Cryptocurrency exchange Kraken was ordered by a judge to provide a variety of information about its users to the Internal Revenue Service (IRS) for the agency’s investigation of underreported tax liability.
The IRS has said it wants information on Kraken accounts that did at least $20,000 of cryptocurrency trading in any single year. Additionally they were looking for transactions from 2016 to 2020. This request is similar to what the IRS asked of Coinbase several years ago, but Kraken had called the agency’s summons an unjustified treasure hunt arguing it went well beyond what as asked of Coinbase.
The IRS statement said that they have a legitimate purpose for seeking the materials requested. They are looking to determine the identity and correct federal income tax liability for users in the designated time period. Relatively speaking, crypto traders are small fish compared to the fraud that's allowed to happen in traditional markets. Yes, there is a lot of trading activity that occurs on Kraken which is not reported. However what does that actual dollar amount to? Kraken is a top crypto exchange with daily trading volume of roughly $650 million globally. So with that, the judge agreed with the IRS’s evidence that under-reporting of income is “substantially" higher where there is no third-party information reporting, as is the case with Kraken...
Things are continuing to heat up with a deepening US crackdown on cryptocurrency. Not only is the IRS cracking down, but the Securities and Exchange Commission (SEC) this month filed separate lawsuits accusing Coinbase of running an illegal exchange. They also blasted out allegations that Binance.US broke securities rules, mishandled customer funds, and misled investors.
The late half of 2023 and 2024 are going to be the years of regulation and consolidation within the industry. We have already seen exchanges like Bittrex and Kucoin folding or leaving markets over regulatory concerns. It will be interesting to see how all this plays out and I hope it does not kill the industry...