Clarity in Crypto Regulation and Taxes Makes Trading Easier

October 15, 2019
“In order to succeed, we must first believe that we can”
― Nikos Kazantzakis

5-Day Change

  • Bitcoin $8,320
  • Ethereum $183
  • S&P 500 $2,966
  • Dow Jones 26,782

The IRS and You: What Crypto Means for your Taxes

Tax season is still a whole winter away....but it’s never too early to keep up with the latest developments – which is the recent release of guidance by the IRS reporting crypto assets. This document, as opposed to initial guidance released back in 2014, focuses primarily on tax obligations involving crypto hard forks – like those that resulted in the creation of Bitcoin Cash, for example.

So what does it mean? Like most tax documents, it’s not exactly straightforward, and if there are any doubts, consult a professional. Generally speaking, the report clarifies that if a hard fork occurs, but you don’t receive any new crypto, nothing is incurred. But if you do receive crypto, then that can be counted as ‘gross income.’

What about other crypto tax obligations? The IRS has a handy FAQ for just that purpose. And, if that still proves to be too obtuse, Forbes has handily created a primer for everything crypto and tax-related.

Don’t panic: The same general rules apply to crypto as anything else – keep good records and save your receipts. Various governments haven't spent an inconsiderable effort to simplify and explain how tax codes apply to crypto – though it hasn’t been without criticism.

Wut We Think: It’s never good to have the attention of the taxman, so all canny crypto traders should be aware of the tax situation in their country, and, if possible, have a crypto-knowledgeable accountant on hand during tax season. But even if you go it alone, there are many resources to help you navigate those waters.


It’s Official: Bitcoin, Ether, a Commodity, say the CTFC

The long debate over whether the most well-known cryptos are securities or commodities is over...and it seems like the ball is squarely in the ‘commodity’ court. That’s according to recent comments made by CFTC chairman Heath Tarbert at a financial summit in NYC this week.

So what does that mean? First off, it means the CFTC – the Commodity Futures Trading Commission – considers regulating crypto like Bitcoin and ether under their purview, not the Security and Exchanges Commission (SEC.) This influences everything from tax status to reporting requirements.

What about other cryptos? The CTFC chairman was less forthcoming about other kinds of cryptocurrency. But he did mention that while this determination should occur on a case-by-case basis, ultimately, all digital assets would ‘probably’ be treated similarly. But his comments weren’t all clear, as he implied coin’s distributed as part of an ICO could start as securities and flip to commodities.

This opens up new opportunities: Bitcoin futures already have a history behind them, with Bakkt contracts settled in Bitcoin and other futures settled in USD – but now this same opportunity may be open to ether futures, and by extension, similar cryptocurrencies as well.

Wut We Think: Regulatory news may be boring, but it is critically important to keep track of the latest developments. Especially as this news further opens up opportunities for the well-established altcoins to mature and start to attract institutional funding themselves – something previously only given to Bitcoin.


Trading Spotlight: Crypto Derivatives

Not all crypto trading involves moving coins around. A lot of trading has to do with derivatives, that is, trading crypto contracts as opposed to the crypto asset itself. There are pluses and minuses to derivative trading – they can be used as ways to hedge risk, but are also more vulnerable to shocks and volatility than spot markets. 

Derivatives: Derivatives derive their value from the underlying asset – futures contracts are a common example of this. They play an essential role in price discovery and allow shorting assets more easily than spot markets. It also removes the custodial risks of owning a cryptocurrency, as the trader does not actually own any cryptocurrency that could be lost. To learn more about trading crypto-derivatives, take a look at the Monfex Academy.

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