On Monday (December 30), Bitcoin plummeted to around $93,500 as the Biden administration launched a classic last-minute regulatory move before leaving office, with the IRS under the Treasury releasing the midnight broker rule requiring brokers to report digital asset transactions, incorporating decentralized finance (DeFi) platforms into the existing tax framework. Market participants criticized that this would threaten the future of U.S. DeFi innovation.
Major bearish news: U.S. 'midnight broker rules' target DeFi.
The IRS has released final regulations requiring brokers to report digital asset transactions, incorporating DeFi platforms into the existing tax framework. The rule will take effect in 2027 and will require brokers to disclose transaction details, including total gains and taxpayer information. Brokers must start collecting and reporting data from 2026. These regulations primarily target 'front-end service providers' like decentralized exchanges (DeXs). According to the IRS, classifying these platforms as brokers will help ensure tax compliance.
The IRS estimates that between 650 and 875 DeFi brokers will be affected, potentially impacting up to 2.6 million taxpayers.
This means that authorities will continue to tax crypto profits and losses like stocks, at capital gains tax rates.
The Blockchain Association tweeted: "We have filed a lawsuit with the DeFi Education Fund and the Texas Blockchain Council against the final 'broker midnight rule' by the IRS and the Treasury in the Northern District of Texas, arguing that this rulemaking exceeds the agency's statutory authority, violates the Administrative Procedure Act (APA), and is unconstitutional."
The lawsuit states: During the comment period for this rule, the public warned the IRS and Treasury that enforcing this rule would weaken the digital asset industry. But the government ignored this feedback, leaving the digital asset industry facing a rule that imposes illegal compliance burdens on developers of so-called 'front-end services' software. If this midnight rule is implemented, it will stifle innovation and burden American entrepreneurs.
Marisa Coppel, legal director of the Blockchain Association, stated: "The IRS and Treasury have exceeded their statutory authority by expanding the definition of 'broker' to include providers at the front end of DeFi transactions, even if they do not conduct trades. This not only infringes on the privacy rights of individuals using decentralized technology but also pushes the entire emerging technology overseas. The Blockchain Association will continue to stand with innovators and users in DeFi and will continue to fight against this faulty rulemaking to ensure that the U.S. remains a home for decentralized financial technology and developers."
Miller Whitehouse-Levine, CEO of the DeFi Education Fund, stated: "We are very disappointed with the misleading and unfair DeFi portion of the 'broker' rulemaking that the Treasury and IRS decided to finalize today in the 'midnight rulemaking' at the end of the year."
He continued: "DeFi promises to make financial services and the digital economy more accessible, efficient, interoperable, reliable, and consumer-centric — this promise is at the core of our DeFi Education Fund work. This unfortunate rulemaking directly threatens financial innovation, and we intend to use every tool at our disposal to combat it."
Lee Bratcher, chairman of the Texas Blockchain Council, stated: "The new IRS broker rules present unrealistic expectations for the digital asset ecosystem. This rule fails to recognize the decentralized nature of this technology, and many participants simply cannot access the information the IRS is currently requiring. This regulatory overreach could drive key developments overseas, threatening the competitiveness of the U.S. in the digital economy."
Major bullish news: MicroStrategy hints at another Bitcoin acquisition.
Wall Street-listed whale MicroStrategy co-founder Michael Saylor hinted that the company will acquire more Bitcoin, as he uses charts on the SaylorTracker website to provide investors with a clearer direction.
The company recently completed the purchase of 5,200 Bitcoins at an average price of approximately $106,000 each and will hold a special shareholder meeting in December 2024 to discuss issuing more stock to fund Bitcoin acquisitions.
More specifically, MicroStrategy hopes to raise the cap on Class A common stock from 330 million shares to 10.3 billion shares.
Additionally, the company seeks to increase the number of preferred shares from 5 million to over 1 billion — this has elicited mixed reactions from the investment community.
Bitcoin Technical Analysis
CryptoPotato reports that the daily chart shows that after briefly breaking through $100,000 and setting a historical high a few weeks ago, the price of Bitcoin has been consolidating below $100,000. Therefore, a support level at $90,000 may be a short-term target. The response to this area will determine the short-term price trend of Bitcoin.
The 4-hour time frame more clearly shows the horizontal price action. The market initially created higher highs and higher lows within an upward channel.
However, since then, the pattern has broken downward and has retested twice. As the RSI also shows values below 50%, indicating bearish momentum, the market may drop to the $90,000 level before possibly continuing bullish.
In recent years, the sentiment in the Bitcoin futures market has provided valuable insights that help analysts predict potential volatility in the short term. This chart shows the open interest metric, which measures the total number of open perpetual futures contracts on derivatives exchanges.
As shown, although the market has broken below $100,000 and halted the trend, the value of open contracts has remained at historical highs. This may indicate that volatility caused by liquidation chain reactions could occur in the short term. Therefore, investors should proceed with caution when investing in Bitcoin.
