We are happy to advise on all tax matters relating to Bitcoin and the countless other ‘altcoins’ currently being traded on the exciting cryptocurrency market. Although HMRC has provided some guidance on how crypto profits should be treated from a tax perspective, there are still plenty of grey areas which can be difficult to navigate. Bitcoin, which remains the world’s number one cryptocurrency, has been on our radar for some time now; in fact, we published a blog post on it all the way back in 2013 (though regrettably, didn’t invest). What with ‘hard/soft forks’, ‘air drops’ and ‘ICOs’ (initial coin offerings), knowing what ‘gains’ you need to declare can be a challenge, to say the least.
What is cryptocurrency?
Cryptocurrencies are digital assets which run on what is commonly referred to as ‘the blockchain’. Quick aside: people talk about ‘the blockchain’, though in reality there are actually a bunch of different blockchains (the big ones tend to have their own, i.e., Bitcoin, Ethereum etc. but they will host a wide range of other lesser-known cryptocurrencies). So, the next natural question to ask is: what is ‘the blockchain’, or blockchain technology? Blockchain technology is a relatively new method of keeping records and exchanging data in an open, decentralised and allegedly incorruptible manner.
Bitcoin hit a high of almost $20,000 USD in Jan, 2018 before crashing spectacularly
At that time, the crypto market was valued at just over £650 billion!
At time of publication, total market cap is at £205.5 billion
Unlike fiat money, digital currencies aren’t backed by a central bank or a government
Biggest crypto hack: £420 million stolen from a Japanese exchange
During 2017, £4.9 billion was raised via ICOs (initial coin offerings)
Around 75% of the Bitcoin ‘mining’ network is maintained by China
Described officially as a type of ‘distributed database’, it is used to maintain a continuously growing list of records called ‘blocks’ (more on these later). Blockchain technology is growing in popularity as more and more companies and indeed individuals begin to recognise its potential for ‘cutting out the middleman’ within a wide variety of industries and sectors.
It’s essentially an open ledger which records the transference of goods, services and of course currency.
The advantage blockchain technology has over more traditional forms of ledgers and other methods of record keeping is that it is completely transparent and, for all intents and purposes, pretty much autonomous. All parties contributing to the blockchain retain an up-to-date, synchronised version of the database (hence the name, distributed database), eliminating the possibility of backhand deals or any other shady goings on of that nature.
Cryptos hit the mainstream
Problem is, although cryptos have hit the mainstream, there’s not much in the way of clear guidance for those who wish to declare their crypto gains legally. The Netherlands has recently classed cryptos as intangible fixed assets which provides other European countries with a blueprint but we’re still very much in uncharted territory. Luckily, uncharted tax territory is an environment in which we thrive.
If you would like to find out more, please don’t hesitate to get in touch.