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Cryptocurrency

This Week's Web3 Highlights: Crypto Banking & 2025's Finance

2024-12-11

As 2025 approaches, the crypto market is experiencing an extraordinary surge. Bitcoin's price last Thursday (Dec. 5) soared above $100,000 for the first time, and as of Wednesday (Dec. 11), it remains above this significant threshold. This achievement isn't merely a result of speculative fervor; it showcases the growing integration of cryptocurrencies into traditional finance, a trend driven by the enhanced usability of blockchain technology.

The Broader Story of Crypto and Blockchain Utility

The story of crypto extends beyond mere price movements. Cryptocurrency payments are yet to reach widespread adoption, and the pace of change depends on how quickly regulators and policymakers can create an enabling environment. PYMNTS has been closely observing the potential of crypto's utility in everyday payments. "Crypto payments are still uncharted territory for many consumers," we previously noted. Businesses should clearly communicate the payment processes, including accepted cryptocurrencies and any associated fees. Offering educational resources and support channels can facilitate customer adoption.

Payment Innovations in the Crypto Space

Cryptocurrency payments firm Triple-A made a significant move last Thursday (Dec. 5) by announcing an integration with Coinbase. This allows Coinbase users to make payments to select merchants in the Triple-A network. Following this, Coinbase integrated Apple Pay as a payment method for Coinbase Onramp, aiming to simplify fiat-to-crypto purchases for the 60 million U.S. users of Apple Pay.On Wednesday (Dec. 11), European cryptocurrency exchange WhiteBIT launched a debit card partnership with Visa, touted as the first debit card enabling crypto transactions with cash back benefits for everyone.Also on Wednesday, cryptocurrency giants Circle and Binance joined forces to promote the wider adoption of stablecoins. Binance will make USDC more accessible to its 240 million users, while adopting USDC as a "vital dollar stablecoin" for its corporate treasury.

Regulatory Clarity and Its Impact

Last week, PYMNTS wrote about FinTech and crypto investor Marc Andreessen's claims that the two sectors are being "debanked" by U.S. financial institutions. The billionaire made this claim on Joe Rogan's podcast and it was later amplified by Elon Musk. Coinbase also echoed these claims, accusing the Federal Deposit Insurance Corp. (FDIC) of hindering cryptocurrency banking activities.However, the crypto banking landscape is more favorable abroad. Deutsche Bank has become Crypto.com's corporate banking provider in Singapore, Australia, and Hong Kong. The partnership is expected to expand to new countries, potentially setting the stage for a U.S. debut.With the advent of President-elect Donald Trump's new administration, the face of crypto regulation in the U.S. is set to change. David Sacks has been nominated to shape the administration's artificial intelligence (AI) and crypto policies. He has a background of regulatory skepticism and limited industry expertise.Donald Trump's son Eric emphasized this changing tide when he told attendees at a bitcoin conference in Abu Dhabi on Monday (Dec. 9), stating, "You're going to have the most pro-crypto president in the history of America. … Think about a president who won't allow bitcoin and cryptocurrencies to be overregulated and stifled."On Monday, PYMNTS also covered how the news that the U.S.-licensed FV Bank is now supporting direct USDT stablecoin deposits to simplify cross-border transactions allows banks to position themselves as trusted gateways to the digital economy by partnering with stablecoin issuers or developing proprietary on-ramp solutions. Such integrations can help banks tap into new revenue streams, such as fees for stablecoin transactions and value-added services like digital asset custody and compliance solutions.

Risks and Realities in the Crypto World

Last month, PYMNTS noted that while deregulation may bring certain benefits, it also carries risks. If the boundaries around securities laws are pushed too far, it can lead to increased market volatility and put unsophisticated investors at risk when purchasing unvetted or underregulated digital assets.On Wednesday, the U.S. Financial Stability Oversight Council (FSOC) highlighted the risks and potential benefits of crypto in its newly released 2024 annual report. The FSOC proposed several actions to mitigate risks in the crypto sector, including legislation for stablecoins, authority over the spot market for non-security crypto assets, supervision over crypto asset entities and subsidiaries, and continued efforts to educate consumers about the risks of cryptocurrencies, stablecoins, and other digital assets.

In Spokane, United States District Judge Thomas O. Rice handed down a significant sentence to Michael Joseph McElhiney, a 38-year-old former resident of Spokane, Washington. McElhiney was sentenced to 41 months in federal prison for his involvement in a cryptocurrency scheme that defrauded investors of hundreds of thousands of dollars. Alongside the prison term, Judge Rice imposed 3 years of supervised release, ordered a restitution of $326,119.95, and immediately remanded McElhiney to the custody of the United States Marshals Service.

Details of the Cryptocurrency Fraud Scheme

According to court documents and information presented during the sentencing, McElhiney defrauded investors by posing as the operator of a cryptocurrency investment fund called MAC Blockchain Solutions. This scheme ran from March 4, 2021, to September 10, 2022. He promised prospective investors that he and his purported business partners managed a successful cryptocurrency investment fund that invested in emerging cryptocurrencies and blockchain-based projects like Ethereum staking and cryptocurrency liquidity pools.McElhiney often contacted his victims in person. He targeted Uber drivers he met during rides and women he connected with through dating apps. He also met victims online while playing the video game “Call of Duty” under the username “Bing Bong.” He built personal relationships with victims before soliciting and receiving their funds.He promised to invest victims' money and manage their investments for their benefit, assuring them of certain returns and that they could liquidate their investments at any time. He used a platform called Coin.FYI to show investors false information about the progress of their investments. In reality, he kept the funds for his personal use, including gambling at casinos. The Coin.FYI accounts he showed were fabricated figures to deceive investors.McElhiney defrauded investors of more than $350,000, including rare art and precious metals. Even when victims wanted to remove their assets, he continued to falsely represent that their assets were invested in a cryptocurrency fund. He gave various reasons for not being able to return the assets promptly, such as security breaches, being out of the country, being victims of theft, and payment processing delays.

