Blockchain technologies were built to prevent fraudulent transactions by creating an immutable, encrypted and distributed ledger. Unfortunately, most people still require interactions with the fiat financial system that’s still vulnerable to fraud. These financial intermediaries have consistently been a source of frustration for the crypto community.
In 2018, Visa terminated its agreement with WaveCrest, the leading issuer of prepaid crypto debit cards, due to non-compliance with its membership regulations. WaveCrest, Bitwala, Cryptopay, Wirex and TenX users had their debit cards canceled with very little notice, creating a wave of confusion and distrust in the crypto community.
Wirecard eventually took WaveCrest’s place as the premier issuer of crypto debit cards, but earlier this year, a missing $2 billion led to a repeat of the WaveCrest situation. Thousands of crypto debit card users had their cards canceled and found themselves in limbo once again.
Let’s take a look at what happened at Wirecard, how it impacted the crypto community and where crypto debit cards are headed from here.
Wirecard’s Missing $2 Billion
Wirecard began as a high-risk merchant processor two decades ago, working with gambling, pornography and other high-risk industries. Since then, the company matured into a $25 billion public company that worked with customers like Getty Images and Orange. As a payment processor, it had agreements with Visa, MasterCard, PayPal, Apple and others.
Wirecard’s Dramatic Fall in Stock Price - Source: StockCharts.com
After WaveCrest’s fall from grace, Wirecard stepped in to fill the void and become a leading issuer of crypto debit cards. The company onboarded many crypto card providers into its ecosystem, including Crypto.com, Wirex, TenX and Cryptopay, and the community became reliant once again on a single issuer for most debit cards.
Analysts have long been suspicious of Wirecard’s finances, but big problems emerged when Ernst & Young auditors were unable to find $2 billion that was supposed to be in Philippines-based accounts on June 18. The board admitted a short time later that the funds likely did not exist and the company fell into a death spiral.
On June 23, CEO Markus Braun was arrested, and the company filed for insolvency two days later. The UK’s financial regulator suspended the license of its independent subsidiary that issued crypto debit cards at the same time, although it restored the ability to operate a short time later, providing a lifeline to the crypto community.
Impact on the Crypto Market
Wirecard’s collapse created a repeat of WaveCrest’s chaos and confusion. Once again, crypto debit card users feared that their accounts may be shut down. These dynamics have made it increasingly difficult for the crypto community to place trust in crypto debit cards, where they must deposit prepaid funds in order to use the accounts.
The good news is that Wirecard did not hold any actual funds and the crypto debit card business is held in an independent subsidiary, Wirecard Card Solutions. It’s possible that the independent subsidiary will continue to hold its license and issue cards when ownership changes hands following Wirecard’s insolvency proceedings.
The subsidiary’s recent announcement suggests that it will maintain its ability to issue e-money and provide payment services:
Wirecard Card Solutions Limited (WDCS) is pleased to report that, following intensive work undertaken in conjunction with the Financial Conduct Authority (FCA), it has now received consent to resume its operations as the FCA is satisfied that client money is safe. Certain restrictions remain in place (full details of which can be found on the FCA Register) but WDCS is, as of 00.01 30 June, permitted to issue e-money and provide payment services. WDCS will continue working closely with the FCA to have these remaining restrictions lifted as soon as possible. There may be a delay before all card programmes are fully operational, so some customers could find themselves unable to transact immediately but we anticipate this lasting no longer than 24 hours. We apologise for the inconvenience to our valued customers that the temporary suspension caused.
Financial Freedom & Equality
The crypto community has long dealt with a lack of financial freedom and equality.
Many governments have banned the use of cryptocurrencies. In addition to the lack of transparency, governments are concerned that cryptocurrencies could replace fiat currencies and hurt long-term monetary policy capabilities. The U.S. has avoided making these kinds of blanket bans, but they’ve imposed many restrictions nonetheless.
Under IRS rules, cryptocurrencies are considered property rather than currency, which means that any appreciation in value is taxable as a capital gain. The IRS rules surrounding forks, airdrops and other unique crypto transactions have also been ambiguous and unfavorable compared to conventional financial assets and currencies.
ZenLedger’s Easy to Use Crypto Tax Platform - Source: ZenLedger
ZenLedger makes it easy to aggregate transactions across wallets and exchanges and accurately compute your capital gain or loss. Using that information, the platform auto-generates popular IRS forms, including Form 1040 Schedule D and Form 8949. You can even use ZenLedger to automatically find opportunities to harvest tax losses and reduce your tax exposure.
The Bottom Line
The Wirecard situation demonstrates that fundamental changes are needed to eliminate the possibility of fraud. Rather than high-risk merchant providers stepping in to fill the void, the industry needs multiple high-quality processors to provide a number of options for crypto card companies to choose from and a failsafe in case one experiences problems.
If you are preparing your own Crypto Taxes and Accounting, ZenLedger can help aggregate transactions, calculate your gain or loss and auto-populate popular IRS forms. A TurboTax integration makes it easy to incorporate crypto transactions with your existing tax forms, while the transparent calculations ensure that you’re safe in the event of an audit.
Try ZenLeger today and see how easy it is to get started!