The National Revenue Agency of Bulgaria is preparing to conduct inspections on cryptocurrency trading platforms and their customers. The authority wants to make sure that both are fulfilling their obligations under the country's tax and social security laws.

Nine Crypto Companies Subjected to 'Control Actions'

The tax service plans to investigate companies that have declared the trading of digital assets as their core business activity, Bulgarian media reported quoting an official announcement. It also wants to find out more about how these platforms operate.

The main concern is that the transactions related to the exchange of virtual currencies are anonymous. This, according to the regulator, comes with risks of revenue concealment and tax evasion.

The National Revenue Agency (NRA) has already conducted a study of the Bulgarian entities working in the sector. The tax authority said it has assigned "control actions" in regards to nine companies.

Crypto Income Must Be Reported on Tax Returns

Once the checks are completed, tax officials will analyze the data gathered for the users of these platforms. The main task is to determine whether these taxpayers have reported their income from cryptocurrency transactions.

In Bulgaria, profits from crypto trading are treated as income from the sale of financial assets. Private individuals are expected to declare these revenues on their annual tax returns. A flat income tax rate of 10 percent is applied to the positive balance from these transactions in fiat currency.

Profits earned by businesses are subject to taxation under the Corporate Income Tax Act, with the same tax rate. Bulgarian residents are obliged to file their tax declarations and pay their taxes for the previous year by April 30. Annual corporate tax returns should be submitted by March 31, 2019.

Awaiting European Regulations

Bulgaria has not yet adopted a dedicated legislation on the taxation of income from crypto-related activities such as trading and mining. The applicable rules are based on a clarification notice issued by the NRA several years ago. Currently, digital coins are taxed like other financial instruments and Bulgarian authorities reference the general EU regulations and the European practice in the field.

However, the treatment of cryptocurrency profits varies significantly between EU member states. Tax rates can be anywhere between 0 and 50 percent. Interpretations regarding the legal status of digital assets are also quite diverse. Cryptocurrencies and the industry built around them remain largely unregulated in most EU countries. Recognizing that as a major problem, many officials have urged for unified rules across the European Union. Two regulatory agencies recently called for the adoption of common EU regulations.

European regulation may be needed to level the playing field, the European Banking Authority (EBA) said in a report. EBA advised the European Commission to conduct a comprehensive analysis and determine what action is required at the EU level to address the issues regarding the opportunities and risks presented by cryptocurrencies and related technologies. In another report to the Commission, the Council and the Euro Parliament, the European Securities and Markets Authority (ESMA) stated that crypto assets need an EU-wide approach to ensure investor protection.

In today's edition of The Daily, we cover a number of stories that show how the cryptocurrency ecosystem is evolving to become more inviting to institutional investors. Bittrex exchange opens an OTC trading desk, Bakkt "acquihires" a futures compliance team, and Swiss investment bank Vontobel launches a custody solution.

U.S.-based digital asset exchange Bittrex has announced that it has opened an over-the-counter (OTC) desk, which includes trading on nearly all 200 tokens available on the platform. It will offer approved customers with reduced price risk, rapid trade execution and guaranteed pricing for large trades, which are typically $250,000 or greater. The new OTC desk will also accept both cryptocurrency and USD wire transfers for deposits.

"We're excited to offer this new, game-changing trading option for our customers," said Bittrex CEO Bill Shihara. "With one of the most extensive selections of digital assets of any OTC desk available, this offering will be another way for Bittrex to further advance adoption of blockchain technology worldwide, while also providing our customers with price certainty and a fast and easy way to trade large blocks of digital assets."

Bakkt Acquires Futures Team

Bakkt, the digital asset subsidiary of  Intercontinental Exchange (NYSE: ICE) which recently raised $182.5 million, has completed its first acquisition. The company announced it entered into an agreement to acquire certain valuable assets of Rosenthal Collins Group (RCG), an independent futures commission merchant.

The goal of the deal is to purchase capabilities needed for developing the bitcoin futures platform. The transaction is expect to close in February and will include the members of the RCG team joining Bakkt. It is said to enhance the company's risk management and treasury operations with both systems and expertise, as well as to contribute to its regulatory, AML/KYC and customer service operations.

