it's above that threshold, then you won't be able to

use all of it up that year unless you've made other capital gains so if you, I don't know if you bought some stocks and they've done particularly well and you've made capital gains, you can offset your Bitcoin capital losses against your other capital

gains. But If your losses across the board exceed your capital gains for that year, then whatever the surplus is, you have to carry forward to the next year. Yeah, okay. I see. I think that brings some clarity to the situation. I think it will be very interesting to see the realities of this. You know, if this is really going to have a kind of crippling effect on Bitcoin's use

as money, as a payment system or not? Because I think that's really the big question here. I agree with you, Brian. I think you could envisage it as being something akin to buying your cups of coffee. And I know we've said a cup of coffee probably isn't a good example, but your purchases over or your gains over $200. But imagine you were paying for stuff day to day with, I don't know, stocks and shares and other investments, that would be the equivalent.

So you'd then have to keep track of every little purchase that you'd made, having paid for it with stocks and shares. And of course, we don't use currency like that. The whole point is that it's fairly frictionless in Bitcoin and crypto generally. You've got your mobile phone app. You pay for your small purchases in a pub or a coffee house or for some capital items online and so forth. And you're doing this day in, day out. It's certainly very burdensome. And yes, I agree with you.

It'll be interesting to see how that pans out in reality. There is talk that the IRS will do what they've done in some other fields, which is to get the big online things. sellers, retailers, to provide them with information about what people are buying. So that's one way for them to track purchases because, of course, they can relate that back to Bitcoin purchases back to potential gains. So there are dangers, I guess, in not accounting for Bitcoin capital gains on a day-to-day basis. I guess somebody will come up with a smart set of apps for keeping track of your

expenses, your Bitcoin expenses, and working out the tax. Much the same way that there's software for tracking gains and losses on stocks and shares, just making something a little bit more user-friendly for your iPhone or your Android. Yeah, there seems to be some opportunity there. Yeah, go ahead, Brian. Yeah, so I'm curious if you could go back and sort of redesign this IRS tax guidance, how would you go about that? Because in a sense, I think it makes sense to me that you have to pay cap against tax

on the Bitcoin price increases. It's just that the reality, I think, is a problem. But if you could kind of rewrite that, how would you do it? Oh, that's a hell of a big question, isn't it? How would I do it? I think jurisdictions across the world will have to consider what really cryptocurrencies are. And once they've made up their mind about what they are, then they can start to write some rules that are very specific.

In the meantime, what we have is a set of interim. positions that really state largely the common sense approach given tax laws that in some cases have evolved over, you know, not only many years, but decades. And I guess there's that there isn't a simple way of saying, you know, rewrite it. The only real way to do it is say it's, it is currency, it's like a foreign currency, it's like money. But I don't think any jurisdiction is very good. close to to recognizing it as money.

Now, once a single jurisdiction, sorry. If it was recognized as money, would that mean the appreciation of value of Bitcoin's would be completely untaxed? Or how would that work? Well, no, no, that's not necessarily what I'm saying. Because in the states, as I understand it, over and above that $200 limit, you can hold foreign currencies, you can hold balances in the United States. in foreign accounts, but you're still going to be,

you're still going to be taxed on, on, on the change, you know, on the change in value. I think, though, that there's a difference in the way that it would be applied on a,

on a, you know, a spend by spend, an individual transaction by transaction basis. But, um, no, I think it's the problem of it being not the, not the legal tender of the country that you're taxed in.

I mean, that's actually the real problem. So that's the solution. we just make it illegal tender? It will certainly change the regulatory environment across the globe the moment one jurisdiction anywhere in the world recognizes as legal tender because so many existing laws define this thing that's currency based on whether or not it's legal tender anywhere in the world.

The moment it becomes legal tender, it changes. I've never followed this before. but so if any any country in the world somewhere classifies this legal tenant this would have for example implications as well for what the IRS does with it quite possibly yes I would imagine it it will do so in the States and it will certainly do so

in Europe yes yeah but you know what else we'll make this kind of so as the price also stabilizes then this accounting nightmare kind of goes away, right?

