Brennan Snow, President of BitTaxer.com, discusses global crypto-taxation in Reykjavik, Iceland
At a recent Blockchain and Cryptocurrency conference hosted by IBF (Rafmyntaráð — Icelandic Blockchain Foundation), Brennan Snow (President, BitTaxer.com) presented on how cryptocurrency taxation is being treated in the US and around the world.
In the past 4 months, the entire cryptocurrency market has been in a long-term downtrend for several reasons. One of the reasons for this bearish market may be the lack of regulation by national governments, e.g., utility token vs. securities, custodianship, ever-changing AML/KYC, etc. More specifically, very few countries have passed tax regulations on cryptocurrency.
Although we have come a long way within just a few years, the cryptocurrency community has witnessed the drastic development and rise of digital assets, as well as its sharp fall. Until mid 2016, the market cap of cryptocurrency was around $8 Billion USD. In January 2018, the global market cap hit its peak at $822 Billion USD. In the first three months of 2018, cryptocurrency lost roughly 60% of its global market cap. The downtrend has become more severe recently.
Life, Death and Crypto-Taxes
As more entrants and institutions enter the market the demand for proper regulations, which many argue typically brings about protections, has accelerated. Brennan first gave some facts about the current compliance in cryptocurrency. There is no thoughtful regulatory framework for cryptocurrency and most tax professionals do not understand the cryptocurrency market, and two distinct facts are staggering:
- In 2016, 800 crypto-tax returns were filed in total across the entire US.
- Between 5–10% of CPAs in US will choose to interact with Cryptocurrency. Meanwhile, roughly 10% of adult population in the US hold cryptocurrency or have participated in the market.
Brennan then continued to provide examples of crypto-tax treatment in a few nations:
- United States — Cryptocurrency is generally treated as property, with an emphasis on Capital Gains/Losses arising from trades. Mining income is treated as normal business income. Counter to stock trading, Wash Sale Rules are not applicable.
- United Kingdom — Depending on the nature of the activity, trading activity is treated as Corporate Tax, Income Tax, or Capital Gains/Losses.
- South Korea — ICOs/Cryptocurrencies are provided with favorable “Start-Up” tax treatments, though very little else is publicly available.
- Japan — All gains are treated as Miscellaneous Income
In late 2018, large economies began taking actions to keep the cryptocurrency market under surveillance. Governments’ actions, though often unpopular, have brought better control to the market. Exchanges are starting to work more collaboratively with national governments. AML is determined through linking/verification of bank-account to exchange. KYC is implemented via the exchange sign-up process. As a result, it is becoming much easier to identify users on exchange platforms and exchanges can remain in compliance and avoid fines.
Many activities of national governments show the increased scrutiny within the cryptocurrency market. In the US, the SEC required two ICO companies (Airfox and Paragon) to register their tokens as securities and return funds to harmed investors. The IRS can now use the services of a company called ChainAnalysis to identify tax evaders.
On February 23rd, 2018, Coinbase provided 13,000 addresses and identity information to the IRS. The Financial Conduct Authority in the UK has doubled investigations into crypto businesses, while the Japanese Virtual Currency Exchange Association is ready to tighten up rules on the industry in the near-term.
According to Brennan, “there is still so much uncertainty around the treatment of cryptocurrency by national tax authorities.” He believes that to the extent people “interact responsibly with cryptocurrency as a form of new economy or commerce, it will continue to proliferate globally and appear less nefarious to governmental authorities.” A fact that is already occurring.
Additional notes from the talk:
Brannan started his talk on the history of cryptocurrency. In 2009, Satoshi Nakamoto who is believed to be the father of Bitcoin created this cryptocurrency for decentralized settlement and deflationary model. Following the advent of Bitcoin, thousands of altcoins have been created. Some outstanding digital assets are Ethereum, Ripple and Litecoin. Ethereum is a representative product of Blockchain 2.0 with Smart Contracts. Ethereum’s computer protocol is intended to digitally facilitate, verify or enforce the negotiation or performance of a contract and allow the performance of credible transactions without third parties. JP Morgan Chase, Microsoft, & Intel formed a group called the Enterprise Ethereum Alliance to build a decentralized computing network based on this cryptocurrency. Meanwhile, Ripple is one of few cryptocurrencies that are used by several large financial institutions such as Unicredit, UBS, Santander, BOE or Saudi Arabia Central Bank. Additionally, Ripple is backed by Google. Another typical example of a popular cryptocurrency with high market cap is Litecoin. Litecoin is created by Charles Lee and technically similar to Bitcoin. Its differences and improvements in comparison with Bitcoin include decreased block generation time (2.5 minutes), increased maximum of coins and different hashing algorithm.
At BitTaxer, we provide a holistic and comprehensive tax solution for users to account for any type of virtual currency transaction, giving special attention the utility of Virtual Currency as both a capital asset, as well as a method of exchange. BitTaxer is the fastest, easiest, and most accurate way to calculate and file income, deductions, gains and losses from your virtual currency trades. CPA-Approved and works across every device. BitTaxer.com