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Crypto can be lucrative, but make sure you’re ready for the taxman

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Hindsight is 20/20, but when money is on the line, being prepared can give investors better foresight. Just over a year and a half ago, Investopedia reported on the panic among many crypto investors who’d found themselves on the wrong side of the taxman. The article read, “Online forums like Reddit are abuzz with posts citing possible scenarios by worried investors about pending tax liabilities for their past dealings in cryptocoins, which may now leave them poorer.”

As Bitcoin’s (BTC) price soars and investors flock to crypto to cash in, legislators and regulators around the world are taking notice. Most recently, the Organisation for Economic Co-operation and Development announced a plan to release a ubiquitous tax standard for its member states, partly intended to curb base erosion and profit shifting. Although announcements like these serve as positive signs of intergovernmental collaboration, economic unity and progress, to the average investor, they feel rather distant. Yet it is crucial for investors in the United States to understand the digital asset tax regulations because, in some cases, it may mean the difference between prosperity and five years in prison with fines up to $250,000.

Related: Parents, it’s time for ‘the talk’: Did your kid trade crypto in 2020?

A handful of libertarian, crypto torchbearers might be inclined to believe that the built-in anonymity privileges of blockchain may save them from government scrutiny, but after all, the Internal Revenue Service isn’t quick to let go of these matters.

The U.S. tax code and crypto

Digital currencies and tokenized assets tend to be a mixed bag under the U.S. tax code. Many investors think of Bitcoin as a digital currency, like fiat currencies used regularly by consumers to buy goods. However, under the U.S. tax code, Bitcoin is actually considered “property” and is taxed under capital gains tax when either sold or used to purchase items or transferred for other digital currencies, such as trading Bitcoin for Ether (ETH). For example, purchasing a house with Bitcoin in the U.S. would trigger a taxable event on capital gains, and the exchange of Bitcoin for any other type of asset is considered a sale in the same way you might sell security like a stock.

Related: Crypto taxes, reporting and tax audits in 2021

It’s difficult to pinpoint why Bitcoin is classified differently from fiat currencies, but precedent in how Bitcoin is utilized by investors may tell us the answer. The IRS likely recognizes Bitcoin as a property asset because the popular crypto asset serves most users as an investment utility and not as a functional currency in the same way the fiat U.S. dollar does. More importantly, because these types of assets are not issued by a central bank, the U.S. government will not recognize them as such until further notice. Understanding crypto taxation also means digging into the little details.

Unlike centralized financial systems, decentralized systems require investors to take a far more active role in diligently tracking their investments from the moment of purchase to sale or exchange for commodities.

At the most basic level, the onus falls more on the investor to track the purchase date, purchase price and what was received in exchange for the Bitcoin in the case of a sale. In contrast, investment history in traditional, non-digital assets, such as stocks or commodities, is fairly easy to track because of the diligent records that brokerages maintain for clients and how readily accessible they are.

Crypto investments and taxation

Basics aside, there is one area in particular in which many accredited investors miss the mark.

Crypto hedge funds are reputed for offering lucrative crypto opportunities. While some crypto hedge funds are considered risky due to questions about crypto-market liquidity, they can be the better route to invest instead of buying individual units of Bitcoin. And as of late, they have proven themselves increasingly popular over the last year. According to Big Four audit firm PricewaterhouseCoopers, assets under management with crypto hedge funds rose from $1 billion in value in 2018 to over $2 billion in value in 2019. Despite piquing the interest of investors, buyers beware.

Compared to traditional assets, when onboarding investors for crypto assets, it’s a whole different ball game. Unlike traditional assets, it’s imperative that digital asset hedge funds ask deeper questions about tax considerations. Some questions regarding crypto investments should include: What kind of property is cryptocurrency x? or Can staking assets on proof-of-stake networks, which offer rewards for staking, be classified as unique income? These are just the basics, but questions like these can easily slip the mind when in the moment and can trigger unintended tax events.

On the other hand, when joining a hedge fund, it’s standard procedure to sign a standard legal entity fund structure, which is often as lengthy as 500 pages. Included are taxation clauses in the contract that explain the implications of investing with the fund. But with hundreds of pages of details, investors may not pay close attention to the little details, inadvertently putting them at serious risk of conflict with the IRS at a later juncture. That’s where a tax advisor should come in, who is accustomed to a more passive role.

Because of crypto’s unique properties, the tax advisor’s role has to become more active rather than passive, as it usually is. Rather than take a backseat, tax advisors should be summoned to provide consultation on investments before they’re undertaken and play a proactive role in educating investors every step of the way. As a result, investors would find themselves better prepared to provide a comprehensive and abiding tax return, rather than find themselves on the short end of the stick, playing catch up with the IRS.

