One Trader Made $200M Trading Ethereum... And Nobody Knows Who To Tax

During Ethereum’s big rally last month, when the price of a single coin went from $220 to just shy of $400 in the span of two weeks, one trader turned $55 million of paper wealth into more than $398 million.  And nobody knows who they are, or – more importantly – who to tax.

As Bloomberg so astutely observes, the growing number of wealthy crypto investors is starting to infuriate regulators, who are now calling for more transparency in the cryptocurrency market. Specifically, they’re arguing that it’s time for cryptocurrency wallets to include information that might help identify users. Otherwise - they say - the continued association with criminality – cemented by the Dread Pirate Roberts’s life sentence – could start to impact the crypto-asset market which now has an aggregate valuation approaching McDonald’s Corp.

Others, like the purported owner of Ethereum wallet 0x00A651D43B6e209F5Ada45A35F92EFC0De3A5184, which holds 680,000 ether tokens, worth about $150 million at present prices but nearly twice that when ether was trading at its mid-June highs, have a different definition of transparency. Some one alleging to be the accounts owner penned an instagram post bragging about their gains in the middle of ether's June rally.

“I get many private messages asking how much ether I have,” the post read, alongside photos that purported to be the hardware powering a mining operation but looked lifted from another website.


“One of the cool things about Ethereum is that all wallets around the world are transparent and open for everyone to see. And this is my wallet’s savings.”

That trader is probably not in such high spirits today, with ethereum down 8% in recent trade:

While bitcoin’s popularity has been, in part, contingent on these privacy features, regulators see them as a threat that can aid tax cheats and criminals. Here’s Bloomberg, making the regulators’ case for them:

“That’s not to say that 0x00A651D43B6e209F5Ada45A35F92EFC0De3A5184 or any other entities are doing anything illegal. But opacity may be worsening jagged price movements. The value of ether, for example, rose from about $8 a unit at the start of the year to crest at $400 in June before settling around $250 today. A lack of transparency could also be stifling the mainstreaming of online money, according to draft legislation issued by the European Parliament in March.


“The credibility of virtual currencies will not rise if they are used for criminal purposes,” the draft said. “In this context, anonymity will become more a hindrance than an asset for virtual currencies” and their potential future popularity.”

it's no wonder reguators are becoming more interested in identifying owners of crypto assets: Thanks to the explosive rallies in cryptocurrencies this year, the ranks of the crypto millionaires are growing.

The current value of all the ether held, $23 billion, means dozens of electronic wallets have accrued nine-figure positions. Many of them could be held by individuals, according to a Bloomberg analysis. Individuals can hold multiple wallets.”

Furthermore, it’s likely that the first crypto billionaires have been minted by now: Candidates include hedge fund manager Michael Novogratz, Joseph Lubin, founder of ConsenSys, a blockchain production studio that works on Ethereum, and Ethereum creator [Vitalik] Buterin.

Novogratz, a former executive at Fortress Investment Group and Goldman Sachs Group Inc., has a long way to go, but he’s been a consistent booster. He said last month that he has 10 percent of his net worth invested in virtual money. That’s a stake worth at least $90 million, given a net worth calculated at $925 million, according to the Bloomberg Billionaires Index. Novogratz declined to comment.


Cryptocurrencies could become a $5 trillion industry, but they need to develop sound business principles to satisfy regulators and lend legitimacy, Novogratz said June 27 at a fintech conference in New York.

Lubin, the former chief operating officer for Ethereum Switzerland GmbH, which developed the software, could hold hundreds of millions of dollars’ worth of ether, several investors said. The Canadian entrepreneur didn’t respond to requests for comment on his holdings.


‘The long-range vision is moving the fundamental transactional elements of our society from analog, friction-filled systems to natively digital frictionless systems,’ Lubin told Bloomberg Radio June 21.

Buterin said in a Reddit post last month his ether holdings equal what would amount to about $117 million today, according to calculations by Bloomberg.”

Regulators’ push to unmask holders of bitcoin and Ethereum will likely succeed, but ironically, they could end up destroying – or at the very least damaging – the very assets they seek to tax: Outing users of one crypto asset will just boost demand for coins with enhanced privacy features like monero and zcash.

What then? I guess the authorities will just need to start over.


NoDebt Raffie Mon, 07/10/2017 - 18:06 Permalink

The US tax code is based upon the principle of "we get first dibs always, others may come in behind us with their hand out, too, but we ALWAYS get ours and we get it first."They're eventually just going to outlaw this shit.  It's just not big enough for them to care that much about yet. 

In reply to by Raffie

BeanusCountus MANvsMACHINE Mon, 07/10/2017 - 20:45 Permalink

Most of the time, tax code allows same thing. Gotta sell an asset before a gain is realized for tax purposes. Trading in and out as it goes up probably gets a lot of gains realized. It's only the last purchases that you are still holding that you shouldn't have to pay on yet.