"This acquisition underlines the fact we're not standing still as we await regulatory approval by the CFTC for the launch of regulated trading in our crypto markets," stated Bakkt CEO Kelly Loeffle. "Our mission requires significant investment in technology to establish an innovative platform, as well as financial market expertise to deliver the most trusted fintech ecosystem for digital assets."

Vontobel Launches Crypto Vault

Investment bank Vontobel, the third-largest provider of B2B custody and execution services in Switzerland, has launched a 'Digital Asset Vault'. The service allows Vontobel's clients, which include over 100 banks and wealth managers, to issue instructions for the purchase, custody and transfer of digital assets integrated within their familiar banking infrastructure and regulated environment. Financial intermediaries could also use the service to offer their own clients a solution for digital assets.

"Digital Asset Vault represents the logical next step in the development of our range of services for digital assets. With our innovative strength and experience, we have thus closed the gap between existing and digital assets. By incorporating digital assets into our own banking infrastructure, we have also become the first provider to already meet the high standards required by financial intermediaries and their regulators," stated Roger Studer, head of Vontobel Investment Banking.

We live in the era of tectonic shifts in society and technology. The shape of the future world is still quite vague, and changing all the time. Futuristic concepts that have been proposed not so long ago stop making sense or need to be adjusted. One thing is obvious — development of the Internet will be crucial for the development of the world we live in, and what happens to the Internet will essentially happen to the world.

The concept of Web3.0 that emerged almost twenty years ago acquires a more tangible shape only now. Because of the emergence of the blockchain technology we are starting seeing some products that can be called Web3 prototypes. It's still too early to lay out the standards for the future Web, we might need some more products to actually understand what those standards should be. On the other hand, we could define Web3 products essentials, since now we have all the major ingredients for building applications that are essentially different from the applications we are accustomed to now.

Web1, the original Internet, was just a collection of interlinked documents with very little interactivity. Web2, the Web we use now, is interactive but centralized, it essentially mimics the structure of human society with ineffective vertical structures, controlling but at the same time vulnerable. Current Internet infrastructure quite often brings out the worst in society: due to the increased number of social connections we get fragmentation and segmentation on steroids — despite its global nature the Internet paradoxically leads to less, not more, connectivity in many cases.

Web3 was proposed as Semantic Web, a Web of Meaning. It might sound different from the Web3 we have in mind now, but if we look more closely we'll see that it's not really the case. "Semantic" in this setting means understandable by computers and running according to protocols, decentralization is essential in the true semantic approach. Protocol becomes the king of Web3, there's no need for trust any more, once established Protocol runs indefinitely and cannot be manipulated.

Web3 needs decentralization in its core; decentralization is not the whole of it but it is the foundation for other technologies. This is the glue that connects disparate technologies in a synergistic consortium. Web3 is holistic, it does not pit one technology against another, it brings them together on a layer which minimizes the need for trust.

Web3 is going to be deeply intertwined with the society structure, in Web2 you have some stale concepts brought over to the Internet, now the process becomes reversed — Web3 leads the way, showing more effective approach to human interaction.

So what are the essential features of Web3 Products and applications?

Web3 products minimize the need for trusted third parties and let you control your data.

All the data created by the user is controlled by the user; she explicitly allows access to her data including all the data she produces. Private keys are stored on the user side, there is no need for centralized user authentication. Data storage is as decentralized as possible; only encrypted data can be stored in a centralized way. Access to sensitive user data is fully controlled by the user.

Web3 products are synergistic. Combination of different technologies is essential, combined they produce new added value.

Combinations of IoT, Big Data, AI and distributed ledgers are very natural, they create trustless data processing environment that cannot be manipulated.

Monetization of Web3 products is transparent. There's no hidden monetization through collected user data. You get what you paid for, and you know how the money is made.

New technology begets new economy. Through tokenization we achieve transparency in Web3 business models. Decentralized does not mean non-monetizable, it means monetizable in a new and transparent way.

So what Web3 products are we going to see soon? Browsers with an integrated blockchain layer and private keys stored on the user side; uncensored or community-censored social networks where access to the network cannot be denied and user data deleted uncontrollably; messengers that run on blockchain private/public key pairs and, even if not completely decentralized, allow for multiple public servers; enterprise systems running on a decentralized layer and processing huge amounts of data in real time.

