Should You Be Worried About The State of Cryptocurrency?

Markets crash every so often, whether it’s stock, commodity, or cryptocurrency. Just recently, Amazon stock has lost 25% of its value in a span of 3 months. Nearly 40% of Facebook’s share value has been wiped out since July; Google lost 19%. Apple is down by 26% since October. By and large, 2018 has been particularly bearish, not just for cryptocurrencies, but tech stocks as well – quite the opposite of what we’ve seen last year.

 

“What Goes Up Must Come Down” 

Market cycles are normal with any type of investment vehicle. The price crash on both cryptocurrency and stock in Q4 strongly suggests that we are indeed going through a market downturn or a bear market. In other words, the fact that both cryptocurrency and investment funds are down suggests there isn’t anything wrong with cryptocurrency but instead it’s just a natural market fluctuation.

Bitcoin, has lost around 75% of its market price from its all-time high of $19,309 in December 2017. Speculation for Bitcoin’s price is considered as one of the main reasons for the run-up resulting in a price crash after further gains became unattainable.

 

Making the Most from a Price Crash

Market volatile in cryptocurrency is something experienced traders and investors have all been accustomed to. Truth is, what we’re seeing right now with Bitcoin and other cryptocurrencies is just one of the many examples of a price downturn in recent years. Here are some ways we can get by in a cryptocurrency bear market. As always, please note that this is not investment advice and is written solely for informative purposes.

HODL. Hodling is another one of those internet sensations that came about because of the immediacy of Twitter. For the unaware, it is essentially a “buy and hold” strategy used by cryptocurrency users and investors. Hodling can take a lot of patience, and mental resolve, with an almost stoical attitude towards cryptocurrency investment. In other words, they’re not into crypto just for the short-term gain, but look forward to using it more as it slowly reaches worldwide adoption.

Dollar Cost Averaging (DCA). Regarded as one of the most conservative and safer approach to cryptocurrency investing, which allows investors to accumulate crypto-assets over time. Similar to hodling, DCA requires discipline, and the ability to stick to the plan regardless of price actions in the market. It usually involves a fixed amount spread over a period of weeks or months. DCA can be considered as a “contrarian” approach to investing because investors can have more during a bear market and buy less during a bull market – the opposite of what most people tend to do which is giving in to fear of missing out (FOMO) and herd mentality.

Entry and Exit Strategies. A lot of cryptocurrency traders have an exit strategy such as placing stop loss orders below their entry points in order to minimize potential losses. Here’s an example of how an entry and exit strategy can be used during a bear market. Unfortunately, there is no guarantee that investors would be able to recoup their losses since it would all depend on future price actions. We’ll be using Bitcoin in this particular scenario.

From this hypothetical situation, it is entirely possible for traders and investors to recoup or even take some profit off of the bear market. However, it’s also possible for Bitcoin markets to go much deeper, exacerbating one’s losses and making it more difficult to recover. We don’t recommend this method unless you truly understand the cryptocurrency market and are quite familiar working with exchanges. Also, please bear in mind that selling cryptocurrencies for profit is a taxable event under state laws regarding cryptocurrencies.

Educate Yourself about Cryptocurrency. Spending some time learning about this emerging technology could be one of your most valuable investments in this day and age. Cryptocurrency will continue to evolve and will be more accessible to millions of users in years to come. Read books about cryptocurrency, enroll in blockchain and cryptocurrency courses, and steer clear from get-rich-quick schemes and cryptocurrency scams. Having a better grasp of cryptocurrency and its underlying technology (blockchain) helps clear out all the noise and drama surrounding cryptocurrency and allows you to make wise investment decisions.

 

 

**Please note that this is not investment advice and should no way be treated as such. It is for informational purposes only. Before you make any trade or investment you should consult a licensed financial advisor who is familiar with your current situation.

The Top Cryptocurrency and Blockchain Projects in 2018

There’s been a change in the outlook for cryptocurrency during the past few months. People seldom talk about the markets or the price of Bitcoin. Volatility has been causing a lot of uncertainty, and mainstream adoption came to a virtual standstill.

Nonetheless, the cryptocurrency space showed remarkable resilience as blockchain projects continue to expand its borders with more lateral thinking and “out-of-the-box” blockchain solutions. We’ll explore some of their use-cases and find out whether these currencies and platforms are the next big thing.

