It’s Too Early To Tax Crypto – Here’s Why

We are witnessing another wave of Bitcoin price growth, which almost reached $20,000. Once again it shows us that cryptocurrencies are an interesting and potentially profitable tool. It is able to generate money.

What is the situation with the taxation of cryptocurrencies now and what prospects are expected in the near future? In this article, we will have a look at this topic

Is there money in cryptocurrencies?

As of December 2020, the cryptocurrency market capitalization was over $577 billion. The daily trading of Bitcoin alone is 4 million. Other currencies, although lagging behind in volume, but form a large, active, unpredictable, and profitable market.

Investors in cryptocurrencies today can be divided conditionally into two camps: those who invested earlier and earned on the growth of the rate (potentially, there may be billionaires who became them only because of the price of bitcoin); and those who earn now, including by trading on the stock exchange, whether pairs on Forex or on cryptocurrency exchanges.

In both cases, we see an increase in savings, which is of interest not only to investors but also to tax authorities.

Cryptocurrency taxation: does it exist?

The question “how to tax cryptocurrencies” is too young: the inert systems of the state did not have time to fully understand how to do it. The first problem faced by the authorities is directly determining what cryptocurrency is. This industry is still new so not a lot of companies are motivated to have taxes.

In most parts of the world, they have not yet realized whether they should be recognized at all. At the same time, they want to tax, as in Colombia.

However, the real problem with the taxation of cryptocurrencies is not that the authorities have not decided on the type of asset and the graph of the law, on what principle to pay. The catch is that even wanting to pay taxes on the money earned, it is not easy to do.

The most understandable way: to translate earned cryptocurrencies into dollars or native currency. Here we immediately receive capital gains tax or similar to it, depending on the class chosen.

However, if a citizen decides to leave money on the exchange or in an electronic wallet, what to do? How do you comply with the tax bill requirement to make it logical?

First, the tax authorities have almost no tools to check the veracity of the information provided. You have the right to say that you have less than 1.5 Bitcoins in your account and pay your 10-20% when in fact you have more or less.

Secondly, you can try to prove them “account statement,” but again, until the tax authorities get confirmation, they can’t be sure that you’re telling the truth. At the same time, no one but you has access to the wallet. So you can access the account with your personal key, but this is already the disclosure of personal information, which is unacceptable.

Third, how to determine the amount with which to pay taxes? A week ago, Bitcoin was worth 18,000 dollars, now – almost 20,000. A year ago, it was $500. Next year, he can sit again up to 3,000 to grow to 10,000 in a month. Predictability is not enough.

The classic option, which is used in the valuation of assets in foreign currencies – to calculate the average price for the year. It is a good idea, but the problem is that there is not only a fluctuation in the price of the cryptocurrency itself but also a different price on different exchanges! These exchanges are not one or two, so it is not possible to collect a single statistic.

Why it is still early to talk about taxation?

We have said that the crypto industry is a relatively new one, so it should be noted that companies will not be too adamant to expand themselves. People will also focus on other things and the revenue will decline sharply. 

Eventually, it should be noted that the money obtained from cryptos still goes at some point to the government. People invest in things like house, car. So the government still gets some money from crypto investments that people make.

Conclusion

Discussion about the taxation of crypto is not a new thing, but we have not yet reached the final verdict on this issue. Yes there are some countries that support this idea, but technically speaking it is very hard to do so in every part of the world.

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