The Impact on Investors

Investors had placed their trust in Mr. McElhiney with their money, art, and precious metals, expecting a safe return on their investment. However, instead of getting their funds back, they suffered financial and emotional consequences. U.S. Attorney Waldref stated, “Investors trusted Mr. McElhiney with their money, art, and precious metals expected a safe return on their investment. Instead, Mr. McElhiney stole their money and used it for his own purposes. When investors asked for their money back, Mr. McElhiney lied to perpetuate the fraud.”

The Role of Law Enforcement

This case was investigated by Homeland Security Investigations and the Spokane Police Department. Assistant United States Attorney Dan Fruchter prosecuted the case. Acting Special Agent in Charge Matthew Murphy of HSI Seattle said, “Today’s sentencing serves as a clear reminder that those who prey on the trust of others through fraudulent schemes will be held accountable. This individual exploited the allure of digital currency to deceive and steal from countless investors. We remain committed to investigating and prosecuting those who attempt to manipulate others for personal gain, regardless of the platform or technology they use. We appreciate the tireless work of our law enforcement partners and the U.S. Attorney’s Office to bring individuals like McElhiney to justice.”

Earlier this year, Hailey Welch achieved internet stardom with her unique phrase "Hawk Tuah and Spit On That Thang", which led to remarkable success. She leveraged her fame to sell merchandise and launch her own podcast, "Talk Tuah", which quickly became one of the top podcasts.

Recent Crypto Ventures and Their Downfall

Recently, Welch promoted her new cryptocurrency, $HAWK. However, shortly after its launch, the coin's value plummeted to less than 5% of its original value. This led to significant losses for many investors who claimed to have lost their life savings and their children's college funds.The $HAWK coin was deemed a memecoin due to its origin from Welch's catchphrase. Memecoins often face challenges and usually end up being worthless. The DOGE coin is a rare exception.Welch and her crypto partners were accused of "rug pulling". In this practice, investors hype a coin, causing its value to rise initially. Then, key investors sell their holdings at the inflated price, causing the coin's value to crash. The remaining investors are left with nearly worthless coins.An investigation revealed that 96% of the $HAWK coin was held by only 10 addresses, and there was a significant selloff of the coins. Welch claimed that neither she nor her team sold any $HAWK coins and blamed "snipers" for the price drop. But skeptics questioned the high fees and the recipients of those fees.

Welch's Intent and Knowledge

At first glance, Welch may not seem well-versed in cryptocurrencies. She attended several cryptocurrency conferences but claimed to do so to connect with her fans. She partnered with people who appeared to be crypto experts and hired an attorney after becoming famous. However, it's unclear if she always followed her attorney's advice.

Investor Options in the Wake of Losses

Aggrieved investors can file a complaint with the government. Given the publicity, an investigation is likely, and the government may take action to help investors get their money back and prevent similar behavior in the future. Investors can contact the Securities and Exchange Commission, the Commodities Future Trading Commission, and the FBI's Internet Crime Complaint Center if they suspect criminal activity.Private law firms like Burwick Law have also offered help. They have posted on X, inviting $HAWK investors to learn about their legal rights.

Tax Implications of Crypto Losses

Regarding tax returns, the IRS considers cryptocurrency-related losses as capital losses. Capital losses can offset capital gains, but only $3,000 of ordinary income can be offset each year, with the rest carried forward. This rule has been in place for years without adjusting for inflation, providing only a small tax benefit.A taxpayer in the cryptocurrency trading business full time can claim the loss as an ordinary loss.In 2023, the IRS released its Office of Chief Counsel Memorandum stating its position on the deductibility of worthless and abandoned cryptocurrency. A taxpayer cannot claim a deduction if the cryptocurrency can be traded on the open market, even with a significant loss. To claim a worthlessness deduction, the taxpayer must relinquish control of the cryptocurrency. However, the memorandum doesn't explain how to abandon the cryptocurrency.The memorandum also points out that even if the cryptocurrency becomes worthless, taxpayers cannot claim the loss as a miscellaneous itemized deduction due to the Tax Cuts and Jobs Act (TJCA) disallowing such deductions from 2018 to 2025. It's unclear if the TJCA provisions will be extended.A taxpayer may be eligible for a theft loss if the transaction was made with the expectation of profit, such as an investment. But generally, to claim a nonpersonal theft loss, several requirements must be met, including being connected to a trade or business, being illegal in the jurisdiction, and no reasonable prospect of recovery.From my experience, the IRS is likely to disallow a theft loss as the taxpayers still possess the $HAWK coins. Also, with some parties still involved, there may be a reasonable prospect of recovery through refunds or legal judgments.Welch's fame is likely to fade quickly, serving as a warning to those considering getting involved in questionable cryptocurrencies.Steven Chung is a tax attorney in Los Angeles, California. He assists people with tax planning and resolves tax disputes. He is sympathetic to those with large student loans and can be reached at [email protected] or on Twitter (@stevenchung) and LinkedIn.