a hand holding a cell phone – Kraken Crypto App
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The United States District Court for the Northern District of California has ordered the popular cryptocurrency exchange Kraken to provide the Internal Revenue Service or IRS with user information to investigate potential tax evasion.
Under the court’s mandate, Kraken must provide details about users who engaged in transactions surpassing $20,000 within a year. The rule also entails disclosing their names, dates of birth, taxpayer identification numbers, addresses, phone numbers, email addresses and any other pertinent records.
Judge Joseph Spero, who oversaw the case, rejected the IRS’s bid to get employment details and source of wealth from Kraken. The judge also denied many other requests made by the IRS.
In February, the IRS filed a court petition shortly after Kraken resolved allegations of securities law violations concerning its staking service with the U.S. Security Exchange Commission.
The IRS revealed that it had previously served Kraken with a summons in 2021, which the exchange failed to answer. This failure on the part of Kraken triggered the agency’s investigation into the tax liabilities of users who engaged in cryptocurrency transactions from 2016 to 2020.
Kraken has been engaged in ongoing disputes with regulatory bodies over the past few months. Earlier this year, the SEC imposed a $30 million fine on the company. The fine came with an instruction for Kraken to halt its staking service. Kraken has also been trying to gain access to the Federal Reserve payment system, but so far, it has been unsuccessful.
1inch (1INCH), Loopring (LRC), Synthetix Network (SNX) and Cronos (CRO) saw notable declines of 6.6 percent, 5.5 percent, 3.2 percent and 3.2 percent over the past week. These downward trends highlight the challenges investors face in recovering losses, especially as they grapple with the news of Kraken disclosing user details to the IRS.
Reports show that Kraken has accumulated a global user base of 9 million and achieves a quarterly trading volume of $207 million. The SEC has also observed that the exchange platform has attracted over 135,000 unique users from the U.S.
Smaller crypto exchanges taking center stage following FTX’s downfall
While regulatory scrutiny looms, smaller cryptocurrency exchanges like Kraken, Bybit and Bitget are gaining prominence following the collapse of FTX, according to a Nansen report.
Nansen revealed that during the six months following the collapse of FTX, Bybit and Kraken experienced an average monthly trading volume increase of 7.65 percent and 14.35 percent, compared to the six months before the collapse. During the same period following the collapse of FTX, Bitget observed a modest decline of 7.29 percent.
The report also showed that despite the decline in trading volumes experienced by most centralized exchanges (CEXs) after FTX’s bankruptcy, decentralized exchanges (DEXs) were unaffected.
The report highlighted that trading volumes on DEXs maintained a stable trend. This stability may be attributed to a decrease in trust towards centralized exchanges after the FTX collapse and ongoing regulatory uncertainties within the industry.
Alongside creating a fairer environment for smaller exchanges, the aftermath of the FTX incident has prompted a renewed emphasis on transparency within the industry. Major exchanges have begun releasing proof-of-reserve statements to show their commitment to transparency.
However, Nansen cautioned that these statements alone do not guarantee an exchange’s solvency. According to Nansen, it should be regarded as a new “minimum standard” that the crypto community can expect.