Web3 concept is inclusive, it it not a concrete product, it is rather a philosophy that can be implemented for any application type. In 2019 first true Web3 products will be launched.

Thailand has officially granted licenses to three cryptocurrency exchanges and one broker-dealer. Two exchanges have been rejected and one is still being reviewed. These seven companies have been temporarily allowed to operate in the country. Two of them will now begin closing down their businesses.

The Thai Securities and Exchange Commission (SEC) announced on Tuesday the results of the applications for crypto business licenses. Seven companies applied for a license and have been allowed to operate their crypto businesses while the regulators reviewed their applications.

The country's ministry of finance "has granted digital asset business licences to four applicants," the Thai SEC detailed, noting that two applications have been rejected and one is still under review.

Three crypto exchanges and one broker-dealer have received licenses. The three approved exchanges are Bitcoin Exchange Co. Ltd. (Bx), Bitkub Online Co. Ltd. (Bitkub), and Satang Corporation (Satang Pro). The approved broker-dealer is Coins Th Co. Ltd.

Meanwhile, the license application filed by local crypto exchange Coin Asset Co. Ltd. is still being reviewed but the company is permitted to keep operating while the decision has not been made. The delay is due to "a change of company executives, which is material information for the consideration of the application," the commission described.

Two Crypto Exchanges Closing

The applications for crypto exchange licenses filed by Cash2coin Co. Ltd. and Southeast Asia Digital Exchange Co. Ltd. (Seadex) have been rejected. The Thai SEC revealed:

The applicants failed to meet the approval criteria regarding important work systems.

The commission added, "For example, the systems for custody of client assets and know your customer (KYC) were inconsistent with the SEC's acceptable standards, while the sufficiency of their IT security and cyber security systems could not be verified."

The two businesses have been notified of the closing down procedure by the Thai SEC.

The country's ministry of finance is allowing both of them to continue operating until Jan. 14 "to ensure proper proceeding of related matters including notification to the clients regarding asset refunds or asset transfers to other digital asset operators according to the clients' order," the SEC noted. The two are required to return customer assets and notify the commission of the results. However, the regulator clarified:

The application rejection this time does not invalidate their right to apply for a digital asset business licence in the future as long as the application criteria are met.

Last year, reports emerged that George Soros and the Rockefeller family were beginning to take positions in the emergent crypto asset class, according to Bloomberg. The family's $26 billion Soros Fund Management was supposedly considering trading digital assets. The Rockefeller family's VC arm, Venrock, decided to take a different approach by partnering with Coinfund to assist entrepreneurs in launching blockchain businesses. 

Mike Novogratz, the chief executive officer of Galaxy Investment Partners, said he sees Q1 and Q2 2019 as a period when more institutions will start to come into crypto. He also expects the crypto markets to turn bullish again in 2019. 

Previously, investors were hesitant to enter the crypto markets due to high volatility and lack of regulation, but this is changing, with large players starting to take positions. How Institutional Investors Are Changing the Cryptocurrency Market

Stefan Neagu, co-founder of digital identity management system Persona, said: "BTC attracted large players, as the institutional investors saw BTC as an investment instrument. This helped the crypto market because it was not a playground anymore, but rather the sandbox of a limited group of people with money from a real economy being shifted to the crypto market."      

In 2018, over-the-counter (OTC) market makers have thrived, with many institutional traders shifting to OTC. Etoro announced that it had opened an OTC platform for institutional buyers and Coinbase and Hodl Hodl launched OTC desks in November. 

According to cryptocurrency research group Diar, institutional cryptocurrency trading on traditional exchanges has been diminishing in volume due to BTC being welcomed into major outfit portfolios this year. There has instead been a shift to OTC trading. 

During OTC market hours, there has been an increase in BTC trading volume by 20 percent, while Grayscale's Bitcoin Investment Trust (GBTC) volumes were down 35 percent in 2017 vs. 2018 for the same period. It seems institutional traders might be shifting towards higher liquidity OTC physical BTC markets. 

