The Breakdown - Roger Ver Arrested for Tax Evasion as Coinbase Enables Lightning

Starting point is 00:00:04 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Wednesday, May 1st, and today we are talking about Roger Vairor being arrested. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. Yesterday, we were talking all about CZ from Binance's sentencing, and as that was happening, in fact, as I was waiting for the judge to hand down the sentence, which ended up, of course, being four months because CZ, four, you get it, news broke that another arrest in the

Starting point is 00:00:54 crypto space had happened, and this time it was Roger Ver. There, if you're not familiar, was one of the earliest Bitcoin investors and evangelists. He was so pivotal in the early 2012-2013-era Bitcoin community that he came to be known by the moniker Bitcoin Jesus. Most notably, Vair was the CEO of wallet developer and news site Bitcoin.com during the early days. Now, if you don't have a rosy impression of Vair, it's probably because during the block size wars, he became a key antagonist. He sided with the big blockers and pushed his agenda, in some cases using extremely aggressive tactics. Verr went on to play a pivotal role in the 2017 founding of Bitcoin Cash, a big-blocked fork of Bitcoin intended to support payments.

Starting point is 00:01:31 Since then, Vair's influence in the Bitcoin space has largely faded into irrelevance. Well, yesterday he was arrested in Spain on criminal tax evasion charges. The IRS alleges that Vare failed to pay roughly 48 million in taxes related to the ownership and sale of Bitcoin. The case is fairly technical dealing with the intricacies of U.S. citizenship and exit taxes. Verre renounced his U.S. citizenship in 2014, becoming a citizen of St. Kitts and Nevis. When U.S. citizens give up their citizenship, they are required to declare all of their assets and pay capital gains taxes as if they have been sold. The allegation is that Vare owned roughly 131,000 Bitcoin both personally and through his companies at the time of his expatriation.

Starting point is 00:02:09 The indictment claims that Vair failed to disclose his Bitcoin ownership and pay exit tax on his holdings. According to the allegations, he sold the Bitcoin for around 240 million in June 2017, slightly before the bull run. So the core of the allegations is that Vair filed false tax returns that undervalued his companies, failing to disclose 73,000 Bitcoin held by them. He allegedly transferred the Bitcoin to himself and benefited from the sale hiding those facts from his tax accountant. The companies were U.S. registered corporations, so distributions and dividends were still taxable in the U.S. Vera allegedly failed to declare any gains or pay any taxes on those sales.

Starting point is 00:02:42 The indictment features reams of communication between Vera and his lawyers on how to deal with the exit tax. That section makes it appear that Vera never disclosed exactly how much Bitcoin he owned for the purpose of preparing tax paperwork. He instead suggested a lump sum valuation. Verre was informed that he was legally required to value his Bitcoin at $800 per BTC, the price when he formally expatriated. Vera allegedly said this was, quote, impossible and unreasonable, as this conversation was happening in August 2015 when Bitcoin had collapsed and was trading at around $230. So that's the case, but what was the community's reaction? In short, it was extremely divided. Bitcoin investor Dan Held wrote, good, he's been a net negative for Bitcoin.

Starting point is 00:03:19 Roger attacked my livelihood by trying to get me fired, called up others to hurt my relationships, and attacked my reputation. He misaligned expectations around Bitcoin so much that it led to a civil war. He deserves everything that he's about to get. Others had a little more distance from personal grievances and took the view that this is bad news for the industry overall. VJ. Boyapati wrote, Whatever you think of Roger Ver, I had some very strong disagreements over the future of Bitcoin with him over the years. He does not deserve what's happening to him. I hope he has made free as soon as possible. What worries me is the herd mentality to desire punishment for people we've had past disagreements with. It does not come from a sense of justice, but a chimp-like desire for

Starting point is 00:03:53 vengeance. Similarly, Samson Mao wrote, I have no love for Roger Ver, but I won't celebrate his misfortune. Someone even farther and actually defended Verre. Peter McCormick, who is not a big blocker by any stretch of the imagination, wrote, Roger Verr offered to pay towards my legal costs with Craig Wright. Roger also paid a large part of Ross Ulbrick's legal defense costs. His point of course being that this is not just some one-dimensional super villain. Another line of conversation was about the morality of U.S. state power, given that the case deals with U.S. exit taxes, which generally don't exist in most other countries.

Starting point is 00:04:25 Mr. Yeti and anarcho-capitalist Bitcoiner tweeted, The U.S. is the Hotel California. You can check out any time you like, but you can never leave. After paying an exit tax, you're liable for seven years of taxes, and can still end up getting arrested if they decide they want your money. Brady Swenson from Swan Bitcoin wrote, Not paying 50 million in taxes isn't a great strategy to affect change unless you plan to take the government to court in hopes of winning.

