Cryptocurrency exchange Kraken is sending a letter to clients notifying them that after losing a lengthy court case, they will need to turn over sensitive data to the Internal Revenue Service (IRS) after a legal battle that began in May 2021.

Surfacing on Reddit this week, the letter follows a summons from the IRS, and is part of an ongoing effort by tax authorities to access information related to cryptocurrency transactions.

The IRS had initially demanded a range of records and data related to Kraken’s U.S. clients. In response, Kraken objected to the demands, emphasizing its commitment to maintaining client privacy. The exchange engaged in a lengthy litigation process to challenge the summons.

While Kraken was able to reduce the number of clients affected, the court ultimately ordered the exchange to produce information and transaction histories for clients who had transactions exceeding $20,000 in any single year from 2016 to 2020, making this one of the largest successful attempts by the U.S. government to obtain data on crypto investors.

Coinbase was the subject of a similar summons in 2018, albeit at a smaller scope. Circle as well was subjected to the same action in 2021, just before the action against Kraken. At almost the exact same time, the exchange Poloniex was forced to comply with a similar order.

In the wake of the recent rules proposals from FinCEN attempting to require more proactive data analysis, record keeping, and reporting of individuals transaction history moving forward, this push to fill in data gaps from the past should have users desiring privacy concerned about the scope of the picture tax authorities and other government agencies are attempting to assemble.

The scope that these data collection efforts grow to could have serious implications for the privacy of Bitcoin users, even those who opt not to engage with regulated or KYCed services by virtue of reducing the number of people they can blend in with.

For affected clients, this means that Kraken will have to provide the IRS with the following information: names, dates of birth, tax identification numbers, addresses, contact information, and transaction histories for the specified years.

Kraken expects to share this information with the IRS in early November 2023.

The exchange is advising Clients affected by this court order to consult with their tax advisors to address any potential tax liability related to their cryptocurrency transactions during those years. 

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Unchained, a leading bitcoin financial services provider, has expanded its collaborative custody network with the addition of Coincover, a company known for protecting and insuring over 5 million crypto wallets, according to a press release sent to Bitcoin Magazine. This move aims to bolster the security of Unchained’s collaborative custody product, which now secures over $2 billion in Bitcoin, representing a 37% year-over-year increase since October 2022.

Unchained, known for its multisignature collaborative custody, caters to institutional investors, corporate treasuries, governments, and retail customers. This approach leverages the decentralized capabilities of the Bitcoin network, requiring a minimum of two private keys to access an account’s Bitcoin holdings. This security measure is designed to mitigate the risks associated with single points of failure, a concern underscored by recent incidents involving custodians like Prime Trust and Fortress Trust, lenders such as BlockFi and Celsius, and exchanges like FTX.

“When considering a custody solution, we believe clients should ask themselves two fundamental questions: 1) What happens to your bitcoin if their company disappears, and 2) Can they move or access your assets without your knowledge and consent,” said Joe Kelly, co-founder and CEO of Unchained. “We believe that the current solutions fall short of a great answer to both these questions, and are excited to move the industry forward with more robust delegated custody solutions.”

The addition of Coincover to Unchained’s network strengthens custody by further decentralizing keys, ensuring investors maintain full control over their Bitcoin holdings, rendering them immune to exchange hacks and collapses. With Coincover and Kingdom Trust as custodial partners, Unchained aims to protect clients’ Bitcoin against issues like rehypothecation or single points of failure, such as hacks or firm bankruptcies.

Dhruv Bansal, co-founder and CSO of Unchained, stated, “In a world where bitcoin is worth $1,000,000 per coin, will the largest bitcoin stakeholders continue to singularly trust any one single custodian?”

Unchained says it plans to continue expanding its collaborative custody network by partnering with additional firms while also offering options where clients maintain control of their private keys.

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Hong Kong’s leading financial institution, HSBC, has made a significant move by allowing its customers to trade Bitcoin exchange-traded funds (ETFs). This development marks a notable shift in the stance of traditional banks towards bitcoin, as HSBC has previously been cautious in embracing it.

Reporting by CoinDesk highlighted that HSBC’s decision to enable bitcoin ETF trading for its customers comes after several prior developments that saw other banks also allow such activity. Notably, Samsung Asset Management launched the Samsung Bitcoin Futures Active ETF on the Chicago Mercantile Exchange. Prior to that, the CSOP Bitcoin Futures ETF launched on the same platform, receiving approximately $53 million in initial investments.

The decision by HSBC to allow its customers to trade bitcoin ETFs comes amidst a surge of institutional interest in bitcoin ETFs in the U.S., potentially igniting a race between countries to attract capital with these products.

The developments are also indicative of the evolving attitudes towards bitcoin among financial institutions. As traditional banks begin to embrace bitcoin, it signals a potential shift towards wider adoption and integration of bitcoin into the mainstream financial system. The merits of this are debatable, but on the surface, that appears to be what these moves signify.

ETFs are popular investment vehicles, and the introduction of Bitcoin ETFs would open up new opportunities for institutional investors to participate in the bitcoin market within a regulated framework. While this comes at the cost of many of the inherent properties that make bitcoin valuable, institutions prefer the rails of regulation and are more likely to be trusting of firms like BlackRock. There are, of course, exceptions to this such as MicroStrategy, a company that holds its own bitcoin. 

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ConsenSys, the company behind the crypto wallet MetaMask has hosed down rumors that it collects taxes from cryptocurrency users. 

The company informed its 270,000 Twitter followers on May 22, that the rumors were based on ”inaccurate information” drawn from a misreading of MetaMask’s Terms of Service.

We are aware of tweets circulating with inaccurate information about ConsenSys’ terms of service.

Let’s clarify one thing upfront: MetaMask does NOT collect taxes on crypto transactions and we have not made any changes to our terms to do so.

This claim is false.

— ConsenSys (@ConsenSys) May 21, 2023

The company clarified that the tax section of its terms of service exclusively referred to products and paid plans offered, and had nothing to do with on-chain crypto transactions.

“Legal terminology can be complex, but it’s crucial to emphasize that this section does not apply to MetaMask or any other products that don’t involve sales tax.”

“MetaMask does not collect taxes on crypto transactions and we have not made any changes to our terms to do so.”

Certain members of the crypto community cried foul play on May 21 after users noticed a section of MetaMask’s terms of service that stated the company “reserved the right to withhold taxes where required,” with some believing this related to a users’ income taxes.

The misinformation rapidly surged up the ranks to make the front page of r/cryptocurrency on Reddit, where it has gathered more than 500 upvotes and 600 comments at the time of publication.

Screenshots of the highlighted section were also picked up by a number of large accounts on Twitter, some bearing emphatic claims that MetaMask were now treading the same path as Ledger which recently surprised users with a controversial upgrade.

If you haven’t paid taxes, Meta Mask will hold your crypto.

Why should Ledger have all the fun?

Meta Mask joins the party now!

pic.twitter.com/RIBoPzmiei

— Kashif Raza (@simplykashif) May 21, 2023

Related: MetaMask rolls out ETH purchases via PayPal to US users

However, not everyone bought into the gossip, with some crypto community quickly shutting down the claims: “Everyone blindly tweeting about the MetaMask tax clause in TOS but not actually reading it,” wrote pseudonymous Twitter user @printer_brrr.

“If you buy a product from them, they can withhold taxes like sales tax for that product. Just like Amazon does when you buy from them,” they added.

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