On Monday (December 30), Bitcoin plummeted to around $93,500 as the Biden administration launched a classic last-minute action before leaving office. The IRS, under the Treasury Department, issued the midnight broker rule, requiring brokers to report digital asset transactions and incorporating decentralized finance (DeFi) platforms into the existing tax framework. Market participants criticized this as a threat to the future of US DeFi innovation.
Major downside: The US 'Midnight Broker Rule' targets DeFi
The IRS issued final regulations requiring brokers to report digital asset transactions, incorporating DeFi platforms into the existing tax framework. This rule will take effect in 2027 and will require brokers to disclose transaction details, including total earnings and taxpayer information. Brokers must begin collecting and reporting data starting in 2026. These regulations primarily target 'trading front-end service providers', such as decentralized exchanges (DeXs). According to the IRS, categorizing 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 authorities will continue to tax crypto profits and losses like stocks, at a capital gains tax rate.
The Blockchain Association tweeted: 'We have filed a lawsuit against the IRS and the Treasury with the DeFi Education Fund and the Texas Blockchain Council in the Northern District of Texas, questioning the final 'broker midnight rule' issued by the IRS and the Treasury, arguing that this rule 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 the Treasury that enforcing this rule would undermine the digital asset industry. However, the government ignored this feedback, leaving the digital asset industry facing a rule that imposes illegal compliance burdens on developers of so-called 'trading front-end services'. 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 the Treasury have exceeded their statutory authority by expanding the definition of 'broker' to include providers of DeFi trading front-ends, even if they do not execute trades. This not only infringes on the privacy rights of individuals using decentralized technology but also pushes an entire emerging technology overseas. The Blockchain Association will continue to stand with DeFi innovators and users and will fight against this erroneous rule-making to ensure that the US 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' rule finalized by the Treasury and the IRS today as part of the year-end 'midnight rule-making.'
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's work. This unfortunate rule-making directly threatens financial innovation, and we intend to fight it with every tool we can use.'
Lee Bratcher, chairman of the Texas Blockchain Council, stated: 'The new IRS broker rule imposes unrealistic expectations on the digital asset ecosystem. This rule fails to recognize the decentralized nature of the technology, and many participants simply cannot access the information the IRS now requires. This overregulation may drive key developments overseas, threatening the competitiveness of the US in the digital economy.'
Major upside: MicroStrategy hints at acquiring Bitcoin again
Wall Street-listed giant MicroStrategy co-founder Michael Saylor hinted that the company will acquire more Bitcoin, using 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 about $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 varied reactions from the investment community.
Bitcoin technical analysis
CryptoPotato reports that the daily chart shows that after briefly breaking above $100,000 and setting a new all-time high weeks ago, Bitcoin's price has consolidated below $100,000. Therefore, the $90,000 support level may be a short-term target. The reaction to this area will determine Bitcoin's short-term price trajectory.
The 4-hour time frame more clearly shows the horizontal price trend. The market initially set higher highs and higher lows within an ascending channel.
However, since then, the model has broken downward and has been retested twice. With the RSI also showing values below 50%, indicating bearish momentum, the market may drop to the $90,000 level before it can continue to rise.
In recent years, sentiment in the Bitcoin futures market has provided valuable insights, helping analysts predict potential volatility in the short term. This chart shows the open interest indicator, which measures the total number of open perpetual futures contracts on derivative exchanges.
As shown, although the market has fallen below $100,000 and halted its trend, the value of open interest has remained at historical highs. This may indicate potential volatility in the short term due to a chain reaction of liquidations. Therefore, investors should exercise caution when investing in Bitcoin at this time.
