Bloomberg

(Bloomberg) — Some of the most powerful private lenders in Europe are hiring their own outside lawyers to navigate larger deals, a shift in an industry that relies on law firms picked by buyout firms on the other side of the trade.

The direct-lending arms of firms such as Apollo Global Management Inc., Arcmont Asset Management Ltd, Blackstone Inc., Carlyle Group Inc. and KKR & Co. are among several firms said to be appointing their own legal advisers on certain deals arranged by private equity firms, according to people familiar with the matter. Spokespeople for each lender declined to comment on the story. 

Bloomberg News spoke to over a dozen private credit fund managers and industry lawyers for this article. 

Many lenders have become increasingly wary of the traditional arrangement whereby private equity firms appoint and pay for the law firms that represent the lenders, the people said. The practice flourished during the decade-long age of easy credit in leveraged finance, where lenders were prepared to give up safeguards in order to participate in deals. 

The move signals the growing competition for larger deals in the $1.2 trillion market for private credit, which has boomed over the past few months as traditional lenders have dialed back on risk. Debt packages put together by direct lenders have ballooned as raising cash through bonds and loans has become increasingly expensive. 

But private equity firms are still pushing hard to move terms closer to the notoriously loose conditions in the syndicated markets and remove clauses that protect the lenders in a downturn, fueling the lenders’ desires to hire so-called shadow lawyers to better represent their interests.

Larger unitranche loans — the mix of senior and junior debt that’s a staple of private credit — for companies such as Envirotainer AB and Forterro Inc. were structured as covenant-lite, meaning the borrower has fewer restrictions on how much more money it can borrow among other things.

The traditional practice of allowing private-equity shops to appoint and pay for the law firms that represent lenders during buyouts is meant to make the sometimes-fractious process run smoothly. 

But the arrangement puts private equity firms –- and their lawyers — in a strong position. 

It also leaves the law firm appointed by private equity for the lenders faced with a predicament: make life tough for the buyout firm paying them, meaning they are less likely to win repeat business, or be more compliant in negotiations and collect fees from the firms that continue to choose them. Unlike banks, which look to swiftly offload debt into the leveraged-loan and high-yield bond markets, private credit funds expect to hold onto loans for the whole lifetime of the deal. 

A few private credit shops on the recent Access Group deal, Europe’s largest direct-lending transaction, hired their own external lawyers to strengthen their hand in legal negotiations, the people said. 

The owners of the UK software business had hired Kirkland & Ellis LLP to iron out the terms on the debt financing, and chose Shearman & Sterling LLP to represent the lenders. A number of other deals have followed the same pattern where different law firms were appointed to represent the lenders, the people said.

Spokespeople for Kirkland and Shearman declined to comment for this story. 

 

(Adds detail of reporting process in third graph)

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.

(Bloomberg) — A so-called summer camp for billionaires kicks off this week, with some of the world’s top business tycoons heading to Idaho for Allen & Co.’s annual conference. 

Bill Gates, Bob Iger, Mark Zuckerberg and other titans of finance, technology and media are expected to attend this year’s Sun Valley Conference, the invite-only confab where deals are famously hashed out behind closed doors. 

After unprecedented private jet traffic in 2021 following a pandemic-induced hiatus for the conference, runway demand has normalized, according to a person familiar with the matter. The Friedman Memorial Airport is expecting traffic similar to 2019 levels, the person said. 

Covid-19 protocols are even stiffer than they were last year. There will be on-site testing for guests, who will be required to have a booster shot on top of their vaccination, another person said.  

Here’s a few things to look for: 

Elon Musk took a week-and-a-half break last month on Twitter Inc., as he scrambles to potentially renegotiate his takeover of the social media platform while grappling with Tesla Inc.’s sliding market value. Will he find time with Twitter Chief Executive Officer Parag Agrawal — another expected attendee — to hash out his gripes about fake accounts and other matters? 

Walt Disney Co. CEO Bob Chapek — who just won a three-year contract extension — is heading to Idaho after steering the entertainment juggernaut through one of its most difficult periods ever, from a culture-war spat with Florida’s governor to growing pains as it shifts its focus to streaming. Will the turmoil detract from Disney’s cache as one of the most powerful players in attendance? 

There has also been gossip about tension Chapek may have with former Disney CEO Iger, potentially setting up a made-for-the-camera encounter.