 

Why People Invest in These Projects

Despite the recent lull in cryptocurrency trading and mining, blockchain projects and ICOs are very much in the business for 2018. Investors and tech companies remain optimistic about the future of the cryptocurrency space amidst tightening restrictions and negativity. In fact, according to Coindesk, the amount of money raised in ICOs in the first quarter alone exceeded the total amount last year.

Most ICOs and blockchain projects didn’t end up well for a lot of investors (more than 90% failed to deliver). However, there are a few examples like Binance and EOS which turned out as good investments. Binance became one of the leading cryptocurrency exchanges with a BNB market cap of over $1 billion – the second most valuable token on Coinmarketcap. EOS, on the other hand had a successful, albeit controversial mainnet launch, and is now a full-fledged decentralized application platform second only to Ethereum.

Smart investors consider the current state of affairs as a golden opportunity to hunt for new projects with the greatest potential, particularly in their early stages when they are mostly undervalued. Investing early on has the advantage of maximum gains with the least amount of exposure. For instance, a hundred dollars’ worth of investments at ten cents per token won’t break the bank if things go south. But if it turns out to be a real investment, gains will be exponential (e.g., BNB and EOS tokens are worth a hundred times more than their initial price in 2017)

 

 

Blockchain Projects to Watch for in 2018

Finding a good investment can be a real challenge since we’re dealing with dozens of new blockchain projects and ICOs every month. If you’re lucky enough, you might be able to land on some big winners from a list of projects. But before anything else, please bear in mind that this is not investment advice, and you are solely responsible for any gains or losses. That said, here are five of the most talked-about blockchain projects in 2018.

 

Zilliqa (ZIL). Launched in January, the project puts a lot of work in building a highly scalable decentralized platform using a method known as “sharding.” Unlike in Bitcoin, each node will be working in parallel within a group of nodes called “shard,” verifying a subset of all the transactions occurring at the same time (also called parallel processing). Sharding works perfectly in many centralized systems (Ultima Online, Google, etc.). However, it presents an immense technical challenge when applied on a decentralized environment. Ethereum has been working hard on it as part of its on-chain scaling solution in hopes of solving the security/scalability/decentralization trilemma. Zilliqa’s entry into the whole sharding scene threatens to steal the thunder from Ethereum by becoming the first to come up with a workable solution. Some estimates it to be around January 2019. Key features include:

  • faster transaction throughputs (speed improves as the network grows)
  • employs practical Byzantine Fault Tolerance as a consensus mechanism
  • reduced energy consumption (mining is spaced a hundred blocks apart)
  • maintains a decentralized network structure (a new shard is created for every 600 nodes)

Basic Attention Token (BAT). Cutting the middleman goes beyond peer-to-peer transactions to include decentralized, blockchain-based digital advertising in the form of an open-source, ad-free browser with its own currency. Brave Browser is one of today’s hottest Internet browsing software because it allows users to block ads and trackers completely free. In fact, as many as 3 million people have already been using Brave, becoming one of Google Play’s top ten in the Android browser category. The project is moving towards the creation a decentralized advertising platform using its own currency – Basic Attention Token – to incentivize both content creation and user attention. It works in some ways like Google Ads but in a more transparent and decentralized manner. The key advantages of BAT from an investor’s point of view include:

  • good potential for adoption (sold out BAT worth $35 million in 30 seconds)
  • strong support from the community (Brave browsing experience receive a lot of positive feedback from users)
  • a solid team of experienced developers (founded by no less than the co-founder of Mozilla, Firefox, and creator of JavaScript)

Kin (KIN). Canadian messaging app company Kik Interactive is making headway into cryptocurrency adoption with the launching of Kinecosystem. The company hopes to build a community of users and developers sharing resources, and making digital goods and services. However, unlike most blockchain startups with no real users, Kin’s integration into the Kik Messenger meant its value could potentially rise with over 300 million active users.  The company is now moving towards the next phase, inviting all developers and content creators in building the ecosystem for large KIN payouts. Gains will take time, but you might want to consider its advantages, namely:

  • KIN’s practical use-case as a digital currency on an existing application (Kik has been in use since 2010)
  • user base is mostly made up of digital-natives (teens, millennials, and active mobile users)
  • Kik’s emphasis on anonymity

