● KuCoin Hacked Cryptocurrency Exchange, $150 Million Moved

● Easy "yes or no" question posed by the IRS to deal with crypto tax evaders

Hello again and welcome to this week’s edition of Overbit Insights, where we try and discern what some of the biggest stories of the week mean for the financial markets, especially cryptocurrency, as a whole.

Our first story of today’s edition is a big one: Kucoin Exchange, self-dubbed as the “the most advanced and secure cryptocurrency exchange”, was hit with a hack totalling more than $150 million on September 25th. Early on in the day, many users began noting withdrawal issues on the exchange. This led to digging into the block explorer, where some users saw that massive amounts of tokens were being transferred away from the exchange’s wallets. As you can imagine, a firestorm ensued in Kucoin’s community channels, where users were (angrily) demanding to know what was going on. Initially, admins in these channels clung to the idea that this issue was just a software problem and would be resolved within a few hours. However, with every passing minute without an official update, it became clear this was much more than a software glitch. Finally, late into the day on September 25th, the exchange broke the news: “Bitcoin, ERC-20 and other tokens in KuCoin’s hot wallets were transferred out of the exchange.”. Thankfully, their statement didn’t stop there. “If any user fund is affected by this incident, it will be covered completely by KuCoin and our insurance fund.”

It’s undoubtedly a reassuring sign for the space that all users affected will be reimbursed. Five years ago, a hack of this proportions would’ve been detrimental to the entire space and probably would’ve sent the entire total market capitalisation spiralling. Anyone involved in this space should be happy to see that an exchange can cover more than $150 million in losses for their users. However, the bigger takeaway is more about personal responsibility rather than exchange responsibility: ‘not your keys, not your coins’, will continue to ring true for as long as cryptocurrency exists.

Moving onto our next story of today, it’s been recently reported that the United States Internal Revenue Service (IRS) is increasing its priority on cryptocurrency taxation. The IRS, who is responsible for collecting taxes in the US, will begin asking a set of simple “yes or no” questions to deal with citizens who evade paying taxes on their crypto. According to the Wall Street Journal, the personal federal income tax form will include these questions as a way to entrap tax evaders and help the IRS win court cases effectively. What exactly falls under cryptocurrency tax events? Well, in the case of the US IRS, the definition is quite broad. “In general, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability.” This means that virtually any interaction with cryptocurrency, whether buying or selling it, or using it to pay for services, is considered a taxable event that US citizens will have to report. This action by the US government mirrors several other countries’ at the moment, where places like the UK and Russia are also cracking down on cryptocurrency taxation. To us, this is yet another reminder of the growing battle between cryptocurrencies and governments.

To close out today’s article, we take a brief look at the commodities market, where Gold and Silver have reported their worst losses dating back to March of 2020 - a significant date considering March is when the pandemic took hold for most of the year. “Both have succumbed to belated long liquidation and pressure generated by the strength in the general dollar index,” Edward Meir, an analyst at ED&F Man Capital Markets in New York, said in a note. For us, this so-called ‘strength in the general dollar index’ is the biggest indicator that we may have a trend reversal on our hands. For the vast majority of 2020, the US dollar fell against almost every asset class, from Bitcoin to stocks and everything in-between. While this could be a temporary reversal, we find it incredibly enlightening that Gold and Silver have sunk to March lows. In other words, the trend we’ve seen over the last six months is all but disappearing, which could perhaps suggest that the entire economic trend of the pandemic is coming to an end. While it may be a bit too soon to tell, we would tell all of our readers to continue to keep an eye on how Gold and Silver play out against the dollar. Or, if you want to skip a step, simply keep an eye out on the dollar. USD has continually forecast market moves for the better part of 2020, and we don’t see an end to that trend in sight.

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