On Monday (December 30), bitcoin plummeted to around $93,500 as the Biden administration launched a classic last-minute action before leaving office, with the IRS under the Treasury Department publishing the midnight broker rule requiring brokers to report digital asset transactions, bringing decentralized finance (DeFi) platforms into existing tax frameworks. Market participants criticized this as a threat to the future of U.S. DeFi innovation.
Major Bearish News: The U.S. 'Midnight Broker Rule' Targets DeFi
The IRS issued final regulations requiring brokers to report digital asset transactions, bringing DeFi platforms into the existing tax framework. The rule will take effect in 2027, requiring brokers to disclose transaction details, including total gains and taxpayer information. Brokers must start collecting and reporting data from 2026. These regulations mainly target 'front-end service providers,' such as decentralized exchanges (DeXs). According to the IRS, classifying these platforms as brokers will help ensure tax compliance.
The IRS estimates that between 650 to 875 DeFi brokers could 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 the capital gains tax rate.
The Blockchain Association tweeted: "We have filed a lawsuit with the DeFi Education Fund and the Texas Blockchain Council in the U.S. District Court for the Northern District of Texas, challenging the IRS and Treasury's final 'Broker Midnight Rule' on the grounds that the rule exceeds the agency's statutory authority, violates the Administrative Procedure Act (APA), and is unconstitutional."
The lawsuit states: During the comment period for the rule, the public warned the IRS and Treasury that enforcing the rule would undermine the digital asset industry. But the government ignored this feedback, imposing an illegal compliance burden on developers of so-called 'front-end trading 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 Treasury have overstepped 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 an entire emerging technology offshore. The Blockchain Association will continue to stand with DeFi innovators and users and will continue to fight against this misguided rule-making 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 by the Treasury and IRS's decision today to finalize the misleading and unfair DeFi portion of the 'Broker' rule-making in the 'Midnight Rule' 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-centered—this promise is at the core of our work at the DeFi Education Fund. This unfortunate rule-making directly threatens financial innovation, and we intend to fight it with every tool at our disposal."
Lee Bratcher, Chairman of the Texas Blockchain Council, stated: "The new IRS broker rules impose unrealistic expectations on the digital asset ecosystem. The rules fail to recognize the decentralized nature of this technology, and many participants simply cannot obtain the information the IRS now requires. This regulatory overreach could drive key developments overseas, threatening U.S. competitiveness in the digital economy."
Major Bullish News: MicroStrategy Hints at Another Bitcoin Acquisition
Wall Street listed giant MicroStrategy co-founder Michael Saylor hinted that the company will acquire more bitcoin, as he presented clearer guidance for investors through charts on the SaylorTracker website.
The company recently completed the purchase of 5,200 bitcoins at an average price of approximately $106,000 each and will hold a special shareholders meeting in December 2024 to discuss issuing more shares to fund the acquisition of bitcoin.
More specifically, MicroStrategy hopes to raise the cap on Class A common shares from 330 million 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 bitcoin's price has been consolidating below $100,000 since briefly breaking above $100,000 and setting a new all-time high a few weeks ago. Therefore, the $90,000 support level may be a short-term target. The reaction to this area will determine bitcoin's short-term price movement.
The 4-hour time frame clearly shows the sideways price action. The market initially set higher highs and higher lows within an ascending channel.
However, since then, the pattern has broken down and retested twice. With the RSI also showing values below 50%, indicating bearish momentum, the market may drop to the $90,000 level before potentially continuing to rise.
Over the past few years, sentiment in the bitcoin futures market has consistently 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 at derivatives exchanges.
As shown in the chart, despite the market dropping below $100,000 and halting the trend, the value of open interest has remained at historical highs. This may indicate potential volatility in the short term caused by a chain reaction of liquidations. Therefore, investors should exercise caution when investing in bitcoin at this time.