Big Picture

The big picture for media and tech has shifted dramatically since last year’s event. Technology stocks have lost their swagger — particularly Netflix Inc., given it has reported a decline in subscribers — raising questions about the health and growth prospects of the streaming market. 

Recession fears, rising interest rates, the crypto crash and scores of other business and economic worries will also be top of mind. 

That said, deals in the technology, media and telecommunications space are still a bright spot in a slowing M&A environment. Since last year’s Sun Valley, Microsoft Corp. agreed to buy Activision Blizzard Inc., the broadcaster Tegna Inc. announced it would go private and Broadcom Inc. said it would buy VMware Inc. in one of the largest chipmaker deals ever. 

Sports dealmaking remains a big theme too, with the sales of the Denver Broncos and Chelsea Football Club each topping well over $4 billion. 

Host firm Allen has advised on more than $129 billion in deals so far this year, including the Broncos, Twitter and Activision Blizzard transactions, according to data compiled by Bloomberg.

Bankers at Allen and its peers are no doubt hoping more deals will be spawned at Sun Valley.

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.

(Bloomberg) —

Electric vehicles are growing their share of the passenger vehicle market and are needed to bring the transport sector’s emissions under control. However, switching drivetrains alone is not the most efficient way to reach net zero. An important component of achieving climate goals will be moderating passenger car usage and incentivizing other forms of transport such as micromobility.

I recently attended Micromobility Europe, a conference dedicated to e-scooters, e-bikes and all manner of other small vehicles. One thing that makes this event so fun is the opportunity to ride, drive or pilot the latest hardware.

While shared micromobility companies like Bird, Lime, Tier and Voi often feature in news headlines, many up-and-coming companies are now designing devices for personal ownership. This introduces the challenge of matching form factor and scooter capabilities to personal characteristics and lifestyle, similar to how a pickup is desirable for some people while others would prefer a compact car that’s easier to maneuver and park.

There’s no single best scooter on the market, but great scooters perform well in at least one of the key categories I’m dubbing the four S’s.

Sustainability

Early adopters of micromobility are often environmentally conscious. While the emissions from scooter usage are miniscule compared to many other forms of transport, critics have accused scooters of being disposable hardware that end up on the scrap heap as soon as there’s a minor defect. Estonian e-scooter manufacturer Aike is looking to challenge that perception with its range of devices that are designed to be durable and repairable. The scooters have a 10-year warranty and a five-year warranty on the battery. Some 42% of the parts used are recycled and 92% of the scooter can be recycled when it’s retired.

Style

Increased micromobility adoption requires winning over the hearts of consumers. One way to do that is to design a beautiful-looking product, for which the owner might feel the same sense of pride they do with their car. The M, a new scooter from UK-based Bo, is a stylish product designed by Formula One and automotive industry engineers. The scooter is a statement piece with an aluminum chassis, GPS tracking and AI-based range prediction.

Simplicity

Does switching all or a portion of your transport from four wheels to two significantly complicate your life? Taur, a UK-based company targeting the US market, has developed a compact and attractive folding scooter that can be stored easily. The design of this scooter is enhanced by a feature that is as simple as it is effective — the rider is able to face in the direction of travel thanks to footrests that fold out from the middle of the scooter. The lower center of gravity also means the body of scooter does not have to be as long as other designs.

Smarts

The companies I’ve mentioned so far are early-stage startups, but there are more established companies working on innovative products. Segway-Ninebot is to the scooter industry what Ford, Volkswagen and Toyota are to the automotive industry. One of the latest scooters they offer is the s90L. While this is designed for shared scooter fleets, it highlights just how many advanced features are being added to small vehicles. The scooter comes equipped with a fisheye camera that enables pedestrian and bike lane detection and can record footage for anti-theft and anti-vandalism purposes. Some of these technological features may be superfluous on privately owned devices, but some may also alleviate the pain points behind micromobility adoption.

Even a scooter that is exceptional in all four categories won’t be able to win over all consumers. Nor should it. Scooters aren’t for every consumer or trip. However, electric scooters are improving rapidly and will be an important tool in addressing urban air quality and emissions from road transport.

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.

(Bloomberg) — Egyptian billionaire Naguib Sawiris is exploring options for ItaliaOnline SpA, the Italian Internet services leader controlled by his holding, people familiar with the matter said.