Starting point is 00:04:47 That's the only redeeming aspect of his actions, that he's knowingly flouting the law with the aim of changing it within the justice system. But I think it was probably straight greed and pride. I'd say he's deserving of his arrest either way. Some legally trained bitcoiners pointed out that the indictment made it appear to be pretty blatant tax evasion. Joe Carlos Arre, a commercial litigator, wrote, Whether you hate love or are somewhere in between with respect to Roger Ver,

Starting point is 00:05:08 take five minutes to try to understand the allegations against him before posting stuff. This is not about a country trying to steal his money. If the allegations are true, written documents show that he was purposefully trying to cheat on his taxes and was told not to do it by advisors. Overall, this is a classic Bitcoins or story. There are personalities involved, specific situations and instances of potential lawbreaking, but also general principles. Because of all that, I'm sure it's one will be continuing to pay attention to.

Starting point is 00:05:34 However, that wasn't the only news going on yesterday, and one of the other stories was much more positive. After years of promises, Coinbase has integrated the Lightning Network, allowing users to transfer their Bitcoin using the faster and cheaper payments layer. The service will also allow users to pay merchants who accept Bitcoin over Lightning direct from the Coinbase app. Coinbase's protocol specialist Victor Bunnan said, Growing Bitcoin adoption increases economic freedom in the world. I'm thrilled that our Lightning integration is live to make Bitcoin more useful and accessible. worldwide. Initially, Coinbase will limit payments to $2,000 worth of Bitcoin and charge a 0.1% processing fee. But instead, a conservative limit was selected because although Lightning can support arbitrarily

Starting point is 00:06:11 large Bitcoin sends, the average success rate of payments declines is the size of the payment increases. Setting a lower limit at launch will improve our user's experience and can be adjusted based on user feedback and has liquidity on the network increases. Indeed, the addition of lightning payments to Binance in July of last year featured a host of problems with failed transactions. Perhaps by setting relatively low limits, the Coinbase integration will be more reliable. The integration of Lightning was realized through a collaboration with LightSpark, a lightning startup founded by former head of Facebook's Libre Project, David Marcus. Marcus wrote, we're so thrilled to be part of this journey with you to bring lightning to hundreds of millions of people in over 100 countries. Big milestone for the entire network

Starting point is 00:06:47 and for Bitcoin. Coinbase CEO Brian Armstrong tweeted, excited to be live on the Bitcoin Lightning network. Let's get every transaction under one second and one cent to bring in the next wave of adoption. By and large, community response to this was very excited. To the extent there was any negativity about this launch, it was largely related to Bitcoin users wanting to see more. For example, many asked when Lightning would be added to the Coinbase Commerce platform, allowing merchants to choose Lightning as their preferred crypto network. Hello Breakers. Today's episode is sponsored by Ledger. As another cycle ramps up, it's another chance to think about your Bitcoin custody best practices, and of course, to help all the new folks do the same.

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Starting point is 00:08:01 Thanks once again to Ledger for supporting the breakdown. All right, breakers. Consensus 2024 marks the 10th gathering of the biggest event that's devoted to all sides of the crypto, blockchain, and Web3 ecosystems. Join pioneering fingers and builders as they delve into the future of Defy and explore game-changing tech from AI to ZK Proofs and everything in between. The event is three days of jam-packed content, networking, and so much more. Some of the speakers at the event include Chris Dixon, the founder and managing partner at A16Z Crypto,

Starting point is 00:08:30 Sergey Nazaroff, the co-founder of Chainlink, Kathy Wood, the CEO of Arc, Hester Perce, commissioner, of course, from the U.S. SEC, and Tom Emmer, Republican Majority Whip for the U.S. House of Representatives. Visit Consensus24.coindex.com to learn more and save 15% on registration with the code breakdown. That is 15% on registration with the code breakdown. Moving over to the D.C. world for a moment. On again, off again, stablecoin legislation appears to be on hold once again. Over the past month, we've seen a string of reports from lawmakers on both sides, suggesting that negotiations were getting close to an endpoint.

Starting point is 00:09:06 The idea was that stablecoin legislation would be paired with marijuana banking reform, and both bills would be attached to must-pass legislation to fund the Federal Aviation Administration. On Tuesday morning, Politico reported that Senate Democrat leader Chuck Schumer was willing to attach the pair of bills. However, according to an unnamed Democrat aide, House and Senate leadership have now decided to make FAA legislation a clean bill without attachments. FAA funding is required by May 10th, so the deadline could simply be getting too tight. If stablecoin legislation doesn't manage to get to a vote this month, it will likely be pushed back to the end of the year following the November

Starting point is 00:09:37 election. This lame duck session will feature another must-pass bill in the National Defense Authorization Act. The NDAA has come to encompass the bulk of government funding legislation, as well as a laundry list of attached bills. Controversies surrounding the gigantic omnibus bill sparked government shutdown fears during the latter part of last year. Still, it seems that efforts over the past month have meaningfully pushed the legislation forward. We now know that House Democrat leader Maxine Waters is open to passing the bill in principle. We also have a positive indication from Senate Democrat leader Sherrod Brown, providing that marijuana banking reform is passed alongside.