DeepBrain Chain (DBC). Blockchain companies like DeepBrain Chain sees decentralization as the future of the AI industry. Development of AI applications use up a huge amount of computing power. DeepBrain Chain works by utilizing computational resources across millions of nodes on the neural network in building AI applications which are then published onto the blockchain. Nodes that successfully deploy mirror images will receive payouts in DBC. It plans on migrating out of NEO to its own mainnet in Q4, with its own consensus algorithm (proof of importance and delegated proof of stake). The goal is to become the deep learning machine for the AI industry. Successful adoption is achievable through:

  • growth in people’s interest in the AI industry
  • reduced computational cost of AI companies through resource-sharing
  • secure, decentralized method of storing AI information.

Wormhole. Bitcoin Cash might soon be able to run smart contracts through its proposed protocol layer known as Wormhole. Developers plan on forking the Omni Layer to create a platform for smart contracts on top of Bitcoin Cash. Much of it is still in the works as of this moment, but news is, they’re going to issue a token named “Wormhole Cash.” Investors and crypto-enthusiasts are keeping track of its progress since it is expected to have a very high demand upon release.

 

Conclusion

The cryptocurrency space has been constantly evolving even as the noise and the hype surrounding cryptocurrency have mostly faded. Cryptocurrency is here to stay, and we’ll be seeing more projects in the near future that will bridge the gap between the average user and blockchain technology.

How You Should Look At Cryptocurrencies When It Comes To Your Financial Goals

Cryptocurrency can have a lot of potential as an investment if you have an informed and disciplined approach. You could invest in the long term, or as a one-time goal. Whatever the reason for investing in cryptocurrency, you should always have the reason why you’re investment top of mind. Maybe it’s a holiday tour in Europe, a luxury cruise in the Caribbean, or perhaps that amazing sports car, or home theatre system you’ve always wanted.

Perhaps you want to start out your own business when you retire, or create multiple streams of income with your cryptocurrency investments. Whatever your reason why is, cryptocurrency seems to be a very promising investment proposition. Your “why” will help you stay focused and committed to the task at hand. If you stay connected to your goals, you’re less likely sell because of panic or over-extend yourself.

The Internet has no shortage of success stories about Bitcoin, from the legendary pizza shop in UK selling two boxes of pizza for 10,000 BTC, the college dropout from Brooklyn who made the first dedicated ASIC miner, the teenage-school-boy-turned-Bitcoin investor from Idaho, to the Bitcoin millionaires and entrepreneurs the likes of Jered Kenna, and the Winklevoss Twins. But don’t pay attention to the hype. You’re not likely to become an overnight success story. You’ll have to do your homework and make smart decisions, otherwise you’ll run the risk of losing out big.

 

It’s Never Too Late

When talking about investing in cryptocurrencies at this point in time, people often speak of “missing the boat.”

“Bitcoin went insanely high in 2017, and I missed the boat.”

“If only I have bought Bitcoin and Ethereum back when they’re still pretty cheap. Now, it’s too late.”

Truth is, cryptocurrency is a relatively young industry. It entered the scene in 2009 and it’s continuously growing and improving for the last nine years. Sir Richard Branson is only one among many influencers who believe there might be currencies in the future that would match or even surpass Bitcoin as a digital asset and as a medium of exchange.

Just think back to the beginnings of Myspace. A lot of investors thought it was too late to invest in or create a new social media because Myspace was dominating the internet. Now Facebook is dominating and looks to rain supreme in the foreseeable future.

Vitalik Buterin proved cryptocurrency can be more than just a medium of exchange when he created the first platform and currency with a programmable blockchain – Ethereum.

Soon, Bitcoin will be more accessible to millions of everyday users, commercial establishments, and businesses worldwide through a second layer, known as the Lightning Network, which could render transaction speeds ten times or even a hundred times faster.

These are cryptocurrency’s first wobbly steps in creating a better way to transact and store value in a completely decentralized financial system.

In comparison, many of our industries today are decades-old and have already produced some of the world’s technological breakthroughs; things we often take for granted like the cars we drive at work, the phones we take our pictures with, or the Internet we use every single day.