Sawiris’s Orascom is weighing the sale of a minority holding or even a controlling stake in the company, the people said, asking not to be named since the discussions aren’t public.

Any deal could value ItaliaOnline at about 400 million euros ($418 million), the people said. Suitors including Netherlands-based Azerion Group NV have expressed interest in buying a stake in the company, the people said, adding that no final decision has been taken and other options could still emerge.

Orascom last month agreed to buy the 27.5% of ItaliaOnline it didn’t already own through the Libero Acquisition financial vehicle. That deal came about amid a clash over strategy with minority investors, the people said. 

Representatives for ItaliaOnline, Azerion and Orascom each declined to comment.

ItaliaOnline last year reported revenue of 292 million euros and earnings before interest, taxes, depreciation and amortization of about 50 million euros, according to official filings seen by Bloomberg. The company had about 1,200 employees as of the end of last year.

ItaliaOnline offers services including local online marketing, digital advertising and online directories and branded email message services such as Libero Mail and Virgilio.

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.

(Bloomberg) —

The Bank of England said a $2 trillion plunge in the value of cryptoassets underscores vulnerabilities in the market and the need for tougher law enforcement and regulation.

The market capitalization of digital assets has tumbled to about $900 billion from a peak of almost $3 trillion in late 2021, the BOE’s Financial Policy Committee said Tuesday.

The “extreme volatility” in recent months revealed weakness in the market including liquidity mismatches that led to fire sales, and participants unwinding leveraged positions. Those features of the market have the potential to amplify further declines in prices, the central bank said.

Read more: Crypto’s $2 Trillion Shakeout Portends Lehman Moment

Regulators in the UK and Europe have been hardening their rhetoric against the industry, saying they’re concerned that contagion from the crypto market could damage the broader financial system.

The BOE in December repeated its warning that the rapid growth of cryptocurrency assets could pose a risk to the stability of the UK financial system. In October, BOE Deputy Governor Jon Cunliffe said the cryptocurrency market could pose a threat unless urgently regulated.

Read more: Crypto Crash Survivors Could Become Tomorrow’s Amazons, BOE Says

The BOE said the recent volatility in crypto markets so far isn’t posing a risk to the overall system. But without action, systemic risks would emerge if cryptoassets activity and its connection to banks and other markets continues to grow.

“This underscores the need for enhanced regulatory and law enforcement frameworks to address developments in these markets,” the BOE said.

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.

(Bloomberg) — UK asset managers are losing more employees to tech companies as the industry struggles to embrace new technologies, according to a survey.

Over 70% of UK asset management executives saw a significant increase of employees leaving for technology firms in the past 12 months, according to consulting firm Accenture. 

While asset managers have made commitments to staff in areas such as flexible working, there’s still a level of “cultural inertia” and “fear of failure” when it comes to embracing new technologies, said Chris Low, managing director at Accenture. He added that the “threat from innovative tech brands” will keep growing if the industry doesn’t tackle its own “cultural resistance.”

The study was based on a survey of 200 executives at asset management firms between April and May. 

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.

(Bloomberg) — Automakers had their worst June sales in decades in the UK as ongoing components shortages kept them from meeting demand.

New-car registrations declined by 24% to 140,958 vehicles, the lowest for the month since 1996, according to data from the Society of Motor Manufacturers and Traders. 

First-half shipments fell 12% to around 802,000 vehicles — the second-weakest showing in 30 years. The transition to batteries remained the only bright spot with sales of electric cars rising 56% in the period.

“The semiconductor shortage is stifling the new car market even more than last year’s lockdown,” SMMT Chief Executive Officer Mike Hawes said in a statement.

The group has repeatedly called for government support to help soften the blow of surging energy costs as carmakers try to transition to producing zero-emissions vehicles. The UK has seen auto production steadily decline over decades, with uncertainty over the future of its trading relationship with the European Union adding to the industry’s woes. 

READ: UK Auto Industry Calls for Government Help With Energy Costs

(Updates with final SMMT data starting in second paragraph.)

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.

(Bloomberg) — A small, simple and cheap way to prevent some future climate pollution is to wear the clothes already in your closet roughly twice as many times as you might have otherwise before tossing them. 

People doing so could reduce the related emissions impact of clothing by 44%, according to a 2017 report from the charity Ellen MacArthur Foundation, later echoed by the United Nations Environment Programme (UNEP). Here’s why: Wearing the stuff you already own likely means that you will buy less in the future, thus preventing the greenhouse gas emissions generated during the production of new items. 