This is complicated right now because there's so much volatility and you have to keep track of potential gains and losses on so many on varying levels of of value up against the US dollar. Once that price stabilizes, then that kind of

disappears. Yes, and it also means that although there will be fluctuations just as there are between say the dollar and the euro the differences the gains and the losses on an individual spends

will be trivial and are less likely to be of interest, real interest to a tax authority. Of course now it's very interesting to tax authorities because there's a lot of windfall tax revenue to be had from anybody who

who, you know, acquired their Bitcoin at sub $1 or sub $10 or sub $100. Yeah, so how does this affect previous purchases? So as of now or anything that you sell as of now? So if I purchased some Bitcoin's three years ago and I sell them now, am I subject to this new guideline? It's a new guideline, but it's stating the position. as the IRS believes it always to have been within the context of U.S. tax regulations. So they're saying that you could just be liable to penalties for failure to having declared your taxes according to these guidelines.

So if you bought and sold Bitcoin prior to this guideline being published and you didn't follow this exact. guideline, then you're liable to being audited and potentially... Penalines, yes. I'll actually read a little bit from the guideline. It says underpayments attributable to virtual currency transactions may be subject to penalties such as accuracy-related penalties under a certain section and so forth. In addition to failure to timely or correctly report virtual currency transaction, when required to do so, may be subject to information reporting penalties under other sections. And then it goes on, however, to say penalty relief may be available to taxpayers

and persons required to file an information return who are able to establish that the underpayment or failure to properly file information returns is due to reasonable cause. And this is what I was saying earlier on. You know, you could say lack of guidelines. You could certainly argue that that was reasonable cause. cause, but, you know, they may counter that, of course, by saying that, you know, the guidelines only say, clarify, if you like, the IRS's understanding of the laws as they have always been. So, you know, you should have got legal advice or tax advice and if in doubt, file and so on.

So nobody knows quite how that one's going to. Hopefully they're going to be reasonable. So we could perhaps anticipate quite a few people in common. repiling, perhaps, for prior years? I don't know if that's possible. I think that U.S. taxpayers with potentially large gains that have occurred as a result of maybe early acquisition of Bitcoin's would definitely be wise to definitely, I think folks in the U.S. who acquired Bitcoin early on, relatively low values would be very wise to book an appointment with their tax accountants and if necessary with their attorneys to interpret the impact of this new guideline. I guess a lot of American tax and legal professionals will be very happy with this situation.

I suppose so. Create some work. Absolutely. More jobs. that's what we want right in the Bitcoin space and of course hopefully you can pay your tax accountant

and some lawyers certainly in the States in Bitcoin now so that that should be good cool and well let's talk about the UK tax guidance I mean we've had something

a bit different but another tax guidance there a few weeks ago and we talked about it but you kind of wanted to to touch on that again because he felt some things haven't been properly understood. Perhaps can you just remind us again what exactly the tax, the guidance there was from HMRC? Yes, sure. HMRC came up with a much more simplified and in this case an official document

that you can fully rely on at the time being and that applies to the position from the start. like the IRS, this says this is the position as HMRC understand it and that it has always been, but has the weight of something that you can rely on. It does come from her majesty after all. Yes, I suspect she might not know too much about what Bitcoin are. But yeah, that's an interesting one. maybe you can you can pay your visitor fees to Buckingham palace in Bitcoin's sin. Now, so this has a full weight.

You can rely on it. It goes to some considerable pains to make it clear that it's an evolving space that it could change in the future, but that if it does change, those changes will only apply from that point in time. So you don't, you know, you have certainty. And that's actually one of the really positive aspects of this particular brief. It is recognising, the language recognises that it is very much like a currency. Again, it makes the point that it's not legal tender anywhere, but that it works like a currency.

and unlike the situation in the states really is more favorable to treatment as a currency, particularly from the VAT, the value-added tax perspective, which for listeners who are outside of Europe, value-added tax is a consumption tax, is a sales tax, and it's applied through the whole value chain. Now that itself creates some interesting points, which I think may not have yet been fully appreciated by UK taxpayers. And I may come back to that in a few moments. But it shows that HMRC actually have gone to great lengths to understand cryptocurrencies. They clearly do understand the mining process.

They understand what exchanges are, what payment processes are, And they understand the nature, the way in which Bitcoin, I'll use the term Bitcoin to refer to cryptocurrencies, but they recognize the way in which it is used as a means of paying for stuff for goods and services. That's very positive. There is also mention of the corporation tax, income tax, and capital gains tax treatments

for Bitcoin, and that's also very positive, although there is nothing new and nothing special. Now, a little bit of history, this is the first official statement by HMRC. So they have previously answered specific queries from some Bitcoin businesses asking what the VAT treatment should be. And they've answered some of them on the lines that in their interpretation it's something like a single-use voucher. In other words, a kind of goods in its own right and was subject to VAT. So they recognized that when you were buying something and paying for it with Bitcoin, there was in fact a barter transaction going on, the underlying product in one direction, and the Bitcoin in the other direction, which was a bit like, I don't know, paying for

your cup of coffee by giving a cake in exchange. How does VAT work in such a case? Well, in this case, there would be VAT on both sides, on both sides, which of course was a nonsense, especially for exchanges. So this had been fairly vociferously argued against. And some people who are now very much involved in a newly formed UK digital.