Have to say here that I'm figuring that this stuff is treated like "intangible assets" under the code. Might not be up to date on that, but seems to fit the bill. Really gets interesting when you use them to buy stuff instead of cashing them out for $$$ (which I assume you can do?). Proceeds for purposes of gain or loss would be fair market value of the property received. This can be messy, but room to maneuver.

In reply to by MANvsMACHINE

Justin Case Crypto-World-Order (not verified) Tue, 07/11/2017 - 00:18 Permalink

People today view Gov't very differently than they did in the 30's. They have far moar information about real news. Patriotic, not so much today, defending yoar country, nah, not so much. Respect for the pedophiles in power is not very high now a days. Most people who have currecny insurance will say "fuk'em", they ain't gettin my money".The wealthy are not going to allow the government they support with campaign money to take their gold.  It is just not going to happen.  Think about it, poor and moderate income people (and that is at least half the population) do not have a significant holding of gold or silver.  Most of the rest of the population have the bulk of their wealth tied up in 401-K’s or IRA’s.  This may come as a surprise, but most rich people do not have 401-K’s or IRA’s.  They have stocks and bonds, but the rich also have the money and smarts to diversify their portfolios.Another reason I think the government is not going to confiscate gold and silver coins is state governments are legalizing their use as money.  South Carolina is the latest state to approve legislation (after Utah), and at least 12 other states are proposing the same thing.   There is also a federal legislation in Congress to allow gold and silver to be used as money.  The trend is moving towards gold and silver coming back into the monetary system, not outlawing it.  Now, if you asked me if the government would nationalize gold or silver mines in the continental U.S. or Alaska, I say that is a possibility.  I also think the U.S. government could confiscate foreign gold holdings on deposit at the New York Federal Reserve bank, which are roughly 6,000 tons.  This is the low hanging fruit. So, I think confiscation of gold and silver coins are unlikely.By Greg Hunter’s USAWatchdog

In reply to by Crypto-World-Order (not verified)

2000 dasein211 Mon, 07/10/2017 - 18:44 Permalink

That's what's hilarious about this whole thing. They're chasing a ghost. OK, so you successfully get the developers to include identifiable information in ETH. Good job.Then someone will create a fork, or a new coin sans identifiable information and everyone will jump into that coin. People need to remember, the crypto market is being driven by people (mostly Asians) trying to escape capital controls.Cryptocurrency has democratized the issuance of currency, and you can't put this toothpaste back into the tube. It's software. It requires little infrastructure, unlike paper fiat.The government can try to outlaw it, but it isn't going away. They can create mass volatility by playing whack-a-mole, but when your savings is being threatened by an irresponsible government, volatility is a small premium.

In reply to by dasein211

tmosley 2000 Mon, 07/10/2017 - 22:52 Permalink

Exactly right, and also the same reason any coin that any government is likely to create will flounder and fail.Nation states are fast approaching irrelevancy. Amazing that so few can see this.If you can't control anything your population does, can you really claim to rule them?

In reply to by 2000

NoPension logicalman Mon, 07/10/2017 - 19:53 Permalink

You are fucked anyhow....until you can use the crypto to buy goods and need to convert to fiat. As soon as you convert to are in their sandbox.

If goods or services providers start to accept mass....Uncle Scam will apply extreme pressure to get his.

This would be exactly like having a metric ton of high grade cocaine or heroin. turn it into something you can spend.

Bet this....Uncle has TEAMS studying this. He'll get his. A few will slip by...

In reply to by logicalman

Freddie NoDebt Mon, 07/10/2017 - 18:20 Permalink

The federal reserve was set up by Rothschilds and the IRS was set up about the same time.  Create debt, print money and get the sheep goy to pay interest on the debt.Lots of dumb isrihell firster evangelicals forget Jesus hated these money changefrs and overturned their tables in the temple.Syria is more the birthplace of Christianity yet these Rev. John Hagee Bibi lovers want to keep bombing Syria. 

In reply to by NoDebt

WorkingFool NoDebt Mon, 07/10/2017 - 19:19 Permalink

IMHO, governments will not outlaw but rather track and tax at the choke points - where digital enters and exits the banking system. They will also try to lock down on any firms in their jurisdictions that exchange for goods and services.

The way I look at it all currencies today are digital. Do you think there is a stack of dollars backing up your bank or brokerage balance? And a stack of gold backing that up in Fort Knox? Then you probably believe Obama is an American too

In reply to by NoDebt

Raffie Occident Mortal Mon, 07/10/2017 - 18:26 Permalink

If you are a US citizen and live/work from Panama you can make up to $90k a year and pay no taxes.So depends on what country(laws and with the US) you are in and how they going to track you if you keep your digital assets and only cash them out as needed and if in another country you can get a different currency where the the IRS could not trace. So......So far there is no proof they can track you at all if you go to another country and us that countries currency or if in Japan you can use Bitcoin for everything.We will see what they will do in the future. Right now any answer is fiction till proven other wise.

In reply to by Occident Mortal