If you’re someone who wears clothes until they fall apart, ripped and ragged, this hot climate tip is not for you. But skyrocketing clothing sales suggest many people worldwide are buying more than they used to just a couple decades ago — and also buying more than they can really use. 

“The way that the sales were growing, people were starting to own more and more clothes,” said Laura Balmond, Ellen MacArthur Foundation’s Fashion Initiative lead. The numbers are undeniable: “It wouldn’t be physically possible to get as much wear out of your items as it previously had because people have got a lot sitting in their wardrobes.” 

• Want to lead a more climate-conscious life? Bloomberg Green wants to answer your questions. Take our brief survey and tell us what you’d like to know.

It’s no secret that the fashion industry has a pollution problem. Big fashion accounts for 2% to 8% of global carbon emissions, according to the UNEP. On its current path, the Ellen MacArthur Foundation estimated, the industry could use up more than 26% of the carbon budget remaining if we are to limit global warming to 2 degrees Celsius by 2050. The industry’s mass production of polyester, which is derived from fossil fuels, also contributes to the release of plastic microfibers into the ocean and the piling up of waste in landfills. Less than 1% of clothing collected for recycling worldwide is actually turned into new items. 

One idea gaining traction among apparel companies is called circularity, an umbrella term referring to the reuse, resale and recycling of textiles to extend their life. New business models have cropped up or expanded in response. 

Fueled by the fast fashion craze and social media, “there’s sort of this desire for newness,” said Balmond. With companies increasingly announcing strategic goals and programs in the name of circularity, it can be hard for customers to distinguish what’s impactful from greenwashing. But shifting customer perspectives could open the door to businesses more in line with clear circularity targets. The challenge is, she said, “if we can shift the mindset from it being a brand new product to being new to you.” 

The rise of pre-worn and rented clothing

The shift is already underway. After hosting “Worn Wear” events for customers to bring their old jackets, leggings and other items for repair or exchange, Patagonia launched an online marketplace with the same name in 2017 to expand the program. The next year, North Face piloted a similar program called Renewed for reselling its used items. There are also third-party virtual marketplaces for selling secondhand clothing, such as Sellpy, Depop, The RealReal and ThredUp. 

The secondhand market grew from about $11 billion in 2012 to $35 billion in 2021, according to ThredUp’s 2022 resale report, and it’s projected to dramatically jump to $82 billion by 2026. 

Then there are clothing rentals. Take Rent the Runway, an online site for people to rent clothing that launched in 2009. The business has expanded again and again in the years since, adding accessories and plus-size items to the rentals, followed by brick-and-mortar stores and monthly subscriptions. Last October, the company went public. While sales climbed this year, Rent the Runway reported a net loss of $42.5 million in the first quarter of 2022. 

Circularity will only get us so far in reining in greenhouse gas emissions. “We have endless talk about circularity,” said Veronica Bates Kassatly, an independent fashion analyst. The focus instead should be on the sheer volume of items being produced: “We have far too much and we wear it far too few times,” she said.  

‘30 washes’ rule of thumb 

Some research has indicated people toss items of clothing after wearing them only seven to 10 times. But what would be a reasonable number of times to wear a garment: 60, 100, 200? Should there even be a target? 

“It’s hard to give a number,” said Jin Su, an associate professor in the Department of Consumer, Apparel, and Retail Studies at the University of North Carolina Greensboro. Su added that such a goal would have to vary by clothing type and fabric. 

Perhaps the closest thing to this number is a new durability metric for jeans. Led by the Ellen MacArthur Foundation, a coalition of academic experts, brands, retailers, manufacturers and others developed jeans guidelines, deciding that jeans should be able to withstand a minimum of 30 washes at home while still retaining their high quality. That means someone would have to wear them more than 30 times to get the most out of them. 

The way you wash your clothes also matters from a climate perspective. While the biggest share of the emissions tied to apparel comes from textile production — 41% — the second largest source is from consumption, which largely comes down to the energy associated with washing and drying. To minimize this footprint, wash using cooler water and line-dry your items, experts recommend. 

Not needing to wash your clothes as much helps, too. Wool is generally more expensive than plastic-based clothing, but it’s good at wicking away moisture and highly durable, according to the Ellen MacArthur Foundation. To showcase the powers of wool, Wool&Prince founder Mac Bishop wore a wool shirt for 100 days without washing it. That challenge went viral and helped launch Bishop’s clothing line; he later started a parallel company for women’s clothing called Wool&. 