These industries just keep getting better with each passing year. The automotive industry didn’t stop with Ford’s “Model T” or Mercedes-Benz’s “Motorwagen”; today we have hybrid, electronic and self-driving prototypes by Tesla and Google.

The Internet didn’t stop with email, TCP/IP and packet-switching; now, there’s Worldwide Web, HTTPS, cloud computing, streaming media, free Internet calls, video conferencing, mobile apps, and a host of other features people thought were not possible with the Internet (back then, it took several hours to upload/download a single jpeg image).

And let’s not forget our mobile phones which started out as clunky, metal-and-plastic bricks with large keypads and small monochrome backlit screens. Today, we have Apple and Android Phones which crosses between mobiles phones and mini-computers with HD cameras, internet and browsing capability.

People still invest in these technologies despite some of them being half a centuries-old. Cryptocurrency isn’t even half as old as many of our industries. Much of our cryptocurrency and blockchain space is uncharted territory, waiting to be explored, and harnessed to its full potential.

So, is it too late to invest in cryptocurrencies? Of course, not. In fact, we’re just getting started.

 

Knowing Your Investment Goal

Generally, we want to invest our discretionary income (disposable income minus living expenses) into something we want to enjoy much later. It’s the kind of money we can part with or set aside, and won’t have any hard feelings if everything goes south.

We don’t want to use money we pay our bills and mortgages, or buy groceries with. Or, heaven forbid, owe huge sums of money from banks at interest just to buy cryptocurrencies and ICOs. More often than not, this attitude of chasing the hype and FOMO will get people crushed.

People often invest in cryptocurrencies as a retirement option. This is not a good idea. Cryptocurrencies are highly volatile and should not be relied upon to retire with.  A safe and conservative approach is to set a small amount of discretionary income, say fifty to a hundred dollars a month, (depending on your income) to buy Bitcoin and other large-cap currencies – also known as dollar-cost averaging. Investors stick with that amount regardless of how often or how much the markets turn. It’s like a savings account, in a way, but in cryptocurrency.

Some people don’t wait for retirement and want to get out as soon as they have the opportunity. They want to store up some money as an employee so they can start out on their own. Maybe a small business, an S-corp, or an LLC. And what better way to grow capital than to invest?

Cryptocurrency exchanges are a good place to start when studying markets that would potentially grow in value. You can take short courses in financial literacy on how to invest in stocks and apply those concepts in cryptocurrencies such as asset allocation and portfolio management. Or, you can take it to the next level by learning some codes and understanding how cryptocurrencies work under the hood.

Some investors become full-time cryptocurrency traders and investors over time. These are usually angel investors, and venture capitalists – people who make risky financial decisions in order to make a lot of money. Returns can vary widely from zero to ten times the initial capital. Investment options include ICOs and new or emerging cryptocurrencies. The goal is to maximize returns while minimizing risk exposure.

Other reasons for investing in cryptocurrencies is simply to gain first-hand experience. Few people were lucky enough to have hit the jackpot, or bought in just before the big breakout out of sheer luck. However, these are just rare occurrences, and we need to be aware of “survivor bias” when it comes to personal stories and testimonials about people who got rich trading or investing in cryptocurrencies. Most people hear about 1% of the population who actually made it, but forget the 99% who failed.

 

A Smart Way to Invest

Your investment capital will depend on your age, income, priorities, and investment goals. Tax laws can also impact your ROI. You can check the legal status of cryptocurrency in your country from Coin.dance’s site (https://coin.dance/poli), or seek competent legal advice about the possible implications of investing in cryptocurrencies.

That said, here’s a sample of how you might want to structure your cryptocurrency investment. Let’s look at it from the perspective of a middle-class employee earning a net income of $3,500 a month.

The first step is to subtract the living expenses from the net income. What you’re left with is your discretionary income which you can freely use to plan for your future or hedge against financial losses. (Note: Do not invest all of your discretionary income. You should put it aside for entertainment, holidays, emergencies, and donations to good causes.)