Currency Association made representations to the policymakers rather than perhaps middle managers at HMRC to really come up with a more sensible approach. And this brief that came out at the beginning of March is that response. And it recognizes that people use it in payment. And as such, there's no VAT on the means of payment. So, You're buying a cup of coffee and you're giving something like money in exchange and it works like money for VAT purposes. The money itself doesn't have VAT on it. That's great news.

That's brilliant news and it's common sense. Does it say anything about the thing that the US talked about, so what you have to do with an appreciation in the value of your Bitcoins? Yes. And there is very similar to the U.S. Yes, it relies more on saying, actually, we don't think we, HMRC, don't think there is anything special about Bitcoin that isn't otherwise addressable within the current corporation tax for companies, income tax for individuals, and capital gains tax for individual regime, that everything is otherwise answered under those rules. So, yes, you have a similar process where you realize a capital gain when you buy your cup of coffee or capital loss in some circumstances. In other words, the difference between the base price, what it costs you to acquire your Bitcoin and what it's worth at the point where you spend the Bitcoin.

However, the regime in the UK is much more lenient. There are allowances. We have a new tax year starting this week on a 6th of April, so the limits change very slightly. But I'll talk in round numbers. There's about £11,000 of exempt amount that you can have as a capital gain in any one year across all your capital gains. And that is much higher, I believe, than in most jurisdictions.

Yes, it's very generous, and it means that you can make that capital appreciation without. I mean, you do have to keep track of them, but you really don't need to keep the detailed records of every individual spend, I believe. when you've got fairly trivial amounts involved, I think you can, if so long as you can, if necessary, prove that you had trivial amounts and what you spent was trivial, then obviously the gain is going to be trivial. So you think this is the type of, like the contrast between the UK and the US and how they interpret Bitcoin and what it's classified as, do you think other European countries are going to be moving more towards this kind of private currency representation? more leaning towards what the U.S. is saying in their guidelines? Yes,

the U.S. don't seem to have this notion or concept of a private currency, and indeed in the UK, there isn't really strictly speaking something recognized as a private currency, but I believe

Brian, in Germany you have such a thing as a private currency, And Barfayn came out last year with a statement that said Bitcoin and cryptocurrency definitely fitted in that space.

So rules that sort of already exist for private currency. I think yes, it does because it's a very convenient hole in which to place this square peg. I definitely think there's been a rounding off of that square peg

at the moment you can class it as something that yes, it's an asset. It's not legal tender. It's not strictly speaking currency, but it works like currency and it's used like currency. I think this is a pretty, also, you know, if we come back to the question I was asked before, like, you know, what would have been a better IRS guidance?

I think if that same thing instead of, you know, the $200 you talked about, if that was $10,000, but perhaps in an aggregate over the year or something, just like, like you said, for the UK, I think that will make it all a lot more reasonable. So if you could kind of say all the small purchases, don't worry about it. But then if you bought, you made like a significant investment in Bitcoin, you held that and then you sold that. Well, then you do need to pay those capital gains taxes. Yes.

The problem is when you're saying, well, what would be a better way to write the guidelines in the US? Of course, the guidelines only represent an interpretation of the current position. So you're talking there about changing the tax system in the US and that's more challenging. However, the UK again is treats all of this very leniently because the UK doesn't have a $200 or £200 limit, if you like, on individual transactions with foreign currency. It basically says that money that you, a foreign currency that you buy for your personal spending overseas is not subject to capital gains. So, you know, if you live a very lavish lifestyle, you could exchange quite large amounts of money for foreign currency. so long as you spend it overseas, you would avoid any capital gains.

