Barrett Strickland is Head of Analytics and Research at TokenTax, Forbes’ top-rated international cryptocurrency tax firm, and part-time virtual Chief Information Security Officer (CISO) for training and software sales at ICE Cybersecurity. Previously, Ms. Strickland served as a portfolio surveillance associate for three years at Natixis, and an associate analyst for two years at Moody’s, where she rated securitization deals backed by various asset classes. Along the way, she’s conducted economics research at both MIT and Yale. Ms. Strickland received her BS from MIT and audited graduate courses at Yale while working full time on her economics research.
The Politic: What’s your background? How did you get involved in the crypto space?
Barrett Strickland: We do more market and political economy research, so that’s our angle as a tax company. Then, I also do some cyber security work. There are some interesting things going on right now, especially in terms of wallet hacking. That’s because when Bitcoin has a big run up in its price, those people who hold the cryptocurrency become a target for hackers.
Before then, I was actually doing economic research and then went into structured finance working on esoteric transactions backed by a variety of assets, including equipment, student loans, film royalties, and other assets. When I was working in that area about four years ago, that’s when people started seriously talking about how you could use blockchain in structured finance. That’s what first got me interested. So, I went to an event in New York at Galaxy, and then other firms in the blockchain space to learn more and to participate. If you’re looking for a career in blockchain, attending those events would be my best suggestion. You can easily take the train down from New Haven and check out all the blockchain events in downtown Manhattan.
When did you decide to go full time?
Actually, my current role is the first full-time position I’ve had in the crypto space. Our company is called TokenTax, and I’m heading up their Analytics and Research Department. We do crypto taxes, and the latest news is that the IRS has been sending out these letters which say that people must report their crypto, and they must do so accurately. These trades are to be reported on Form 8949 as capital gains or losses. The form is filled out so each transaction, either crypto-to-fiat or crypto-to-crypto, gets recorded line-by-line. Then, you have to report your short and long term capital gains or losses for the year.
It can be a lengthy report. If someone’s a day trader, and every single trade they’ve done needs to be listed as short term or long term, their report could be many pages. So, our company has software that makes that process a lot less onerous. You can look us up tokentax.co. We also have a research blog at tokentax.substack.com that covers relevant topics like Facebook’s Libra announcement and general market insights.
Why did the IRS need to make that clear? Doesn’t it stand to reason that capital gains from crypto should be reported?
Speaking from the perspective of a tax advisory company, the best advice to give is that crypto has to be reported on Form 8949 as capital gains or losses. That’s been the general guidance by the IRS. Additionally, I would note that it’s important to consult with a CPA on the specific tax situation. I think some of the pushback is maybe a lack of clarity about what needs to be reported. It’s much the same as pushback with any other regulation.
They have been penalizing people. There’s always the risk that if you’ve traded crypto and realized gains or losses on those trades, the IRS could look back at that and say that you should’ve been reporting those transactions for prior years. So, it is a risk not to report your gains or losses.
There are also situations where people have mistakenly not reported on their taxes. In those cases, people have the option of going back and amending their tax filings. We’ve helped people in situations where they have not reported their trades, in which case they can go back and amend their taxes to provide the correct info to the IRS so that they would not be penalized.
How many crypto tax firms are there? How much demand is there for your services?
There are new entrants all the time, and they’re long-lived or short-lived depending on the year. For our company, it’s difficult to place a number on our clients because we have some funds and then a lot of individuals, as well. Some of them own crypto mining companies and things like that. So, we currently have approximately ten thousand accounts to put a number on it.
Do you support the filing of all 2,275 unique cryptocurrencies, or just the major tokens?
We support all cryptocurrencies and all the crypto exchange platforms either through API or manual upload. For instance, we support the cases where people have been scammed and lost their cryptocurrencies. We support crypto trading, mining, income, spending, gifts, etc. We support all scenarios imaginable.
What’s the main difference between working at a place like Moody’s and a startup like TokenTax?
I’ve worked at Moody’s and Natixis, as well as done research at Yale and MIT. The main difference between working for a public company like Moody’s and a startup is more the level of responsibility and the ability to pursue your own projects. I think it’s probably good advice in general to learn specialized skills at a large firm where you’re very focused, so you know all of the details. If you’re at a startup, where there aren’t as many people, then there’s a lot more room for entrepreneurship as an individual. So, you learn many different skills, and you pull from your prior experience whenever you’re faced with a new challenge or a new opportunity. You have to be lighter on your feet, exhibit quick thinking, and welcome change. In a startup environment, you’re really dependent on your individual skill set and flexibility.
Do have any read on the scale of fraud in the market? What’s the most common type of fraud you encounter?
Because Bitcoin prices have gone up so much, you see a lot of lost coins due to hacking. The exchanges have seen major hacks, most recently Binance. However, I think the most important issue going forward for the crypto space is the accuracy of data.
One thing that is quite prevalent is the incorrect reporting of volume by exchanges to aggregate data sources that are intended to be a benchmark of comparison between exchanges.
They might not be sending candle or transaction-level data; they might be just saying this is the volume number, which is called spamming a volume number. They’re just saying, “We report this volume of Bitcoin on our exchange,” which could be totally false. That’s why when you see the ranking of exchanges by volume, it doesn’t make sense because the numbers are inflated due to fraud. The problem is that, by reporting inflated volume numbers, these exchanges and aggregators are providing false security to investors that they have more liquidity than they actually do.
More recently, there’s been a large effort in the space to improve data quality standards. As an economist, I think that’s absolutely necessary for the health of the overall cryptocurrency market: to encourage trillion dollar institutions to invest; to encourage more trading activity; to encourage people to develop on Ethereum; and in general, to encourage people to use cryptocurrencies in their day-to-day lives. The quality is getting better, but there’s room for improvement.
Any final thoughts?
I definitely don’t think that the space is comprised entirely of scammers and drug lords. Speaking from the perspective of someone who advises clients on reporting their taxes to the IRS, there are good players in the space. So, perhaps I’m a little bit biased because my clientele are people who are running legitimate mining companies, people who are day traders, people who are trying to start their own crypto funds, people who earn income in Bitcoin, people who gift their children crypto, and so on.
I think there’s a lot of promise in this space. There are so many uses for different cryptocurrencies, and my hope is that those use cases won’t be lost in the noise of regulation. I hope that this space is not characterized by the bad actors, and because of the combination of regulation and innovation going forward, I’m very hopeful that cryptocurrencies can become more mainstream. That has to happen in order for the space to be successful.
The idea of having better accounting has been in existence for many years, and now the technology makes that possible. So, I’m just hopeful, looking forward, that there will be more collaboration between the tech space, politicians, and regulators, not only in this country but around the world, so that people can gain a better understanding of the potential use cases of cryptocurrencies.