Hive Blockchain Technologies has published an update regarding the company's response to the Norwegian Parliament's recent approval of a legislative bill that will restrict cryptocurrency miners from accessing the tax relief on electricity consumption available to other power-intensive industries. The release criticizes the government's "unilateral" move to suspend the subsidy without consulting with representatives of the mining industry and discusses proposed changes to the loan agreement pertaining to Hive's sole asset located in Norway.

Hive has taken aim at the Norwegian government's decision to revoke subsidies on power consumption that are available to energy-intensive industries operating in Norway. The legislative bill moving to revoke cryptocurrency miners' access to the subsidy was passed in early December and is expected to take effect during March of this year.

Hive states that it is "deeply disappointed and frustrated" by the proposed legislative changes, expressing its dissatisfaction with the government's decision to take "unilateral" action without "discussion, consultation, or dialogue with the industry."

The company describes the bill as comprising a "significant impediment" to Norway's capacity to attract long-term foreign investment in the country, warning that the bill will deter "all energy-intensive industries" that are considering "long-term capital investments" from establishing operations in Norway.

Hive to Conduct Assessment of Damages to Kolos Data Center

As a result of the legislative changes, Hive states it will conduct an assessment of the impact of the bill on the economics of its sole Norwegian asset, the 'Kolos' data center.

On Dec. 20, 2018, Hive issued a letter to debt holders associated with the Kolos acquisition proposing changes to the loan agreement pertaining to the asset. The company is currently seeking a one year extension of the term of the approximately $2.4 million loan that financed the asset's acquisition while the Hive determines the impact that the legislative changes will have on the value and future plans for the Kolos data center. Hive expects to have completed its damage assessment prior to the end of the fiscal year on March 31, 2019.

In November 2018, Norwegian parliamentary representative Lars Haltbrekken criticized the subsidies available to cryptocurrency miners, stating that Norway "cannot continue to provide tax incentives for the most dirty form of cryptographic output as bitcoin."

It seems fitting to start my review this year with the same statement and observe how its meaning kaleidoscopes in the new light of 2018.

For context, in December 2017, the price of bitcoin had just hit its all-time high of $19,783.06. The price of ether was about to hit its all-time high of $1,417.38. CryptoKitties were running rampant all over the ethereum network, thousands of ICOs had launched in 2017 and hundreds of dedicated crypto funds opened their doors.

Today, the environment is a bit different. Those crypto funds are starting to shut down. ICOs that raised capital in crypto in 2017 have seen their runways halved and halved again. The price of bitcoin hovers around $3,500 and the price of ether plummeted below $100. CryptoKitties has a meager 378 daily active users, down from over 15,000 daily active users this time last year. Ouch.

What I failed to mention with last year's statement is that the runway isn't always smooth and it isn't going to be at a constant incline.

As Meltem Demirors so gracefully put it, "Tech that changes industries and markets doesn't get built overnight. There are fits, starts, and failures." Obviously, this market is throwing a fit. Furthermore, us builders should talk about it.

But Builders Don't Talk About Price

For as long as I can remember, it's been a significant taboo for builders in the space to talk about price. The market conditions shouldn't affect our attitudes or how we build. We actively avoid getting caught in the hype on the way up and avoid falling into depression on the way down.

We transformed "HODL" into "BUIDL," and there was also short-lived talk of "SHIPL."

However, refusing to engage in "price talk" doesn't mean we can, or should, ignore the swings of the market. This ecosystem is highly speculative and our roadmaps, runways and design choices are affected by larger macroeconomic conditions. Denying that the market conditions affect your work, company, financials, and culture is willful ignorance and is dangerous in the short and long term.

2017: Unprecedented Hype

As we saw in 2017, the bull market garnered previously-unseen hype, which led to new, inexperienced users entering the space en masse. Coinbase was adding hundreds of thousands of new users per day. Companies were hiring support teams by the dozens in an attempt to tread overflowing inboxes.

The things we did in 2017 were reactionary. Building for the short term was prioritized over the long term.

We didn't have refined processes or roadmaps — we had fires that needed to be put out yesterday. We hired those who were willing to wear many hats and didn't require much sleep. We put band-aids on the most glaring user experience issues as they cropped up, and we promised to iterate later. The market's ambitious upswing wasn't tied to the technology and experience being delivered.

