You know things are bad when Jimmy Fallon is mocking you.
During his Sept. 7 monologue, the "Tonight Show" host poked fun at the recent cryptocurrency price slide with a bogus ad for a product called "Crypto-Bismol," a nod to the upset stomach medication Pepto-Bismol. (PG)
"Are you suffering from heartburn nausea and an upset stomach, all because you lost your life savings on crypto?" the fake commercial asks.
Crypto-Bismol will "soothe your anxiety after you wasted your kid's college fund on a JPEG of a zebra with a Mohawk and braces," the ad says.
Fallon, by the way, was on board with the whole Bored Ape Yacht Club trend earlier this year.
Bitcoin was up nearly 1% to $19,253 at last check, according to data firm CoinGecko. Ether, the native currency of the ethereum blockchain, rose 1.7% to $1,637.63. Dogecoin advanced 1.4% to $0.060785.
The crypto-market valuation fell below $1 trillion to $983 billion, a level that hasn't been seen since June. Last November, the crypto market set an all-time high of $3 trillion.
Losing Market Share
"When bitcoin, the largest cryptocurrency, was struggling with the $20,000 level during the long weekend, it is also noteworthy that BTC is also losing market share among all cryptos," said Winston Ma, managing partner of CloudTree Ventures.
Ma, author of "Blockchain and Web3: Building the Cryptocurrency, Privacy, and Security Foundations of the Metaverse," said that bitcoin’s share of the overall cryptocurrency market cap, currently below 40%, is at its lowest in as much as four years.
CoinMarketCap data put bitcoin dominance at around 39%, the lowest since June 2018, he said.
"BTC’s smaller share of overall crypto market today reflects the variety of numerous tokens that have been emerging last few years," Ma said. "Also, it may be related to the rise of ETH driven by the upcoming 'merge' scheduled for mid- September."
Ethereum's update is intended to lower its carbon footprint while also reducing ether supply. According to the ethereum website, the merge will reduce energy consumption by around 99.9%.
Double-Digit Rallies
The plan is to move from a proof-of-work to proof-of-stake model.
Proof-of-stake means miners will no longer have to expend the energy to prove that they have capital at risk, which is what they do now in the proof-of-work model.
Since its inception in 2009, bitcoin has functioned on a proof-of-work model.
"The Merge continues to capture everyone's attention, with the successful Bellatrix upgrade paving the way for the Merge to go live between 14-16 September," said James Edwards, crypto specialist with Finder.
Edwards said that traders looking for ways to trade the Merge have started to look at proof-of-work mining coins like ethereum classic, ravencoin and flux, "which all showcased double-digit rallies this week while the rest of the market hit the snooze button."
"The idea is that ethereum miners -- which become obsolete after the Merge -- will direct their hardware towards mining these coins instead," he said.
"The rally may have been fueled by mining outfit Hive Blockchain announcing it would explore alternative [proof-of-work] coins to mine."
Traders Beware
Edwards said that this thesis is a little thin, "as there's no compelling reason why increased mining activity would lead to increased prices in the long run."
"Furthermore, ethereum mining rigs are optimized for the ETHash mining algorithm, which is not used by any of the coins that rallied, other than ethereum classic," he said. "Traders should be careful jumping on bandwagon events like this."
On the legal front, David Lesperance, managing partner of immigration and tax adviser Lesperance & Associates, warned that if crypto enthusiasts fail to understand tax laws, this can quickly wipe out any financial gains and can even result in criminal charges.
Lesperance noted that bitcoin evangelist Michael Saylor and his company MicroStrategy (MSTR) are being sued by District of Columbia Attorney General Karl Racine for allegedly evading paying income taxes.
"While he may have been mentally operating in the crypto sphere, the tax authorities have been watching his activities in the physical world," Lesperance said. "Specifically they looked at his claim that he had changed his tax residence from high-tax Washington D.C., to zero-state-tax Florida and found it highly questionable."
DIY Tax Planning: a Caveat
Saylor’s problems are not unique, he said, as many crypto types have relocated to Puerto Rico in recent years to take advantage of U.S. tax savings. That jurisdiction’s Act 60, the Tax Incentive Code, provides tax exemptions to businesses and investors that relocate to, or are established in, Puerto Rico.
"Unfortunately, one of the requirements to obtain those tax benefits is that the individual spend at least half the year physically within Puerto Rico itself," Lesperance said.
"Those who have been treating that requirement as a suggestion rather than an absolute necessity, are in for a rude awakening, as the IRS has set up a special task force to audit all Act 60 beneficiaries to ensure compliance."
He warned that crypto enthusiasts "who are trying to engage in DIY tax planning by moving to Puerto Rico; getting second passports in the Caribbean; buying NFTs in Satoshi Island or looking to acquire residency or citizenship in El Salvador are stepping on tax land mines everywhere."
"Along with not understanding the compliance requirements for Puerto Rico," he said, "most do not understand that the simple purchase of a second citizenship by itself does absolutely nothing to change their U.S. tax liability."