Starting point is 00:10:08 Brown still apparently has a few unknown concerns about the Staplecoin bill, but we don't know how much a blocker those will be. It appears that the sticking point could now be Senate Republican leader, Mitch McConnell, who has signaled he will block marijuana banking reform. prior to this most recent development, Beacon policy advisors suggested there was a lot of motivation on both sides to close the deal. They wrote on Tuesday that, quote, Brown has an incentive to get safer banking the marijuana banking bill over the finish line this year, which would give him a win on a subject popular with voters, cannabis reform, months before a tough re-election fight.

Starting point is 00:10:38 They also noted that stable coins are a, quote, legacy-defining issue for Patrick McHenry, who's retiring from Congress at the end of his term. We don't yet have a finalized draft for the stablecoin bill, so industry lobbyists are hesitant to throw their weight behind the legislation for now, blockchain association CEO Kristen Smith said, As with all legislation, the devil is in the details. We look forward to seeing and providing feedback on any new drafts of compromises that emerge. T.D. Cowan wrote in a research note this week,

Starting point is 00:11:02 that this month's push to vote on stable coins was likely in vain, but could turn up some useful information, writing, We believe this push will reveal how much support both have in Congress and who remains opposed. It is why we see this effort offering insight into what could happen with these bills later this year, when we expect a real push for enactment. Lastly today, given that we are on May 1st, it is worth a little look back on what happened last month. April was, we have to say, a rough one for Bitcoin. Bitcoin closed its first negative monthly candle since August. With an overnight plunge to 56,000, Bitcoin lost more than 20%

Starting point is 00:11:32 for the month. This represents the largest monthly drop since June 2022, when Bitcoin opened the month at 31,000, but closed down more than 30% in the wake of the Luna collapse. We're starting to see overlapping headwinds as supportive narratives die off and negative sentiment takes over. USETF flows have gone from providing a narrative push to becoming a clear indication of negativity. The leading BlackRock product hasn't seen any inflows for the last five days, while Fidelity's fund has recorded four straight days of outflows. In the background, Grayscale's product continues to bleed out. The Hong Kong ETFs also failed to provide a renewed boost. This has left Bitcoin without a clear internal reason to go higher. Externally, macro conditions are becoming hostile for risk assets.

Starting point is 00:12:09 The Fed are currently meeting on rate policy, and while the expectation is for no change, it's looking less and less likely that rate relief will come anytime soon. The story from macro data this year has been renewed inflation, alongside a small deterioration in the economy. We're not at the point where emergency cuts are warranted, so commentators are beginning to discuss the possibility of rate hikes. This week's Treasury refunding announcement defied expectations with a 41 billion increase in borrowing for this quarter. Some traders have been hoping that the Treasury would hold borrowing steady and run down excess funds taken in by a larger-than-expected tax season. In other words, this means that Treasury policy will not be providing a short-term liquidity boost, giving risk assets yet another

Starting point is 00:12:44 reason to sell off. Broadly speaking, then, there are two takes out there at the moment. The first is that Bitcoin drawdowns are a normal part of bull markets, and this is nothing out of the ordinary. During the 2017 bull market, Bitcoin suffered six drawdowns of 30% on its way to the cyclical high. The 2021 cycle cycle featured five major drawdowns. The second point of view will call is the it's over viewpoint, and it's fairly self-explanatory. Some analysts are beginning to call March prices of 73,000 the cyclical top and forecasting $40,000 Bitcoin soon. The fear is real, but others are pointing out that it's coming mostly from recently minted bitcoiners. Onchain analyst Checkmatey noted that most of the on-chain selling is coming from coins acquired over the last few months. Well, accumulation is also showing up.

Starting point is 00:13:24 And so to sum it up, as Joe Nakamoto said, chow Bitcoin tourists. So friends, that is the story heading into May, slightly less bullish than we were a month ago, but still, I think, plenty to be excited about. For now, though, that is going to do it for today's breakdown. One more big thank you to my sponsor for today's show. Check out the Ledger Bitcoin Orange Nano. 5% of sales will go to support Bitcoin development. Until next time, be safe. and take care of each other. Peace.

The Breakdown - Roger Ver Arrested for Tax Evasion as Coinbase Enables Lightning

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