2018: The Downward Spiral

2018 was a whole new world. The number of support tickets dropped as fewer new users entered the space. The types of questions we fielded about ICOs plummeted and more technical questions emerged once again.

The members of my team who were solely fueled by the adrenaline of 2017 had to evolve or move on to different projects. Some even left the crypto-space entirely. Our hiring and recruiting practices evolved, and the skills and personality traits we looked for became more refined.

The actions users are taking in 2018 have changed as well.

Whether it was taxes, the SEC, a more bearish market or the realization that the scope of blockchain use cases is still limited, people aren't doing much these days. Even when we look beyond the trading and investment activity via DappRadar and Dapp.com, we can see just how little activity is happening.

The market is questioning how "decentralized" applies to a world beyond us cypherpunks and early adopters. It's a valid question that us builders should ask too.

2019: Blood in the Streets?

To steal from Anthony Pompliano (who likely stole it from someone else), there is no "blood in the streets" yet. The blood is coming, but it isn't only from the individuals who have portfolios that are down more than 100 percent.

It is from anyone and everyone who failed to anticipate just how long this revolution would take. It is from people who didn't believe in the possibility of a market crash or a long winter. It is the ICOs that had all their holdings in crypto. It's from those who measure growth and value in terms of months, not years or decades.

More robust companies can reduce the sizes of their teams and cease throwing extravagant parties to lengthen their runways.

Less seasoned companies will have no choice but to shut down. And the most important companies are likely the ones you haven't yet heard of or are yet to be created.

2019 & Beyond

The coming years have the potential for people to create real, revolutionary value. This will not be the short-term capital creation that ICOs brought in 2017. It will be significantly deeper, take significantly longer and it will spawn from unlikely sources.

Reacting to new users and irrational exuberance is a different ball game than building products that break down the barriers of cryptocurrencies. In order to be relevant and stay relevant, you have to do more.

Those that will have a lasting impact and create the most value will be those who can build for both the bull market, the bear market and beyond the market. They will have the foresight to expect the unexpected, the hindsight to learn from the past and the insight to solve problems in unprecedented ways.

They will use their teams, tools, knowledge and communities to not only build for the next wave of users, but also help bring in the next wave of users. They will not build "on the blockchain" or "for the blockchain." They will build better solutions that happen to utilize the blockchain.

It's easier to build products for your existing environment and existing users, but it is shortsighted and will leave you straggling in the long term. Look outside this space for inspiration. Learn from traditional companies who have been around for decades or even centuries. Take the time to understand the motivations and needs of people around the globe. Don't make product decisions based on the graveyard of activity today. Don't create personas based on a Twitter poll you spun up yesterday.

Look to the future and anticipate. Your job is no longer to react to the current conditions. It's to be a fortune teller of tomorrow's landscape.

Sparking the Revolution

Many point to the dot-com bubble when analyzing the cryptocurrency markets in 2017.

Both saw 1,000 percent returns, rampant day-trading, fraud, capital flowing to any company with ".com" or "blockchain" in its name, and the creation of overnight millionaires even when those millionaires had neither delivered products nor profits. It's an easy comparison. But it's only one slice of history.

The repetition of history won't manifest as a carbon copy of itself, so it's hard to know exactly how this decentralized revolution will play out in totality. The revolution will be simultaneously subtle and profound. What we are building cannot be measured in months or judged by the hype cycles. We are aiming to transform nearly every industry that exists, starting with the financial industry.

The blockchain has come a long way since Satoshi's white paper and it will take at least that long to disrupt life in a meaningful way.

We have to keep zooming out to keep our perspective wide. The dot-com bubble isn't what transformed the internet, nor will the last two years be what transforms the blockchain. We need to look at the entire history of the internet and watch how it evolved over time. We need to examine how the Industrial Revolution managed to touch almost every aspect of daily life. We need to remember The Renaissance's lasting influence on intellectual inquiry.

And, as we do, we should be intimidated by what we have yet to accomplish and inspired by the opportunity to forge the runway ahead. Remember, the real lift off has yet to occur.