This week’s Triple Entry issue is packed full of great stuff to help you nurse your Halloween candy hangover, including:

  1. A satirical but succinct summary of the IRS’s updated language for digital assets in the 2022 1040 instructions
  2. A not-so-technical analysis of why bitcoin miners are in trouble
  3. The TL;DR of the spicy debate between SBF and Erik Voorhees on crypto regulation
  4. A sprinkling of extra memes and gifs (sorry, still hyped up on sugar, I guess).

This is a beefy one, folks. Guess that’s a comment on what a crazy industry we’re in. The amount of stuff that goes down in just two weeks is straight up mind boggling.

Dig in!

And “calc”-you-later. 🧮



IRS Updates Digital Asset Language, Boosts Revenue Forecasts

I hate to be the bearer of bearish news, but preparing your (or your clients’) crypto tax returns just got trickier. Remember that curious little box on the 1040 tax form asking whether or not you (or your client) bought or sold “virtual currency” during the year? Well, that little box just got an upgrade.

The IRS released an updated draft for its 2022 instructions for form 1040 that replaces the “virtual currency” classification with that of a broader category of “digital assets,” including explicit recognition of NFTs.

The draft instructions state that “digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFT) and virtual currencies, such as cryptocurrencies and stablecoins.”

The Good News

Put on your leotard because finding a silver lining in anything the IRS does requires serious mental gymnastics.

Typically, the IRS is very slow in publishing guidance like this, so at least they’re moving in a direction, even if it’s not necessarily the right one. So now, instead of pretending like you know how NFTs are taxed, we have somewhat clear rules. Surprisingly, the new instructions even account for the receipt of digital assets as a result of mining, staking, and hard forks. Crypto tax friends, I know what you’re thinking:

I’m not sure if this is good or bad news, but the IRS opted not to classify NFTs as collectibles. That would’ve made sense to me, considering that art, stamps & coins, cards & comics, rare items, antiques, and so on are collectibles for tax purposes. NFTs are basically just digitally-verifiable versions of those things.

This might be good news because collectibles are generally taxed at a 28% rate, whereas stocks, bonds, and crypto are taxed at 0, 15, or 20%, depending on sellers’ income.

The Bad News

First and foremost, NFTs clearly aren’t stablecoins (if you don’t believe me, I’ll show you my NFT portfolio; it makes even Terra look stable), so why are we throwing them all in the same category? That’s like classifying Die Hard as a Christmas movie or a pickle as a fruit (technically true, but practically false). What’s worse is the IRS sneakily worded the document to allow for the taxation of any new digital asset class in the future. The agency said if “a particular asset has the characteristics of a digital asset, it will be treated as a digital asset for federal income tax purposes.”

The problem with haphazardly clumping all digital assets into a single broad category and tax treatment is that these assets are unique. I suppose we’re partially to blame since we tend to clump every product of blockchain technology into “crypto” or “web3.” This scenario plays out in one of two ways: 1) tax guidance becomes a moving target that changes each time we begin to understand it, or 2) we nonsensically apply uniform tax guidance across a broad spectrum of assets.

Think about it. Does it really make sense to group these assets in with cryptocurrencies and stablecoins?

I think the IRS had one goal in mind when they updated the language around digital assets: rake in more tax revenue while making their jobs easier.

Bitcoin Miners Go Bankrupt

Bitcoin miners rn: 👇

Bitcoin mining is a unique industry with dramatic boom and bust cycles. In simplest terms, bitcoin miners acquire an absurd number of specialized computers that expend a significant amount of electric energy to solve cryptographic puzzles—all intending to be rewarded with newly minted Bitcoins. It’s like mining for precious metals; only computer hardware replaces drilling equipment, and Bitcoin replaces rare minerals.

The largest miner in the space, a behemoth holding over 9,600 bitcoin at its peak, Core Scientific warned investors last week that it may have to explore bankruptcy. The announcement sent its stock (NASDAQ: CORZ) plummeting 80% in 5 days. One of Core’s peers, Compute North, recently filed for bankruptcy in September, owing as much as $500 million to at least 200 creditors.

Moral of the story? Bitcoin mining is a great business to be in when the price of Bitcoin is up; otherwise, it’s a capital-intensive venture that’ll eat you alive in a hurry.

In fact, why don’t you ditch the leotard from the tax section above and put your accountant hat back on so we can crunch some quick and dirty numbers:

Core’s most recent 8-K filing reports that:

  • “As of October 26, 2022, the Company held 24 bitcoins and approximately $26.6 million in cash as compared to 1,051 bitcoins and approximately $29.5 million in cash as of September 30, 2022.” [emphasis ours]
  • “As of September 30, 2022, we and our subsidiaries had approximately $1 billion aggregate principal amount of indebtedness outstanding.”

Feel free to double check my math here, but doing some quick back-of-the-napkin calculations, I’m pretty sure…

+ Assets of $30 million

– Liabilities of $1 billion


= Game Over ☠️

Okay, maybe you didn’t need your accountant hat for that one. On the bright side, we may see a doorbuster Black Friday sale on ASIC miners…

The Great Debate: How Do We Regulate Crypto?

Now more than ever, regulators are paying close attention to web3. And since it’s a bear market and we aren’t talking about obscure altcoins going “to the moon,” we’re paying closer attention to regulators.

Sam Bankman-Fried (AKA SBF), web3 boy wonder and CEO of FTX, came under fire last week for publishing a blog post advocating for some somewhat heavy-handed regulatory frameworks for crypto.

