The Internal Revenue Sercices forces Kraken Exchange to surrender user information

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  • In 2022, Kraken had to let go of 1100 employees to regain stability following the crypto crash effects
  • The US SEC soon targeted the Kraken exchange stating that their staking investment program contains several crypto illegalities.
  • In February, the IRS filed a court petition in the Northern District of California against the third-largest crypto exchange.

The crypto ecosystem has survived for nearly two decades and has ushered in numerous advancements in technology. Unfortunately, throughout its time, it has experienced more lows than highs. One of its lowest points came when crypto illegalities were at an all-time high eventually almost leading to its ultimate demise. Unfortunately, its after-effects are deeply rooted within 2023 causing several issues for multiple crypto exchanges.

A significant number of exchanges have shut down, and those that survive are under pressure to adhere to undefined crypto regulations. Kraken Exchange, the third largest crypto exchange, faces yet another close encounter with bankruptcy. The Internal Revenue Service(IRS) has set its sights on Kraken Exchange, ordering it to hand over user information for further scrutiny.

This latest debacle is among the few legal encounters the organization has faced. Unfortunately, with its previous narrow escape, does Kraken Exchange have what it takes to remain functional? Or will it finally succumb to the same fate as FTX and shut down its operations?

The IRS faces off with Kraken Exchange

After the 2022 crypto crash, the entire globe took two steps back from the crypto ecosystem operations. Organizations, governments, and individual traders each reassessed their stance on digital currency and some took a rather negative take. Within a few months after the incident and at the beginning of 2023, millions of crypto traders withdrew their investments from multiple crypto exchanges.

This caused a ripple effect affecting the value of the entire industry. As a result of this mass panic, several regulatory bodies decided to finally address the vague crypto regulations. Unfortunately, it took a turn for the worst as several regulatory bodies started perceiving exchanges that presented numerous suspicious activities. Likewise, the top exchanges were not exempt, and now the IRS has taken a stand.

Also, Read Kraken lays of 1100 employees following the crypto crash outweigh.

In February, the IRS filed a court petition in the Northern District of California against the third largest crypto exchange. According to their statement, the tax enforcer issued a summons to Kraken in 2021. Unfortunately, Kraken Exchange failed to comply with it and now poses a risk of having tax liabilities between 2016 and 2020.

Their relentless pursuit soon fruition as the Federal court ordered Kraken exchanges to relinquish account and transaction information to the IRS. On 30th June 2023, the third largest crypto exchange must hand over user information who transacted with more than $20000 over the year.

Kraken-Exchange
Kraken Exchange has recently faced trying times with lawsuits and the harsh crypto winter forcing to dire situations.[Photo/CoinMarketCap]
The data will include the user’s name, birthdate, taxpayer identification number, address, phone number, email address, and other documents. Furthermore, Kraken Exchange will also provide blockchain addresses and transaction hashes and produce raw data for the IRS to decipher.

Fortunately, Judge Joseph Spero denied the IRS’ effort to attain employment information ad source of wealth from Kraken. He said, “The Court must determine whether the Government’s summons is narrowly tailored, that is, whether it is ‘no broader than necessary to achieve its purpose. The Court finds that to the extent the first three requests are aimed at establishing the identities of the Kraken account holders who fall within the Doe definition. The information sought in these requests is much broader than what is necessary to achieve that purpose for the vast majority of Doe users.”

Also, Read Is the third largest crypto exchange, Kraken, facing bankruptcy?

Will the IRS be Kraken’s downfall?

Since the fall of the FTX, the third-largest crypto exchange has managed to evade crisis after crisis. To curb the sudden loss of trust and users, Kraken had to let go of 1100 employees to stabilize its situation. According to Jesse Powell, to retain its title as the third-largest crypto exchange, it had to take drastic measures.

Within the same month, Kraken Exchange had to shut down its operations in Japan. They stated that after citing a global crypto market acquisition, they had to change their approach to the ecosystem. Unfortunately, shutting down its operation did not exempt the franchise from the vague crypto regulation in other regions.

The US SEC soon targeted the Kraken exchange stating that their staking investment program contains several crypto illegalities. After a brief clash between both organizations, Kraken eventually succumbed. It had to shut down its staking feature within the US and pay a fine of $30 million. This heavily undermined its progress, but its years of stability have prevented it from completely shutting down.

Despite this, if the IRS somehow succeeds in proving the crypto illegalities, it could spell doom for Kraken. If the IRS acquires the information, it infringes on one of the primary aspects of cryptocurrency; anonymity. This verdict has split the ecosystem into two. One side hints at the evidence highlighting several crypto illegalities within the Kraken exchanges. The latter hints at the primary initiatives of the crypto ecosystem.

Also, Read Blockchain companies floating the crypto industry.

Unfortunately, the court already made its ruling, forcing the crypto exchange to release the stated documentation.

Conclusion

The 2023 crypto winter has created several issues for the industry. Fortunately, with it comes the need for clearly defined crypto regulations. International organizations such as the International Securities Watchdog and several governments like the UK have advocated creating dictated and defined crypto regulations. With this new initiative, the crypto ecosystem might stabilize in the near future. However, if Kraken cannot maintain its position as the third-largest crypto exchange, we might just witness the fall of another crypto titan.

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Ken Mutuku
Ken Mutuku
Your Guide to the Future of Tech, Web3, and Digital Storytelling. With a keen eye for detail and a knack for concise communication, Ken Mutuku is your go-to professional for decoding the next wave of technological evolution. Whether through captivating videos, insightful articles, or engaging presentations, he masterfully crafts messages that deeply resonate with his audience, setting him apart in the digital landscape.
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