Now, what would really be nice is if HMRC, and they have quite a lot of discretionary power here to sort of come up with these kind of waivers and exemptions, if they were to widen that and take out the overseas element, that would be. really very useful because then money that you Bitcoin that you purchase for your personal spending so they're distinguishing there between things that you use for trading and for business purposes but if you're using it for personal expenditure you could have countless cups of coffee without ever having to even think about it that would be nice yeah I need

I guess I have one more question I want to throw in here briefly you talked that in the UK, you know, you don't have to worry about VAT. Does the IRS tax guidance have any implications for VAT? I can't think of any because they don't have a federal, they don't have a VAT system in the US. And the sales taxes are either state or local level, even quite local. So I don't think there's anything similar to that. It's interesting that you've taken us back to VAT because they're. there is something that probably isn't yet fully appreciated,

and that is that there is still a tax, a VAT burden in the system for minors and for exchanges. There's this wonderful notion that something is free of VAT, but actually we have more rates of no VAT, more types of no VAT in the UK, than we have positive rates of VAT. In the UK, there's a pretty standard 20%, and then there's for certain socially important sectors, like energy costs, personal energy costs and so on, there's a lower 5% rate.

But we have three kinds of no tax. We have this 0%. So that's fully taxable, but at 0%. So that has the advantage that all the things that you can claim back on things that you purchase as a business, you can still claim the VAT back, even though you're not charging VAT on your outputs, on your sales of goods and services. But we also have two other kinds. We have something that's called exempt.

This generally speaking comes from European legislation on areas that need to be exempt. And a notion of something that's called outside the scope, what that basically means is it doesn't fall within the VAT. regime at all. VAT is not interested in it. We might say that all of these things carry no tax, no VAT, but there is a fine distinction, particularly

between whole group together exempt and outside the scope items for a moment, because they're relevant to Bitcoin. If your output, if the service that you provide is exempt, then you're not

allowed to claim back the VAT on the purchases that you make, on the inputs to your business, that go into making those exempt supplies. So if you have, let's take the example of an exchange. An exchange is paying for maybe premises, which in some cases may carry VAT. They'll be paying for hosting services. There'll be VAT possibly on that and so on and so forth. And some of the things that they buy in from overseas, they are obliged to self-charge themselves for the VAT

that would have been due if the person supplying them had been subject to VAT. So there are all these things that come into the business, and in the normal circumstances, a business can claim back and recover the VAT on its purchases. Well, to the extent that it's making exempt sales, it cannot. It has to perform quite complex calculations on what its inputs are relative to its outputs and exclude claiming back the VAT. And that means that there is a VAT burden which ultimately gets passed on,

hidden in the price of the service to the consumer. So there is still a VAT burden. Now, this VAT treatment says that the income that miners get from their mining activities is outside the scope for various argued reasons. And so outside the scope outputs mean that you can't claim any of the inputs that the tax on the inputs, the VAT on the inputs that you suffered. So just to restate that, that means if miners,

so the miners are going to have certain incomes from the bitcoins they mine. And then they're going to have certain expenses, such as buying the mining hardware, electricity, etc. So your point is they can't claim back to VAT. They can't claim back to VAT on that.

So that, I guess, would be competitive disadvantage for putting mining farms in the UK? Definitely so. I would definitely say that. And even the income that they generate from transaction fees, which is subject to VAT, but is treated a bit like banking type, payment type services, and therefore is exempt, suffers the same problem.

So you're absolutely right. Mining carried out in the UK is bad news from a tax point of view. You definitely had a VAT disadvantage. And what about, I just wanted to go back to the US, what does this guideline say for mining? How are mining companies in the US affected by this? And does that have an impact on potentially mining companies? not from a VAT perspective because there's no VAT but in terms of income tax our understanding is that it is income at the point where mining took place so if you successfully mine a block then you've earned money on that day that you mined it so that's treated like income and if you then dispose of those

those Bitcoin six months later and they've appreciated in value, then that's a a realizable event and any increase in the value of those bitcoins that you mined is at that point, that

later point, grounds for capital gain. Yeah, I think that's completely sensible. I guess my kind of takeaway on this is so that it's interesting to recognize the differences between countries and how they're treating Bitcoin. Like this is something we've said 100 times before, which makes life very interesting for people like you who work in this space.

But ultimately, I think it just makes things complicated because for businesses but also for consumers, because in the end, consumers are using Bitcoin across borders, and that might have an impact on how they can use Bitcoin, maybe to purchase something online in a different country, or that might scare some people off? I think generally speaking, your main consideration as a taxpayer anywhere is the tax regime in the country, where you pay tax.

