Crypto Trading and Taxes - The Past, The Present, and The Future

A conversation with Oliver Mavher and Michael Deichsel, KPMG Austria

Trading with Cryptocurrencies/Digital Assets/Digital Commodities/Tokens has been technically challenging and a bumpy ride for over a decade.

Still, in 2021 many limiting hurdles exist that prevent this new asset class from going entirely mainstream.

One of those hurdles is a bit of global uncertainty around the regulatory environment and tax laws regarding digital assets.

The History of Crypto Investments

Looking back on its history, many high financial experts looked at it with doubt and said suspiciously at its best, and it is rat poison squared.

The crypto craze up to 2017 primarily was driven by technicians and some nerds who believed this novel technology might one day replace the U.S. dollar as a reserve currency.

The tech people worked hard to move the technology forward.

Each price hike cycle of bitcoin before 2017 mostly brought more technical experts to the trading table and almost nobody outside this community.

All changed in 2017 when something unique happened.

Instead of financial experts at Wall Street picking up the opportunity at scale, which is the usual pattern for every company that skyrocketed in the private and public sector, retail investors began front running this opportunity.

The first Bitcoin Millionaires evolved out of the ecosystem and started creating more start-ups focused on further building the ecosystem.

And yet, high finance still ignored that space, which left many questions unanswered.

What are those tokens?

Is it an asset, a commodity, or a replacement to currencies?

2021 - The Next Crypto Craze Cycle

It is a question that I am pretty sure the tech experts in the crypto community can quickly answer for themselves.

Yet, regulatory and tax authorities have just begun to create the definitions that, in the end, make legal consequences for the owners of digital assets/currencies/commodities.

Looking on the government side, China completed its ban on trading cryptocurrencies, mining cryptocurrencies, or running a crypto exchange.

Other governments like Brasil, Ukraine, Venezuela, or El Salvador are in the process of adopting cryptocurrencies as legal tender, which means that every shop owner needs to accept a transaction when the counterparty wants to use a specific cryptocurrency.

As a result, the prices of almost all tokens went up since last year’s fall. The first price hike stopped in April 2021 when Bitcoin hit an all-time high of around 65,000 USD per coin.

All other cryptocurrencies followed the pattern of the top dog.

Was that it?

Experts like Michael Saylor, Cathie Wood, or Raoul Pal predict that the price should increase further due to the mass adoption that has just begun.

But what about taxes?

Falling down the crypto rabbit hole sometimes makes people forget the real world.

On the internet, I saw once a video of a person who made a fortune with crypto assets, and yet, as he doesn’t dwell longer than 179 days in one place, he claims that he doesn’t need to pay taxes.

Since I saw such statements, I wondered - is that possible that tax authorities have a blind spot here still in 2021?

Topics we discuss in the show:

The questions that I consider relevant for everybody owning digital assets:

  • What if someone gets paid in Bitcoin or other Cryptocurrencies? Is that a taxable event?

  • What if someone invests in those novel digital assets and they gain in value?

  • Does the location of the wallet or crypto exchange make any difference for taxation? Which tax law is applicable?

  • What about European ETFs and their offshore counterparts that replicate the price of digital assets?

  • What about investments in companies that invest in digital assets?

  • Are there differences between retail investors, investment funds, and other institutional investors?

  • And many more questions similar to the above

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