 

$ 3,500.00               net/disposable income (after-tax)

2,500.00                    living expenses


= $ 1,000.00               discretionary income

 

Another option is to have multiple income streams, or side jobs aside from your typical 9-5. From here we’ll set up an account and possibly allocate our resources, thus:

20% emergency account
40% freedom/savings account
30% capital investment
10% trading/speculating

 

Here is a good way to look at our income. The first two (emergency and freedom/savings) are considered a necessity because of the fact that life is unpredictable. Anything can happen, so it’s always best to prepare for the unexpected. Remember Murphy’s Law: “If something can go wrong, it probably will.”

Your emergency and freedom account act as your “safety net” against life’s unpleasant surprises. An emergency account is used to cover your expenses like medical bills, repairs, etc. Others may spend them on health, car, and home insurances, which is also a viable option.

Freedom/savings account will cover your living expenses for six to twelve months in case you get laid off or choose to leave the company (some companies may offer a severance package, but not always).

The last two (capital investment and trading/speculating) is where you make crucial financial decisions that could potentially change your life or move yourself upward in today’s economy. You can have a choice between entrepreneurship and becoming a full-time trader/investor.

Being an entrepreneur gives you greater control over your finances. In the context of a cryptocurrency or blockchain-based business, you could run a cloud mining rental service, pool mining website, or cryptocurrency exchange. Once your company gains traction, you can start growing your business by raising capital through crowd-sales (check the legal status of ICOs in your country). Some start-ups may go with crowd-sales straightaway.

You can become a full-time cryptocurrency trader and invest heavily in cryptocurrencies where you’re constantly on the lookout for trading and investing opportunities, such as breakouts, funding blockchain start-ups, and ICOs. Beginners are often discouraged from getting involved in cryptocurrency trading and investing particularly those with very little or no background in dealing with financial markets. We don’t recommend this option unless you have an entire backup plan. Full-time cryptocurrency traders should have millions of dollars in fiat currency just in case they lose everything.

Some look at investing as the polar opposite of entrepreneurship, requiring a different strategy and mental disposition. For one thing, investing is market-dependent and may not necessarily have a steady cash flow, whereas in an entrepreneurship, cash flow is the difference between growth and going out of business.

Finally, the last 10% of your investment might be used for trading in a speculative market, particularly new, or small to medium cap currencies, tokens, and altcoins. Bitcoin and Ethereum are worth less than a dollar at launch; today, they’re valued by the hundreds and thousands. Although we can’t compare them with new, emerging currencies, we can’t discount the possibility of such a currency taking the same path in the near future (think EOS, Monero, and Dash)

Should I Invest In Initial Coin Offerings?

Blockchain projects and start-ups open up a new world of opportunities for many cryptocurrency investors and venture capitalists. Initial coin offering allows investors to gain a decisive edge as pioneers and early adopters of new cryptocurrencies, and the latest applications and innovations in blockchain technology.

There’s a lot of success in recent Initial Coin Offerings (ICOs) of 2017, raising more than 3 billion USD in capital investments and token sales. (More about this later.) It became the latest buzz since Ethereum, and today we have more than 600 tokens created through these events – and counting.

However, ICOs recently came under fire and had been thoroughly scrutinized, or banned outright in some countries, due to their mostly unregulated status and reports of unsuspecting investors losing thousands, or even millions of dollars in ICO scams. In fact according to a report by the Wall Street Journal, around $300 million was money raised by coin offerings has gone to fraud or scams.

In this chapter, we’ll look at ICOs from a well-founded, and unbiased point of view, considering both pros and cons to help us come up with our own financial decisions whether or not to invest in them.

 

What are Initial Coin Offerings?

An initial coin offering is the stage or period in the development of a blockchain project where start-up companies or a group of people generate funds through crowdselling – a form of crowdfunding that issues tokens to contributors. Upon completion, creators and organizers of an ICO would launch the project (cryptocurrency, blockchain app, platform, etc.) and distribute tokens to all its participants. Some ICOs have their tokens already listed and traded in exchanges before the network launch to stimulate hype and move its value up through market price actions (e.g., EOS).

Some investors and regulators compare ICOs to initial public offerings (IPOs) because they’re both used to generate funds by issuing financial instruments tradable in a public exchange. However, such reference is made irrespective of the time of their execution.

Unlike IPOS, most ICOs are done when start-up companies have yet to prove themselves, and there’s nothing to back their claims except for several pages of whitepaper outlining their business model or concept. Participants usually buy indirectly through the ICO’s website and receive their tokens at a specified distribution date.

