Privacy coins Monero (XMR), ZCash (ZEC) and Dash (DASH) all experienced a price surge of over 20% in the 24 hours following a recent warning by the Australian Tax Office (ATO) that the agency has the ability to view transaction data from cryptocurrency exchanges and other businesses.
“While it appears that cryptocurrency operates in an anonymous digital world, we closely track where it interacts with the real world through data from banks, financial institutions, and cryptocurrency online exchanges to follow the money back to the taxpayer,” said ATO Assistant Commissioner Tim Lo in a statement.
Following the ATO’s statement on May 28 urging Australia’s 600,000 crypto traders to pay capital gains taxes on their holdings, the price of Monero — the most well-known and popular privacy coin — rallied from around US$220 to a high of US$293 the following morning.
Monero’s sudden price surge was similar to its 30% gains seen on May 21, following the announcement by the U.S. Treasury that crypto transfers above US$10,000 must be reported to the Internal Revenue Service starting in 2023.
“Despite constituting a relatively small portion of business income today, cryptocurrency transactions are likely to rise in importance in the next decade, especially in the presence of a broad-based financial account reporting regime,” according to a May 2021 Treasury tax compliance plan for America.
Why privacy coins?
Privacy coins offer crypto traders the ability to hide the provenance of transactions as well as the identities of senders and receivers. For this reason, Monero and coins like Zcash and Dash are often used on dark web markets, where they are used widely in transactions involving illicit goods such as drugs and guns.
In this case, some investors are now buying up these coins in huge quantities, likely to try to conceal their taxable cryptocurrency profits from regulators around the world, Justin d’Anethan, head of exchange sales at cryptocurrency exchange EQUOS told Forkast.News in an interview.
“Naturally, the idea behind privacy coins is to hide the sender of funds and/or recipient and take the cypher-punk ideals to its extreme, by enabling people to transact in a way that no governing entity can effectively track,” d’Anethan said.
While Monero, Zcash and Dash have all managed to rise in popularity in an otherwise plummeting cryptocurrency market, d’Anethan notes that “in the long run, they’re performing very close to the main market. XMR, DASH and ZEC are all down about 50% from their all-time highs… as are most coins across the crypto space.”
He also thinks it is unlikely these privacy coins will continue to outpace the broader market in the long-term, “simply because a large chunk of the capital is actually focused on operating in a credible/compliant way and so that allocations to non-compliant crypto projects will remain tame.”
A cypherpunk legacy
When Bitcoin was introduced as the first cryptocurrency, everyone initially thought its ownership and use were private and anonymous. But in reality, the users of Bitcoin as well as most of the major cryptocurrencies, including Ethereum and Ripple, are only pseudonymous. Bitcoin is supported by a blockchain that is essentially a distributed ledger, and each node that verifies the ledger has a full record of the entire history of all Bitcoin transactions that have occurred since inception. Therefore, these transactions can also be tracked, if the wallet can be linked or associated with an individual or entity.
“When you have blockchain analytics companies like Elliptic and Chainalysis, that are able to track addresses and transactions 20 layers deep, they’re able to link everything together,” said Trent Barnes, principal of ZeroCap, in an interview with Forkast.News. “The IRS and different government agencies are working with these type of companies — which make Bitcoin…