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Getting to know you: Mike Wilson wonders what is really going on in the world of cryptocurrencies?

  • By Sue Whitbread

Never let it be said that we don’t have our fingers on the market’s throbbing pulse.

The February edition of IFA Magazine’s feature on the cryptocurrency boom arrived just in time to see the valuations of bitcoin (and some 1,500 other cryptos) descending from the sublime to the ridiculous (if you happened to be a holder), or vice versa if you’d fancied buying some but had feared you might have been too late.

The bitcoin price, of course, rollercoastered from $20,000 down to $6,000 and back up to $9,000 by mid-February. Scary stuff. So have we learned anything? On the whole, I’d say we have.

Three awkward truths

The first is that cryptocurrencies are here to stay, and never mind what the central banks might prefer. Disenchanted millennials have rather taken to the dashing, piratical nature of the new stateless coinages – and the fact that they have no stabilising fundamentals whatsoever, apart from a fluctuating rush of people interested in buying them, isn’t going to trouble those who retort that quantitative easing wasn’t exactly a textbook exercise in wealth creation either.

The second, as we said last month, is that the investor risks are as formidable as the opportunities. Leaving the administration of a new global currency to a thousand microscopic clearing houses in cyberspace opens up innumerable opportunities for things to go wrong.

But the third is that the international community is genuinely serious about getting to grips with cryptos, and about integrating them successfully into the global financial system. The International Monetary Fund has just called upon the political community to agree a standard for regulating the blockchain process, which is really rather ingenious.

Taxing matters

That will presumably mean leaning on the crypto exchanges to release the secret info they hold on the wallet holders who trust them with their privacy. And it won’t be music to everyone’s ears. Least of all, the tax evaders, who claim to be developing a new peer-to-peer cloud-based trading system that doesn’t use exchanges at all. (Does that sound like a safe idea to you? No, me neither.)

But anyway. You’ll have figured out that tax revenues will be one of the main drivers behind this  governmental effort. And that, on the whole, governments are really quite keen on finding ways to levy income tax and capital gains taxes on the proceeds. There’s only one problem.

Well, two. Given that cryptocurrency valuations are effectively a game of chance, shouldn’t they be taxed as bets rather than investments? (Which in many/most countries would mean not at all.) And if HMRC won’t buy that argument, how will it react when I ask it to allow me capital gains tax relief because I’ve had a bad year on the crypto markets? I’m not holding my breath.

Mike Wilson is Editor-in-Chief at IFA Magazine

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