Now the twin companies reward customers who wear an item of their clothing for 100 days straight (washing is highly encouraged) with a discount off their next purchase. More than 4,000 people have completed the challenge, according to Rebecca Eby, Wool&’s manager of customer experience and communities. 

“I started as a customer who did this challenge and it changed my life,” Eby said. She said she almost exclusively wears natural fibers now, mostly Wool& clothes, and does a lot less laundry. She’s heard from many customers who perhaps started the challenge to get the discount to buy more and ended up changing their habits in the process. 

In promoting a lifestyle of wearing and needing less, Wool& is inevitably limiting its reach as a company. It’s something the entire fashion industry may eventually wrestle with, and Eby acknowledged the awkwardness. 

“It’s definitely something that we struggle with a bit,” she said. 

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.

(Bloomberg) —  

• Listen to Bloomberg Crypto on the iHeartRadio App
• Listen to Bloomberg Crypto on Apple Podcasts
• Listen to Bloomberg Crypto on Spotify 

In June, Senators Kirsten Gillibrand and Cynthia Lummis introduced a sweeping Senate bill that would regulate crypto assets. Influential crypto insiders have hailed the proposal as a great starting point – a reception which suggests it might be perceived as relatively friendly to the digital asset community. Hilary Allen, a law professor at American University, is among those who think the proposed legislation doesn’t go far enough, especially when it comes to consumer protection. She joins this episode for a critical look at the Gillibrand/Lummis bill.

Follow us on Twitter @crypto, and subscribe to the Bloomberg Crypto Newsletter at https://bloom.bg/cryptonewsletter

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.

(Bloomberg Law) — Two US states are steaming ahead with programs that will permit taxes to be paid in cryptocurrency, but the idea has been shelved almost everywhere else in the wake of the crash that has erased hundreds of billions of dollars worth of digital assets.

Revenue departments in Colorado and Utah are implementing programs to enable businesses and individuals to pay their tax bills with virtual currencies such as Bitcoin, Ethereum, and Dogecoin, targeting implementation within a few months. The two Western states look to be outliers, however, and still face some logistical hurdles before their programs launch.

The sector’s selloff has taken the value of the global cryptocurrency market below $1 trillion from a $3 trillion peak last November. Bitcoin alone has plummeted more than 70% since Nov. 9.

While a half-dozen states have considered following the lead of Colorado and Utah, a chorus of fiscal watchdogs, academics and crypto skeptics is now warning lawmakers against initiatives that might put state treasuries and taxpayers at risk.

“Anything involving crypto is less appealing in the wake of the massive volatility we’ve seen over the last month, and frankly the last six months,” said Lee Reiners, executive director of Duke University’s Global Financial Markets Center. “I don’t know if that slows momentum at the state level for payment of taxes, but it doesn’t help. And there is no financial benefit to the states to permit it.”

SIGN UP for The Exchange, our free weekly tax newsletter

Betty Yee, California’s state controller, called a crypto-payment bill (S.B. 1275) currently before the California Legislature “fiscally irresponsible,” pointing to price volatility for cryptocurrencies and lack of a robust federal regulatory framework for digital assets.

“It’s still too new for government agencies to wade into cryptocurrency,” she told Bloomberg Tax.

New and Mysterious

The rationale for tax payments in cryptocurrency has always been thin.

Digital currencies are relatively new, highly volatile, and remain a mystery to most consumers, Reiners said. It’s unclear if Bitcoin or Ether will ever be viewed as viable mediums of exchange, whether for buying pizza or paying property taxes. Moreover, Reiners said, states don’t accept shares of stock, futures contracts, or foreign currencies for the payment of taxes, so why should they accept Bitcoin or Ether?

Still, parades of cryptocurrency investors and lobbyists have descended on state capitols with a mission. Their campaigns have led lawmakers to debate—and, in many cases, to enact—bills to bring cryptocurrencies into their states’ commercial codes and supercharge investments in blockchain businesses. Advocates are also pushing states to permit payments of taxes and services in digital currency, hoping such programs would accelerate crypto’s profile as a medium of exchange.