So if you live in the UK and you're subject to UK taxes, that's the place that you need to concern yourself about the tax implications. If you are in the States, then it affects US taxpayers. If you're a UK or French or German taxpayer and you happen to do business in the States, I don't think you're going to have to worry too much about about your tax position unless you spend

I think in the States case more than 183 days a year in the States or you have businesses that you've established in the States then then you may become liable to US tax and then you have to think about all the US implications so go live in some tax-free exotic island

you know do all your Bitcoin business from that yes we could record live from the middle of the Pacific Ocean. I mean, I guess this is not such an absurd point to bring up. After all, there's been all these efforts to, you know, these seesteading ideas. So you'd have kind of autonomous countries that are in overseas territory. And I've also heard that some people are trying to build up something like that

in Central America, kind of like a Hong Kong-like place. And there is a real question whether, you know, at some point, Bitcoin businesses will move to such places. Because, of course, the big advantages as well, if you're 100% cryptocurrency business, often it doesn't matter where you are. You can go anywhere. So, I mean, I know some startups here in Berlin, for example,

and they're, you know, located in Malta or in, in different places, but not here because it doesn't matter for them. Absolutely the case. Bitcoin is global. The currency doesn't belong in any particular jurisdiction. It's ideal for, and it's based on the internet, which is where. So it's everywhere. So, yep, you're right. I guess this breaks down as soon as you have the intersection with Fia currencies, right? intersection with fiat currency problem number 47 well some people consider it nearly problem number one because of course it's there that you have the friction with the traditional banking system and for businesses that are either on the ramp on or the ramp off the gateway business is in bitcoin

they're the ones who struggle because they have to exist somewhere where they can get a a banking relationship and that right now is hard enough anywhere. Yeah. And just if we come back to... To illustrate that most problems that we have that we can pinpoint or most likely happen at the intersection with Fiat and Bitcoin. Yes. How wonderful if we could all just work within a crypto economy.

That would be brilliant, wouldn't it? So a question regarding this, the UK tax guidance, because at the moment, there's not functioning as far as I know, at least, a UK-based Bitcoin exchange. And from my understanding, at least one reason is that it's been extremely difficult for UK Bitcoin startups to get bank relationships. Do you think this is going to change with just new tax guidance? Do you think we will see more? perhaps proper Bitcoin exchanges in the UK?

There are some in the UK. There are some that are registered corporations that are registered even in the UK that at the moment operate their businesses in other jurisdictions. I mean like Bidstam, but they don't do the actual exchange. They don't run the exchange in the UK. Exactly. That's my point. but I think your underlying question is still highly valid.

The real problem for exchanges is it's almost impossible. It is impossible to get a bank account if you do anything with Bitcoin. I mean, I heard of one, and how ridiculous is this? I heard of one company that's a startup. in the education field, they want to do a set of products to educate folks about crypto, Bitcoin, so forth. And that's their business. And they went to the bank and said, you know, here's our business plan. And, you know, there's a gap in the market to provide education services and training tools in this wonderful new space of cryptocurrencies and Bitcoin.

and they said, no, we're not interested. They don't transact to bitcoins themselves. They're not involved in trading or buying or selling Bitcoin, and it's not part of their business model. It's just, it has something to do with it. And I think just banks generally are running scared of something that they don't understand where they feel that there may be a reputational risk

or where they feel that they might be exposed to the risk of penalties from, regulators because they let something slip, you know, after the massive fines that HSBC incurred for allowing money laundering to go on for drug cartels. They, all the main banks are just running scared. They, they close down now most money remitance businesses, even quite solid and businesses with good reputation that they may have had accounts for for years

and that have proper, you know, AML regimes and so on. They just closed accounts down. But why? HSBC's deal was so profitable, even with those funds, they made so much money in the end. It's a cost of doing business, isn't it? I mean, let's be honest.

They just appears they put a little money aside every year for the fines that they either unintentionally or intentionally. Maybe, of course, they'll never admit to that, I'm sure. It will incur. But the reality is nobody really understands what Bitcoin is. Nobody understands what the implications are. It's not regulated and so on and so forth. The answer to your question, Brian, does this kind of guidance from HMRC help? Yes, a little bit. It makes it a little bit more respectable because it's now recognized. It's talked about. It has some recognition from incidentally, HMRC is one of the bodies responsible in the UK for supervising anti-money laundering. It's another of their function. So although this isn't mentioned in this guidance, it is notable that HMRC have published. So let's just segue into this Isle of Man news.

So could you maybe talk about the news that's come out of the news that's come out of the Isle of Man this week and what it means essentially for the exchange ecosystem in the UK but also I guess in Europe. Yeah. Is the Is the Isle of Man the answer to all our questions? It's an answer to some questions and certainly I think quite attractive for a lot of crypto businesses. The news that came out of Island Man just in the last three or four days is that, well, first of all, it hasn't been published anywhere other than by the person who sought the information and who then publicized it on Coin Desk and so on.

