Crypto – Is It Safe to Trade It?
Since the launch of Bitcoin 11 years ago, the crypto space has changed completely. Thousands of other new cryptocurrencies have since appeared, many of them of little value currently.
The popularity grew exponentially. As such, crypto trading and investing attract various types of investors and speculators for different reasons.
Some believe in the ultimate failure of the current financial system and want to prepare for the future – so they invest in cryptocurrencies on the long term. Others are attracted by the increased popularity and high volatility and simply want to speculate on the numerous digital currencies.
Regardless of the reason, one thing everyone should have in mind – regulation.
Crypto Still a Grey Area in Many Parts of the World
When thinking of trading or investing, one of the first things that come to mind is the costs associated with trading. For most people, the costs begin and end with the transaction costs (e.g., spread, commissions, withdrawal fee, etc.). However, few think of the taxes to pay on capital gains, for instance.
Depending on the part of the world and jurisdiction, the taxes paid on trading and investing differ. For instance, in the United Kingdom, gains from spread betting are not taxed as long as spread betting is not the only job. If you spread bet for a living, you ought to pay taxes.
Yet the crypto world is mostly unregulated. Even in countries where some regulation exists (e.g., Canada, Japan), traders are not aware of it and still think they can get away without profits being taxed. That is not going to happen anywhere in the developed world – but it may happen in frontier or emerging markets.
Profitable trading does not refer to making a buck one month and having to pay taxes on it. Instead, it deals with constant annual gains that eventually will be taxed.
The good part of the crypto world is that early investors in some developed countries have the framework to integrate their winnings into the tax fillings. The bad part for the rest of the world’s investors is that even if the framework is not in place yet, it will be, and taxes are due retroactively.
In other words, investors and speculators that made a substantial and constant profit by trading crypto should have some set aside for taxes. Eventually, the tax authorities will come after it, regardless if currently most of the countries’ crypto regulation is a grey area.