“A lot of states want to signal they’re friendly to the industry,” said Samuel Armes, president of the Florida Blockchain Business Association. “They want the business, and they want the innovation. So, they will push policies to attract this new wave of tech and talent.”

Thirty-seven states considered bills affecting some aspect of cryptocurrency during the 2022 legislative session, according to Heather Morton, a policy analyst at the National Conference of State Legislatures. Within that group, she said Arizona, California, Hawaii, Illinois, Louisiana, New York and Oklahoma all considered bills that would authorize the authorities to accept crypto.

Utah and Colorado

Utah was the only state to take final action, enacting H.B. 456, which directs the state and local units of government to accept crypto for the payment of taxes beginning Jan. 1, 2023. The law directs the Division of Finance to contract with a third party—a cryptocurrency payment gateway—to quickly convert cryptocurrency into US dollars before remitting the funds to the state.

Payment gateways serve as an interface between the crypto world and the traditional financial sector. They provide a critical service by locking in a precise dollar value for a coin at the moment of transaction; otherwise, the revenue authority could be out of pocket in the blink of an eye.

Colorado chose a slightly different path than Utah’s, though it aimed at the same goal. In February, Gov. Jared Polis (D), a strong advocate for the cryptocurrency industry, directed the Department of Revenue to develop a program for tax remittances in crypto.

WATCH:

Tax Your Crypto and NFTs? Yes, the IRS Wants Its Cut

Meghan Tanis, a spokesperson for the department, said the state is still working through some details, but taxpayers will be able to use a special crypto payment portal beginning in September. Like Utah, Colorado plans to use a third party to immediately convert cryptocurrency payments into US dollars.

“We are working to make it similar to how we accept credit cards and other forms of payment,” Tanis said. “The state does not intend to hold a balance of cryptocurrency.”

The industry has a like-minded friend in Florida Gov. Ron DeSantis (R), who slipped several crypto-friendly features into his “Freedom First Budget proposal.” The budget included a plan allowing corporations to pay state fees via cryptocurrency directly to the Department of State.

“The Legislature did not act on this idea during the legislative session that concluded in March, but it could happen next session,” the governor’s press secretary, Christina Pushaw, said.

Diminishing Enthusiasm

With “Crypto Winter” setting in, however, momentum has been ebbing. The market crash also raises some practical questions about the feasibility of the Colorado and Utah approaches.

Utah’s program prohibits it from risking state money during the conversion of cryptocurrency into US dollars. Finding a vendor to absorb the risk could prove challenging, said John Valentine, chairman of the Utah State Tax Commission.

“I don’t know what they’re going to find when they go out to the marketplace,” Valentine said. “Markets have to be very effective at scoring their risk. With the uncertainty in the cryptocurrency markets right now, I think it’s going to be harder to find a third-party vendor than when it was more stable a year ago.”

Payment service providers that specialize in cryptocurrencies insist they can fulfill these duties at minimal risk to the states.

“At the end of the day, you want to provide your residents with as many payment options as possible,” said Merrick Theobald, vice president of marketing for Atlanta-based BitPay. “And there is no better way to transact online than with cryptocurrency. It’s a great digital payment method.”

Solves No Problems

Tax law scholars predicted that few states would follow Colorado and Utah. Offering cryptocurrency tax payment programs doesn’t solve any inherent problems for taxpayers or state revenue departments, and likely creates new ones, said Omri Marian, a professor of tax law at the University of California-Irvine School of Law.

Marian said the payment of taxes from a digital currency wallet would qualify as a tax realization event triggering either a capital gain or loss at both the state and federal levels. Accounting for these events “creates a new compliance burden for taxpayers and a new administration and enforcement headache for tax authorities,” he said.

He also dismissed programs that require third-party conversion and clearing, arguing that those processes would leave revenue agencies with new layers of complexity and expense to do something that is simple, efficient, and inexpensive when transacted in US dollars.

Given the tax policy issues at play, Marian said, Colorado- and Utah-style programs would only be enacted in jurisdictions governed by lawmakers living under the spell of crypto evangelists.

“States have absolutely nothing to gain from this,” he said. “It is a rather pathetic attempt to look cool with crypto bros. As far as tax policy is concerned, it is just stupid.”

To contact the reporter on this story: Michael J. Bologna in Chicago at mbologna@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergindustry.com; David Jolly at djolly@bloombergindustry.com

More stories like this are available on bloomberg.com

©2022 Bloomberg L.P.