So this is a guy called Robert Paul Davis. He's counsel for, I believe, a head. a Canadian-based company in the payment space, and he lives and works in the Isle of Man, which is a self-governing British dependency. So it makes its own laws. It is subject to VAT on virtually a parallel basis to the UK, and it has its own financial services. supervisory body. It's called the Financial Supervision Commission. They haven't published anything

officially, but Paul Davis wrote to the commission asking for clarity after he being a lawyer, I believe he's a barrister, an advocate. He wrote a legal opinion for some Canadian clients of his, and he asked the Isle of Man's Financial Supervision Commission to respond. And they came back and said in the particular set of circumstances that he outlined, so that would be a Bitcoin exchange based in the Isle of Man that holds the funds of its clients and holds those funds with a properly licensed but overseas-based payment services provided. whether or not it was required to get a separate license, whether that exchange would be required to get a separate license within the Isle of Man.

And they considered it and wrote back to him, and he's published parts of that reply. And what that says is that it is not an investment business in the way that they categorize certain regulated activities, and nor is it a money transmission service, And so essentially it doesn't require licensing as it stands now in the Isle of Man. But they do say that, you know, that position could change just about as everywhere else said. So just to clarify, is the Isle of Man subject to the VAT regulation we're talking about earlier?

Well, now that's an interesting one. It has its own VAT regime because it's a separate, a separate. country in effect. But it mirrors the UK. So I would be very surprised if it deviated. Basically, it piggybacks the UK system because it's, that's just the way that it works. But it issues its own VAT opinions and its own VAT laws. But I think it's highly likely that it will adopt the same position. So, yeah, go ahead. Yeah. Okay. So. So, If you put up an exchange in the Isle of Man and you wanted to do business, for example, in Europe, I guess one of the issues would be to have a separate bank account where you could receive incentives.

Would that be possible? Or would you then still have to get maybe licensed in some other country where you hold the bank account? I don't think you need to have a license. In most cases, I don't think you need to have a license in the place where you hold a bank account in any event. The interesting thing about the Isle of Nan is that it's linked to the UK payments clearing system. so it's much more connected to sterling than to the euro and sepah. Yeah. It's also not actually part of the European Union either.

It's not a member state of the European Union. But it's not actually a country, is it? It's a separate, independent, protectorate, if you like. Its queen is the same queen as that for the United Kingdom, but it's, yes, but it's completely independent. So yes, it makes its own laws. So a bit like Canada, no? Yeah.

Oh, come on. It's a bit like Canada, but with less taxes, because there's no corporation tax, unless you're a bank, in which case it's only 10% tax. There's no corporation tax of any sort in the Al-Aman, and personal taxes, I believe, are as little as 20%. So go live in the island man. That's good. Low tax. Your business isn't taxed, only you're personally taxed, and you've got a very lenient regime at the moment for Bitcoin. Good place. In fact, there's the rumors of quite a number of Bitcoin exchanges wanting to set up now in the Isle of Man. Now, the fact that they're not actually in the European Union and much less part of the Eurozone, you know, so like Brian was saying, how easy then would it be for exchanges to set up there?

I guess my question is, are we going to see all of Europe's exchanges move to the Isle of Man or all the new ones? are they going to be coming out of there in the next few years? I certainly think there will be some Bitcoin exchanges set up, that some are already rumored to be quite advanced stages and have just been waiting for this kind of announcement to gain some clarity. Again, this is nothing official. This is just... It's reported by a barrister who works as a council for,

one of the Canadian payment organization. So I guess, you know, it is reliable, but nobody has seen the original of this document and has all reported information like this. It very much depends on the context in which it was written. And again, this is interpretation, much like the US guideline. Yeah, but, you know, this is better in a way because this is about whether or not a financial regulator

wants or considers this Bitcoin exchange to be subject to its regulatory jurisdiction. And it's saying it's a tans off. But then in the UK proper, forgive me for putting it like that, but in the United Kingdom, the same is true of the Financial Conduct Authority, which is the main financial services regulator. It has also, it hasn't unfortunately published anything, but pretty much every Bitcoin business has approached the FCA to say we're a Bitcoin business. Are we required to register with you or become authorized with you, depending on circumstances?

They've sent away saying, no, you're a Bitcoin business. We don't regulate Bitcoin businesses, go away. So the UK is also at the moment a very desirable location for Bitcoin businesses, given the tax position, given the regulatory environment. It's ideal at the moment. The only thing is that the taxes are a little bit more than they are in the Isle of Man. And the problem there is the banks. No, it's banking relationships.

