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Crypto expert and executive member of the Wyoming Blockchain Task Force, Caitlin Long, has predicted that Facebook’s much-anticipated cryptocurrency will likely pay interest to its users, come adoption.
The social media giant has been amplifying efforts to launch its stablecoin, under the code name Project Libra, since earlier this year. The stablecoin, which will reportedly be tied to major world currencies, will be used to make purchases and transactions online across Facebook’s chain of social media platforms.
Long, in a series of tweets, opined on how the stablecoin might work and what it will mean for the crypto industry in general. Long acceded to the notion that the stablecoin would be a huge solution for payments across borders, especially in developing countries.
This is because Facebook, Whatsapp, and Instagram have already cut across all geographic borders and integrating a crypto-payment feature would only further seal the social media company’s reputation for making the world a true global village.
However, part of Long’s predictions was that Facebook could be forced to pay its users interest when they buy cryptocurrency. According to her analogy, the proposed cryptocurrency being a stablecoin, means it’s prevented from usual market volatility by being tied to a few major fiat currencies. The fiat would inevitably have to be kept in a reserve, very possibly the Federal Reserve, where it will accrue interest.
“The assets backing the cryptocurrency will generate interest income”
The Federal Reserve pays 2.35 percent according to its interest on excess reserves rate (IOER). Because this is a piece of information that is available to the general public, Zuckerberg would be hard-pressed to share the yield with all of his stablecoin users, according to Long.
3/ It's true that #stablecoin issuers generally pocket the float on the assets backing the coins, but I go out on a limb & predict there's no way @Facebook will be able to pocket these big profits w/o sharing them with users. To be clear I haven't seen @Facebook disclose this.
— Caitlin Long 🔑 (@CaitlinLong_) June 9, 2019
“… But Facebook’s stablecoin will probably be too big and visible to get away with this.”
What will this mean for taxes?
Going with Long’s prediction of the potential of the stablecoin to amass revenue for the company, taxes would also be an inevitable elephant in the room that the corporation would have to address—for the company and its users.
Stablecoins along with other tokens sold on cryptocurrency exchanges are generally classified by the IRS as personal property, since most of them are exchangeable for fiat currencies. However, with the growth and wide acceptance of the digital currencies, there have been propositions to implement a de minimis tax exemption policy on cryptocurrencies.
United States Congressman, Ted Budd, stated as much when he testified to cosponsoring bill H.R.3708, or the “Cryptocurrency Tax Fairness Act,” to the House of Representatives Ways and Means Committee on June 4. The bill proposes to extend the Internal Revenue Code of 1986 to treat personal cryptocurrency purchases like personal transactions in foreign currency, which are not taxed.
However, if Facebook’s stablecoin floats, cryptocurrency would gain massive adoption, considering the reach of the company’s social media platforms. This would definitely, even hopefully, move the status of cryptocurrencies to ‘normal’ currencies, rather than foreign exchange. This would mean zero taxation on all transactions conducted with the stablecoin, and may just be the leg up that the currency would have over bitcoin, which is still taxed under the IRS’s provisions. Simply put, Facebook’s cryptocurrency may just be the change that Budd is pushing for.