Last Friday, libertarian crypto philosopher and entrepreneur Erik Voorhees went head-to-head with SBF in a two-hour debate on the Bankless podcast. We thought we’d give you the TL;DR (or TL;DL: too long; didn’t listen).

Should crypto be regulated?

SBF: Some parts should and some shouldn’t. Regulation is coming no matter what, so we should get ahead of it.

Erik: It already is regulated by both existing laws and at the protocol level by code; we don’t need more regulation. If regulation should exist, it should only be applied to people and centralized intermediaries that don’t execute programmatically (not applied to protocols).

TradFi is heavily regulated, but how transparent do we feel that they are? Why is it that crypto is being burdened with being more transparent?

How should we approach regulators?

SBF: The most important thing is keeping smart contracts, code, and validators permissionless. In expected value terms, we’ll get more favorable regulation if we’re willing to compromise in DC.

Erik: You’re surrendering too much, too early. Lobbying politicians is fine, but we should not cross certain lines in doing so; what you’re proposing crosses a line. Regulators tend to make the world a darker place no matter what.

How do we regulate DeFi?

SBF: Keep the smart contracts, code, and validators permissionless, but regulate the front-end access to DeFi protocols.

Erik: If you gate the way people use DeFi, as a licensed financial institution, you’ve turned DeFi into TradFi. DeFi in America dies because it looks like CeFi. The entire point is to create open, permissionless finance.

Why be forced into this position now?

SBF: Regulators are surprisingly informed on these issues, so we should collaborate with them to preemptively shape reasonable policy.

Erik: Let’s wait until we’re threatened by regulation, then fight it, not invite it.

Overall, both sides made excellent points. I tend to agree with Erik Voorhees on his approach, but I suppose it’s easy to take the more idealistic stance when you’re not trying to run a $30B+ crypto exchange.

Spotlight 🔦

I recently went on the Asset (r)Evolution Podcast from Arbor Digital and talked a little about Multisig and first principles thinking in digital assets. At a minimum, you’ll get to know me a little better. 😜 Check it out!

Listen on Spotify

Listen on Apple Podcasts

The Water Cooler 🚰

Things worth talking about at the office water cooler…if you 1) talk to people, 2) still work in an office, and 3) have a water cooler.

Other Significant Findings

Binance put $500m behind Elon Musk’s finally-finalized acquisition of Twitter. According to Binance CEO Changpeng ‘CZ’ Zhao, this is both to ensure “crypto has a seat at the table when it comes to free speech,” and to give Twitter an easier on-ramp into web3 when the time is right. It’ll take more than just one company’s involvement but there’s already plenty of discussion around whether (or how) blockchain/crypto/web3 fits into Musk’s vision for his new plaything.

💲💲💲 Funding Feature: Glassnode + Accointing

There was a pretty big development in the world of funding this past week, at least the corner of it that we pay attention to, so rather than have a short handful of stories we’re going to do a more in-depth review of just one story, namely Glassnode’s acquisition of Accointing.

Who’s who?

Glassnode – for those who don’t know – is a blockchain data and intelligence provider. Accointing is a crypto tax and portfolio tracking platform (featured, by the way, in our recent report on digital asset finance and accounting SAAS providers). Glassnode’s specialty is on-chain data and financial metrics. If their purchase of Accointing seems random or inexplicable, it may not be.

Have Data, Will Travel

According to the official press release, the big draw of this acquisition is “unlock[ing] the true value of market intelligence by contextualizing insights to users’ portfolios and helping them maximize their ROI.” But this is definitely not the first time a market intelligence provider has acquired a smaller entity in a related niche. Think Amberdata buying Genesis Volatility (GVol), which allowed Amberdata to expand their product offerings within decentralized finance, but also gave them access to options analytics.

Thing is, data analytics providers are increasingly commoditized and their big challenge is finding additional new types of data streams. Horizontally, this looks like access to chains or exchanges. Vertically, it’s looking for data that’s already indexed and organized for use cases.

Where’s all this headed?

Let’s get back to Accointing. The hard truth is the landscape of accounting services is getting crowded. If you’re not best in breed, the upside is somebody probably already has distribution to leverage what you have. Is that what happened here? Maybe. And it begs the question – if Glassnode is making acquisition moves in the space, are competitors like Coin Metrics or Kaiko thinking about doing something similar? Time will tell.

Additionally, data is only going to become more and more free over time – case in point: Google’s recent announcement for their Ethereum indexing node service. On public blockchains, the data will be there, increasingly free and increasingly commoditized. When stewarding the data is no longer a competitive differentiator, the focus shifts to who the best interpreters of the data are.

Three major streams that benefit from these sorts of acquisitions are a) trading, b) financial services, or c) compliance logic. And there’s no way this stays on the down-low forever. The big fish are bound to get in on the action too. Why wouldn’t Microsoft go after financial services or compliance, or NASDAQ go after trading services if that makes sense? Think about LinkedIn: they used to just be an online resume, but at some point they realized how much hiring data they had and now they sell a talent hiring insights tool.

TLDR – Glassnode bought Accointing, which we see as part of a broader trend of data analytics providers making strategic acquisitions into new horizontals and verticals, often with an eye toward one of three emphases of either trading, financial services, or compliance. Public blockchains democratize data access, so differentiation lies in data utilization.

Extraordinary Items

We hope everyone had a great Halloween! We went as the scariest thing we could think of: reality.



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