Blockchain Bites: Coinbase Cuts Margin Trading, Binance Sweeps US Clients, OKEx Offers Rebates

Coinbase cuts margin trading. Binance sweeps out U.S. customers. OKEx offers rebates to clients affected by its five-week pause.

Top shelf

Tax change

Coinbase will no longer send customers 1099-Ks, the U.S. tax form that led the Internal Revenue Service (IRS) to mistakenly think traders had underreported their gains. The exchange will instead use the 1099-MISC form, at least for customers who earn interest on lending and similar products. However, the new form may come with its own issues. According to Shehan Chandrasekera, head of tax strategy at CoinTracker, “The threshold for getting a 1099-MISC is very low,” only $600 in trades, meaning more customers may receive tax forms than strictly necessary. Customers who don’t receive any forms from Coinbase and sold or converted crypto in 2020 are still responsible for reporting to the IRS and should consult a tax professional, Coinbase said.

Binance sweeps

Binance’s flagship exchange will cancel services for all U.S. users in 14 days, according to emails sent to users alerting them to withdraw their funds. “As we constantly perform periodic sweeps of our existing controls, we noted that you are trying to access Binance while having identified yourself as a U.S. person,” the notice reads. Binance also suggested current users open an account with the registered exchange Binance US. The Block noted the bans may be based on IP addresses, though that wasn’t the case for at least one unverified, U.S.-based user, CoinDesk has learned. Bans, therefore, could be based on KYC data.

Chained together

IDEX, an Ethereum-based non-custodial cryptocurrency exchange, announced Tuesday it plans to expand to the Binance Smart Chain and Polkadot networks. Every holder of IDEX’s Ethereum tokens will get an equivalent number of IDEX tokens for each of the new chains on Dec 7. CEO Alex Wearn said the measure is to “plant our flag early” in case either alternative smart contract platform eventually competes with Ethereum on a meaningful basis. Next up? Expansion to more chains, if and when that makes sense. However, Wearn notes, seamless cross-chain trading is still a ways off.

Everything OK?

OKEx will offer a mix of compensation and rewards to users who’ve suffered because of a five-weeks-long suspension in services. Users who have made deposits, held tokens or traded during the withdrawal suspension time period will receive 20% of OKEx’s total income from futures and perpetual swap transaction fees over the last seven weeks. The exchange will also provide rebate cards to users with assets worth more than 10,000 tether within a certain window. Expected to come online before Nov. 27, OKEx remains in the top position for bitcoin futures open interest, currently worth $1.27 billion, according to data source Skew.

Levy extension

South Korea’s National Assembly is pushing for a delay to the introduction of specific taxation for digital assets until January 2022. According to a report Wednesday by local news source DongA.com, a proposed legal amendment bringing in the tax regime is planned to come into effect from October 2021. However, the National Assembly said more time is needed to build the relevant tax infrastructure after cryptocurrency exchanges said they couldn’t be ready by the deadline. The Ministry of Economy and Finance tabled the proposal in July, seeking to bring in a 20% levy – plus a 2% local income tax – on cryptocurrency trading profits above 2.5 million KRW (around $2,260).

Quick bites

Market intel

Bulls bet

Bitcoin is shy 2.8% from hitting a new record high, and options traders are betting it can get there. The one-month implied volatility in bitcoin markets has risen to 81%, the highest level since May, due to a recent uptick in call buying (a financial contract that gives traders the opportunity to buy at a later date), Alpha5’s Vishal Shah said. Further, put-call skews, which measure the spread between the cost of bearish and bullish bets, are hovering near record lows. In other words, call options have been drawing more robust demand than puts, a sign of investor expectations being skewed to the bullish side. “Investors are positioning for a bull market continuation,” Shah said.

At stake

Actual delivery?

Coinbase announced an end to all margin trading as of Nov. 25, 2020, becoming the first high-profile exchange to cut the profitable business line. According to a report from CoinDesk’s Nikhilesh De, the San-Francisco based trading platform is following recent Commodity Futures Trading Commission (CFTC) guidance.

Margin trading is effectively a line of credit offered by an exchange or brokerage to allow users to place highly leveraged bets. Existing positions will be allowed to close out next month, though Coinbase will cancel any open limit order unfulfilled by 2 p.m. PT today.

In March, CFTC clarified the meaning of “actual delivery” of digital assets. According to the guidance, a customer has legal rights, or actual delivery, of a cryptocurrency if they control it after purchase, including if it was acquired via a margin or leveraged product. This also means that the seller has no control over the cryptocurrency in question.

This is where it gets tricky for Coinbase’s margin trading business. Because the exchange uses cold storage and other custody solutions as part of this business line, it complicates the nature of actually delivering an asset in accordance with the updated rule.

At the time the guidance was first proposed, in 2018, then-Chief Legal and Risk Officer Mike Lempres argued that affiliates and third parties should be able to hold crypto on behalf of Coinbase customers.

“Requiring unfettered ability to transfer digital assets would effectively mean that U.S. entities and regulated entities, or entities using cold storage or other asset protection methods, could not hold digital assets acquired through margined transactions,” Lempres said at the time.

“Essentially, Coinbase would have to register with the CFTC as a commodities exchange if it wants to continue offering leveraged products,” De writes.

Food for thought