IPOs, on the other hand, are done on a public exchange, after companies have long been established and have already proven their worth. The main goal of an IPO is to raise capital to support its operations and to grow the company on a massive scale.

The financial instruments issued by ICOs and IPOs may also be classified as securities, but they may not exactly be of the same type. Tokens sold prior to, or within an ICO period are considered IOUs or (loosely) bonds with a set face value. After a successful launch, tokens are issued to all the participants, at which point, they may no longer be considered IOUs or bonds, but more like shares in an IPO where their value is determined by the market. But the main purpose of ICOs and IPOs from an investor’s point of view is essentially the same.

Currently, there are no fixed regulations about ICOs. However, there are a few who perform KYC on their contributors. It’s the mostly unregulated status of ICOs that make investing in these blockchain-based ventures extremely high-risk. But on a positive note, they can also be extremely profitable by as much as tenfold compared to other markets. In contrast, IPOs are highly regulated and closely monitored by authorities to protect the rights of investors. Certified investors in an IPO must also meet certain qualifications before they can be allowed to invest on a stock.

ICOs typically last for several weeks and may consist of token sale “rounds.” Prices of tokens increase in value with every round. Some ICOs run for months and had their tokens already listed on exchanges before the project launches. There’s also a pre-sale or pre-ICO where tokens are sold at wholesale prices to institutional investors and some small investors to jumpstart the project. Some pre-ICOs offer perks and exclusive bonuses to early adopters.

ICOs can be a great way to raise funds, and not just for companies looking to create a new cryptocurrency. Anybody from traditional companies, tech companies, and even Venezuela is getting in on the act. However, the United States is trying to block American citizens from purchasing the digital currency issued by Venezuela which, according to President Nicolas Maduro, raised $5 Billion.

In fact, ICOs have become a new mode of crowdfunding, blending investment returns with the possibility of an actual physical product.  Indiegogo, the crowdfunding platform is testing out a new product where you can invest in ICOs and blockchain. The first ICO they helped sell tokens for was called The Fan-Controlled Football League, a fantasy-style league which lets the football audience decide everything in real time. They are selling up to $5 million worth of tokens.

The Taxman Is Catching Up On Cryptocurrency

Revenue agencies around the world are scrambling to figure out a way to tax cryptocurrency as governments are beginning to realize they are losing out on a vast source of revenue.

We’re now seeing how cryptocurrency would fit into our economy, and more people from institutions and the mainstream society starting to acknowledge them as a store of value and as a medium of exchange. Consequently, this would also mean tax obligations for miners, buyers, traders, merchants, and everyday users.

Here are things we need to know to prepare ourselves for the tax season. We’ll cover some important issues, fundamentals of taxation and how they would apply to our cryptocurrencies. But before we start, here at CryptMin and CryptEdu, we encourage you to always pay your taxes and report your capital gains to the government. It’s never fun having the taxman after you.

 

Tax Laws Are after It

Despite what people tell us in social media and cryptocurrency websites about privacy and anonymity, dealing with cryptocurrencies can leave behind footprints for the CRA or the IRS. Blockchain transactions are public records – everybody sees it, including your taxman.

The truth is blockchain transactions are more transparent than our traditional banking system. The key difference is the use of public keys instead of real names, which makes every transaction pseudonymous. However, since no two public keys are alike, once it gets tied to a real person’s name or company, authorities can easily track every transaction that was ever made with that public key. (Note: some “underground” cryptocurrencies encrypt their true addresses on the blockchain ledgers like Monero and Zcash, and thus more difficult to track.)

Some places where the CRA or the IRS can get a hold of your identity are cryptocurrency exchanges, online wallets, cloud mining sites, mining pools, and the social media. Although gateways are largely unregulated these days, it’s only a matter of time before governments and regulators will require each one of them to disclose information they have about their customers upon request.

Coinbase, for instance, are required to conduct KYC on their customers before they can start buying, selling, or trading on GDAX. Same is true with cloud mining sites when accepting payments from customers using their credit card or bank account. Genesis Mining does so whenever customers buy their mining contracts. They’ll have their customers’ public keys as well for payouts.