My understanding, they do have their own banks in the Isle of Man, but... Yeah, I meant in the UK. But perhaps that would be better in the Isle of Man, that banks will actually be open to that. Well, the rumor is that at the moment, for similar reasons, the sort of indigenous Isle of Man banks are not willing to take on Bitcoin-related business themselves. But the hope is that actually there will be some light-touch regulation. in the Isle of Man, hopefully sooner rather than later,

but I suspect it will take a while, because once it is regulated, it is believed that Isle of Man Banks will be much more willing to take Bitcoin businesses. I mean, they're basically, it is said, they are just waiting for some regulation, to show that it's respectable business and to understand the AML implications, and they're hot and ready for Bitcoin businesses that are properly run.

Because obviously, as with most of these small islands that exist around financial services, they are challenges to the mainstream. They want some competitive advantage, and that would be great for the island man economy. Interesting. Well, I think towards the end of our show, Now, you mentioned before the UK Digital Currency Association. Is there anything else you want to touch regarding to that or talk about?

Well, you mentioned earlier on about the situation in China. It is confused because it's all hearsay, this news agency report. I think the one that broke the news originally retracted it quite early on because it made out like it was some kind of new ban, a more reliable news agency that claims to have seen the document that has only been issued by the People's Bank of China to its regional offices is just a restatement of the reminder, in effect, of the notice that it issued, I think, as far back as December,

giving a 15 April deadline. that banks and payment institutions had to close accounts that related to operators of websites that traded. Wait, did you say 15th of April? Because I remember on that original December statement by the Chinese government, the deadline was 31st of January. But maybe they made a new one now. Well, and again, there's nothing that you can put your reliable finger on to say this is what it actually said because it's not been made public. This is a notice that has been issued by the PBOC's headquarters to its regional offices. I guess they're the offices that have the responsibility for managing the supervising banks and payment institutions in their regions.

and this has basically said they would have to close the banks and payment companies would have to close the accounts of essentially Bitcoin exchanges. And if I understand correctly, it's been reported that they actually name the 15 exchanges whose accounts would have to be closed by that date. Obviously, this affects severely the ramp on and off Bitcoin. But I believe the same document as it is reported is not saying and makes explicit reference to the fact that it's not saying that Bitcoin is banned in China. That Bitcoin can be transacted between individuals. It warns them that there are risks associated just as pretty much everywhere has. But it's basically saying hands off for banks and payment institutions because it could be used. presumably for money laundering and other things that it doesn't yet fully understand and can't regulate.

Yeah, I mean, that's really not news. No. Which is why I wanted to mention it, because, you know, I think it's been said that this week's price drop, this last week's price drop in Bitcoin has been triggered by the news as if it was new news that came out of China. And everything that I can find on it indicates that it is not new. news, but just a reminder of the previous December instruction from PBOC headquarters to regional offices. That's actually a very interesting point because I was wondering now at that too.

And, you know, you saw the price drop and then you saw these news. I mean, I only skimped them. I was like, I don't see any real news here. So I'm very curious about this. But then perhaps yesterday or the day before, I was wondering, perhaps this could be due to the IRS thing. I don't know what your views are in that, but if you kind of play out the negative scenario there with the IRS, it could, of course, be bad news for Bitcoin as a payment system.

I'm purely speculation. I have no indications. I have absolutely no clue why we've seen this price drop. But I don't know. What are your thoughts on this? For me, I see the IRS news as positive news because it gives clarity and businesses, work best when they have clarity about the environment, the legal and regulatory environment

and even tax environment around, you know, in which they operate. So I think it's good news. Yeah, there are aspects of it that are, you know, that are a pain in terms of record-keeping, of course. nothing in it is in that IRS news was was earth-shattering. Really, you know, tax pundits in the states have been expressing the view that this was likely to be the IRS's position. In other words, their interpretation of existing tax rules has really been just upheld. So I don't see the U.S. situation as a negative at all.

were expecting some completely new regime to come out of, a new tax regime to come out of the US. Well, then they were misguided. Yeah. I don't know. I think it's more likely to have to do with the China situation. Let's face it, traders do well when prices go up and down. Spreading a bit of bad news is always good for creating buying opportunities. So if you take a long, you know, if you're going long.