When the taxman comes knocking, it’s better to be safe than sorry and know the regulations; otherwise, the consequences could be much graver. More importantly, the tax advisor must be in the passenger seat, not the back seat, when investors sign on the dotted line.

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Derek Boirun is an entrepreneur with institutional experience in commercial real estate development, EB-5 capital investments and blockchain-based investing. Derek is the founder, CEO and director of Realio. He previously founded, and currently acts as a managing member of, the American Economic Growth Fund, an EB-5 investment platform focused on sourcing overseas capital for U.S.-based real estate projects.

Source: https://cointelegraph.com/news/crypto-can-be-lucrative-but-make-sure-you-re-ready-for-the-taxman

Blockchain

Mike Novogratz’s Galaxy Digital Filed for Bitcoin ETF With the SEC

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The number of companies filing to receive approval to launch a Bitcoin ETF in the US continues to increase with the addition of Mike Novogratz’s Galaxy Digital. If approved, the Galaxy Bitcoin ETF will trade on the NYSE Arca exchange. 

  • Based in New York, Galaxy Digital is a diversified financial services firm dedicated to the cryptocurrency and blockchain industry. The company has made another pro-crypto step by filing with the US Securities and Exchange Commission to launch its own Bitcoin exchange-traded fund. 
  • The document reads that if the Commission approves the application, the Galaxy Bitcoin ETF will issue common shares of beneficial interest that trade on NYSE Arca.  
  • The value of the shares will follow the performance of the Bloomberg Galaxy Bitcoin index, which includes multiple pricing sources. 
  • “In seeking to achieve its investment objective, the Trust will hold bitcoin and will value its Shares daily based on the value of the Index, which is calculated based on data from bitcoin pricing sources selected by Bloomberg Index Services Limited.” 

  • With Galaxy Digital’s application, the number of US-based companies striving to launch a Bitcoin ETF continues growing. However, the SEC has yet to approve the first such product. VanEck’s filing seems to be a step ahead as the Commission put its Bitcoin ETF proposal for discussion in March. 
  • At the same time, Canada has led the way with several operational BTC ETFs. In fact, Galaxy Digital already has a functioning one in North America. Novogratz’s firm partnered with CI Global Asset Management, and the CI Galaxy Bitcoin ETF launched on the Toronto Stock Exchange (TSX) on March 9th.  
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Source: https://cryptopotato.com/mike-novogratzs-galaxy-digital-filed-for-bitcoin-etf-with-the-sec/

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Blockchain

Where fiat holders lose out, Bitcoiners can gain from inflation

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Currency instability and hyperinflation seemed unreal until a global pandemic struck, sending many nations into economic turmoil. Most economists began to wonder if the end of the pandemic would mean the birth of another Venezuela, which faced a 438% (hyper) inflation rate. However, like several other Bitcoin enthusiasts like Max Keiser thinks that inflation and the price of Bitcoin are correlated.

The aforementioned data is the long-term compounding of past, present, & possibly future base money, since 1970.

In a recent interview Matthew Mežinskis spoke about the inflation rate of the global monetary base, weighted averaged by each base money’s equivalent in USD. What’s important to note here is, it matched the overall 12.8% CAGR (6-year doubling time) we already saw above.

Source: https://platoblockchain.net/wp-content/uploads/2021/04/where-fiat-holders-lose-out-bitcoiners-can-gain-from-inflation.jpg

For all of 2019, central banks were actually on track to deflate their currencies. This would have been a first in the modern fiat era. So interestingly, no matter what one argues for money printing, 2019  ended with positive inflation, weighted at 1.5%.

Furthermore, he touched upon the role of monetary metals like gold. Gold’s rate of growth had, in fact, been around 1.8% per annum for the last 170 years.

Source: https://platoblockchain.net/wp-content/uploads/2021/04/where-fiat-holders-lose-out-bitcoiners-can-gain-from-inflation.png

Almost similar with silver – it’s almost as politicized as its “bigger brother of gold”. Lastly, he shed some light on Bitcoin. He added:

“Remember why the overall compound growth, thus far, is so high, and why it will never be that high again. And now is about the time for a clarification note on the Bitcoin system’s compound annual growth rate, specifically.”

Bitcoin’s finite supply, which may overcome inflation risks is what comforts many. However, this narrative keeps evolving as well.