From the governments’ perspective, these are all treasure troves when looking for information about people who owes them money. Depending on the exchange, cloud mining company or the country they’re in, government agencies can have access to these customer data.

They could also set their sights on social media, particularly content creators in YouTube, Facebook, or Twitter who display their public keys for accepting donations, or even online stores who take cryptocurrency as payment for goods and services. And while customers and everyday users might get away with it by putting them in cold storage (mobile, hardware, or paper wallet), sooner or later, regulators will find a way to catch up on them as well.

 

Conflicting Views on Cryptocurrency

The IRA and CRA treats cryptocurrencies just like any asset. Their value may fluctuate from time to time, but until they go out and are sold in exchanges for fiat, holding these currencies is not a taxable event. A Capital gain tax will apply when selling cryptocurrencies in exchanges. However, determining the exact price on the date of acquisition is necessary to properly assess how much capital gain the seller is obliged to pay taxes for during the re-sell.

As you might expect, getting the numbers right on a person’s capital gain is going to take a lot of work and making sure every transaction in cryptocurrency exchanges are properly documented. It’s possible, for instance, that Coinbase would be asked to disclose their records for taxing purposes on each buy and sell and the dollar valuation on each individual transaction to see how much capital gain a customer has.

When using it to buy goods and services, or trading them with other cryptocurrencies, bartering laws will apply. This is where it gets a little tricky when you consider capital gains on your cryptocurrency for every purchase. For instance, you bought a thousand dollars’ worth of Bitcoin and decided to buy furniture with it when the value goes up by 50%.  The next month, you buy your furniture with Bitcoin which is currently priced at 1,500 USD. According to law, you’ll also have to pay for the gain tax as it is with bartering goods. In essence, you’re paying tax twice for buying furniture with Bitcoin – gain tax on Bitcoin and GST/HST on the furniture. And since you’re exchanging your digital asset on a short-term gain, it will be taxed just like a regular income which is the highest for capital gain tax.

Businesses will have to deal with the same problem when accepting cryptocurrency payments. If clients chose to pay with Bitcoin, which by definition is property/digital asset, they’ll have to report it as income (see the confusion?). This carries a lot of risk for business owners due to the volatility of cryptocurrencies. They might end up paying taxes on the sale despite the fact that the value of cryptocurrencies have already gone down.

 

Tax Implications for Miners, Traders, and Buyers

Regulators are catching up on cryptocurrencies fast. There will probably come a time when every cloud mining company, exchange, and wallet service in every country will be required to keep records about their customers in order to run their business. In this case, we need to prepare ourselves to avoid getting burned when the tax bill arrives.

Cloud mining companies can take advantage of tax deductions by writing off electrical and maintenance expenses in running their cloud mining facilities. This is a lot better than dodging regulations and taking a lot of risk of being caught and paying huge penalties or even losing the whole business. Technically speaking, cloud mining companies don’t pay out their customers – it’s a rental service. Whatever payout their customer receives depends on the mining pools they choose to join in and the currencies they want to mine with the hash power they bought from the cloud mining service. They might also take a cut from the mining rewards as a service charge on top of the rental fee or contract price (all depends on the cloud mining company). This is considered a taxable event, and laws regarding cryptocurrency transactions will apply.

Mining pools also take their share of the mining rewards as their service fee, usually around 1-4%, and hence, it is a taxable event according to laws on bartering, i.e. cryptocurrency for mining service. Exchanges and traders will be hit the hardest, especially day traders and swing traders. Under existing tax laws, short-term capital gains (assets acquired below one year) will be taxed as regular income. This applies, not only when cashing out and locking in their profits with fiat, but when buying other cryptocurrencies with it, e.g. buying Bitcoin with Ethereum.

Everyday users might also have to deal with this when buying or using cryptocurrencies for everyday transactions. Some complications may arise for buyers and business owners as mentioned earlier in this article.

Tax laws regarding cryptocurrencies still needs a lot of refinement; implementing it at its current state can be problematic and cause a lot of confusion. Sooner or later, our governments might come up with better tax laws regarding cryptocurrencies and begin the process of pursuing anyone who gets their hands on them. When the time arrives, we would have already prepared for such eventuality.

Interested in mining? Learn the basics of cryptocurrency mining at CryptEdu.com or start  hassle-free cloud mining at Cryptmin.com today.