Certainly, yeah. And then Bobby Lee is always there to set things straight again. Exactly, yeah. Bitcoin's fine in China. Everything's fine. The thing is in China, you really do need to look for nuances. I think, Sebastian, you have some background in China, do you? And Asia generally, I guess you've seen that.

No, I have no background. in Asia. I spent some months there years ago, and I used to learn Chinese once, but this is quite a while ago, so I wouldn't consider myself a China expert. Me neither, although I did work for a number of years on projects in Hong Kong,

and I spent quite a lot of time there in the, in the 90s and I got very much a feel for the for the way things work in in that part of the world. But yeah, I'm not a China expert either. But I definitely think there are, you have to view any news that comes out of China with some, not with a pinch of salt, but I would generally not overreact the news that comes out of China. and let's face it Chinese do a big speculators

and they do love a gamble and this is great for them because it's a roller coaster yeah but Bitcoin is great it feeds that that that sort of gambling instinct

that there is in that part of the world so I guess this kind of news suits a certain a certain temperament, shall we say. Cool. You mentioned UK Digital Currency Association,

so let me just do a tiny plug for them before we wrap up, if I may. It's a newly formed association. It's been in the making for about, I guess, three or four months now. And a lot of key people in the Bitcoin space, space mainly in London, and the financial technology in the fintech sector in London are behind it. They, I think you did cover on a previous episode, how vibrant the UK and particularly the

London Bitcoin meetup is. It has somewhere, 1500 members. It's, I believe, still the largest, or has become the largest Bitcoin meetup group in the world. And the folks who are behind that, notably Paul Gordon, who runs Coinscrum, the London Bitcoin Meetup Group, and others working in the space got together to form this association. And they're now officially incorporated as a company that's limited by, by guarantee, so effectively a not-for-profit entity, and is there to promote the Bitcoin and cryptocurrency,

digital currency space, very inclusive of a wide membership. About 30 plus founder members, all including myself, I've vested interest in plugging it, and is for very important working groups, one of which is dedicated to exchanges regulation and taxation and is doing a lot of work to try and come up with a position on regulation and promote that lobby within Europe and within the UK to try and get that position adopted. So you can find it online at UKDCA.org and folks should join.

and, of course, pay your membership fees in Bitcoin. It supports, incidentally, corporate members and individual members and also supporters. Great. And I guess also if you plan to start a Bitcoin business, are you working on that? And you're wondering, how on earth am I going to deal with all these complicated regulations that should get into Dutch and you, no, with you? Well, I'm afraid sometimes folks need people like me. So yes, I've got a lot of experience in this field. I've worked in this field on and off for a number of years. And so this is a natural thing for me providing this kind of advice in the Bitcoin space because I'm such a crypto currency enthusiast, a ripple enthusiast. A ripple enthusiast. enthusiast and Ethereum enthusiast. So, yes, and you can find me at coin salt.

Dot.EU. That's Sean S-I-A-N at coinSalt.EU. Well, thank you very much, Sean, for coming on and discussing these very complex topics with us. I mean, we definitely needed somebody with your experience and your knowledge to come in and help us understand and help our audience understand. it's very much appreciated and we'll definitely want to have you on again in the future when more this kind of regulatory news comes up. Well, thank you both for inviting me. I think it would be great to, you know, perhaps this again, I don't know, three months

from now and then see what's been going on, what's changed and how all these guidance as we've seen now how they've kind of played out. Absolutely. I think 2014 will be a big year for news in this particular space in crypto. I think we will see increasingly folks coming out, you know, countries coming out with their opinions on how things are under the present regime and hopefully in time. perhaps later in the year, we'll start to see some specific issues of Bitcoin and crypto-based business, you know, regulation. I think that will be coming this year, definitely, this year next year. Great, fantastic.

Well, thanks so much for joining us and thanks for listening. If you can leave us a review, that would be fantastic. You know, if you listen to the show, if you appreciate it, do you like it and you want to support it work? You can do that on iTunes or Stitcher or some other podcast player perhaps as well. If they let you review, that would be really appreciated and really helpful. And if you want to sign up for a newsletter, it goes out every Friday. And you can sign up for that at EpicenterBitcoin.com slash newsletter. And also, if you like the work we're doing and you'd like to support the show,

please go to epicenterbitcoin.com slash tips and you'll find our tipping address is there, like coin, dogecoin, and Bitcoin tipping address. And also follow us on Twitter.com slash epicenter BTC and we're also on Facebook. You just search for Epicenter Bitcoin. Thanks very much for listening and we'll talk to you guys next week. Okay, thanks and goodbye.