Source: https://platoblockchain.net/wp-content/uploads/2021/04/where-fiat-holders-lose-out-bitcoiners-can-gain-from-inflation-1.jpg

What’s interesting to note here is, the phrase “supply issuance” for Bitcoin’s chart titles, and not “inflation.” Bitcoin’s “inflation,” economically, was already baked in. As already demonstrated, its growth rate is known until 2141, per the protocol. So when it comes to bitcoins, “inflation” is not the best term.

Even though the price of Bitcoin may indeed surge, its path to the target could be volatile. In the past, the asset’s price has appreciated and even collapsed several times. But some stated that even as Bitcoin increased in price, the rate of inflation, and forecasts for inflation, “remained stable.” Some provide a contrary opinion that economies need a bit more inflation, not less. At the same time, they do not expect hyperinflation to occur again, after the last great recession.


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Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://ambcrypto.com/where-fiat-holders-lose-out-bitcoiners-can-gain-from-inflation

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Blockchain

Holdefi: A Unique Decentralized Lending Platform Shaping the Future of DeFi

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The DeFi industry offering an alternative to traditional financial services is evolving at a rapid pace. There are few platforms that are using the latest advances in the blockchain space to create DeFi solutions that could not only outperform their peers but also capable of adapting to new developments in the blockchain technology itself.

Holdefi is one such open-source, non-custodial decentralized lending platform that offers an attractive passive income stream to investors while enabling the masses to borrow at attractive interest rates. Like its counterparts, Holdefi allows users to instantly secure credit against crypto collateral. The platform does not require the borrowers to provide their KYC or prove their creditworthiness before borrowing. All they have to do is to deposit their crypto assets as collateral to secure a loan in any of the supported cryptocurrencies including stablecoins like USDC, DAI, USDT and BUSD. Users can deposit collateral in one or more types of crypto assets. Similarly, they can borrow different cryptocurrencies using single collateral as long as the value meets the platform requirements.

Attractive Interest Rates and Better ROI

Holdefi uses a mechanism that calculates interest rates for borrowing based on the market and competitive conditions. By doing so, it will balance the demand and liquidity to provide an attractive interest rate to borrowers. Meanwhile, lenders providing liquidity to the supply pool will receive a portion of the interest payments in proportion to the invested amount.

Lenders on Holdefi will get a bigger share of interest payouts in comparison to those on other DeFi platforms as borrowers do not receive any reward or interest on their collateral deposits. So, the lenders end up receiving a proportional share from the overall interest received by the platform from its borrowers.

What Makes Holdefi Stand Apart from the Rest?

Holdefi is an advanced DeFi solution based on the Ethereum protocol. Powered by a native ERC20 standard HLD token, the project is designed to work flawlessly on Ethereum’s existing PoW protocol while being future-ready to operate on ETH’s upcoming PoS upgrade.

The platform witnesses significant upgrades that impart certain qualities of CeFi platforms without affecting decentralization. One such sought-after feature of CeFi is the availability of collateral insurance. While such an option is not available with other DeFi projects, Holdefi solves the issue by separating the collateral deposits from borrowers and liquidity provided by investors into different pools. That way, the collateral won’t be utilized, and borrowers can withdraw it at any time, thus eliminating the need for insurance.

The separation of liquidity and collateral pool will also have a positive effect on Holdefi when ETH 2.0 is implemented as it will speed up the process while keeping transaction costs at a minimum.

Using HLD

HLD is a native ERC20 utility token of the Holdefi ecosystem. Apart from being a mode of value exchange within the ecosystem, it also acts as a governance token imparting voting rights to tokenholders. It can also be used for liquidity mining, staking, and revenue sharing between the participants.

The project has set the maximum supply cap for HLD at 100 million of which 13 million was offered to investors through private and public sales. Recently, Holdefi successfully concluded its private and public sale.

The public sale, a 2-day event starting March 31 was completely sold out within hours of launch. Meanwhile, those who didn’t participate in the token sale can purchase HLD on Uniswap and PancakeSwap

Buy HLD and HODL?

Holdefi is one of the few platforms that has made significant improvements to DeFi lending. It offers a lot of flexibility to users while maintaining strong security features. The future-proof design of Holdefi ecosystem is an added advantage that will make it popular with the crypto community.

While there is no definitive forecast on whether HLD will be an asset due to the volatile nature of crypto markets, Holdefi is an innovative project that is playing a major role in shaping DeFi platforms of the future.

Learn more about Holdefi at – https://holdefi.com/

Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://www.newsbtc.com/news/company/holdefi-a-unique-decentralized-lending-platform-shaping-the-future-of-defi/

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