Hey Jessavers
BTC has finally hit the trillion-dollar market cap level; some think it’s an insane bubble. Others feel it was inevitable. Regardless of what you think, the numbers indicate that it’s becoming a real asset class worth having in your portfolio.
It’s already outstripping the market cap of most small-cap companies that are seen as far safer bets.
As the price continues to break new all-time highs, more investors are reaping the benefits on paper and becoming wildly wealthy. The issue with wealth is governments aren’t going to let you enjoy it without getting a piece of the action.
Many investors will want to cash out their returns and will be liable for the hefty tax.
Sure, if you’re making your yearly salary in one trade, you’re happy to give up some to tax.
Some will want the money, so they willing to accept the tax
some won’t know about their tax liabilities and get caught off guard
some it will be life-changing money regardless of the tax
But for the vast majority, it will be unsophisticated investors who will be sitting with the tax burden without any plan and will pay the maximum penalty for their decisions.
It’s not only in crypto; we see in any asset class that retail gets involved in, but the little guy also doesn’t always get burned.
Paying for the printers
In the last year and a half, governments worldwide have been printing like never before, creating new bank reserves and lending programs as well as direct cash injections into the economy.
All that new money is backed by debt, debt that needs to be repaid by tax, or so they tell us. If governments see individuals getting rich from financial assets, they are surely going to come down hard to try and capture some of those gains for themselves.
If you think you’re going to escape the taxman, good luck to you. There’s no way around it, even in crypto, and while you can try moving to a low tax region, it isn’t always practical, especially with lockdowns and such.
Crypto backed loans could save you on tax
Let’s say I have 1 BTC valued at $50 000, And I’d like to borrow $5 000. I lock my BTC in, I get my $5 000 cash, and I can do what I want with it.
If we take a look at the lending rates today with popular platforms like the Celsius Network, we can work out the savings.
So we need $5000 right, so first we need to decide on a loan to value collateral.
| 25% | 33% | 50% |
|---|---|---|
| 0.3602 | 0.2729 | 0.1801 |
If my BTC is at $50 000 and I wanted to sell, I would need to part with 0.1 BTC, so this is where most people fall into the trap; they think since loans are over collateralized, they can sell "fewer satoshis" and get more value.
But let's take a look at the end result, at the highest level of collateral which is 50%.
| Time Perod | Montly Interst Repayment | APR | Total Interest Cost |
|---|---|---|---|
| 6 months | $37.29 | 8.95% | $223.75 |
| 12 months | $37.29 | 8.95% | $447.50 |
| 24 months | $37.29 | 8.95% | $895.00 |
| 36 months | $37.29 | 8.95% | $1342.50 |
| Time Period | Total Monthly Payment | Total Monthly Cost |
|---|---|---|
| 6 months | $870.62 | $5 223.75 |
| 12 months | $453.95 | $5 447.50 |
| 24 months | $245.62 | $5 895.00 |
| 36 months | $176.18 | $6 342.50 |
If I were to sell my Bitcoin, I would need to sell $6250 worth, pay the 20% Tax here in my country with capital gains and then have my $5000 to spend.
Remember I mentioned earlier you'd need to sell 0.1 BTC to get $5 000 if you calculate with tax; it would be around 0.125 BTC to get a full $5000 in your fiat account after tax.
Now I’m also out on a portion of my Bitcoin, which is losses I don’t account for but is a potential loss in future earnings.
How does lending work out versus selling
If we work that out, your tax burden is $1250. If we use this as your baseline lets, compare it to the loan offerings we have now.
- 6 months - $223.75
If I repay within 6 months, I only pay $223.75. So selling your BTC vs loaning for 6 months it is a 558% greater expense.
- 12 months - $447.50
If I repay within 12 months, I only pay $223.75. So selling your BTC vs loaning for 6 months it is a 279% greater expense.
- 24 months - $895.00
If I repay within 24 months, I only pay $223.75. So selling your BTC vs loaning for 6 months it is a 71.6% greater expense.
- 36 months - $1342.50
Only If I repay within 36 months would I incur a larger loss by paying $1342.50. Even then, the devaluation of the dollars you pay back over the 3 years means you are paying back with cheaper dollars.
This means I can effectively leverage my Bitcoin for 2 years and still be more profitable than to sell it.
Now I am no tax expert so don't take my word for this, the laws are applied differently in all parts of the world. What I am saying is have a look at the loan option, consult your local tax specialist and see if its a viable option for you.
The crypto loan capital vortex
If we consider these huge margins of savings, you can see that the harder governments come down on taxing Cryptos, the more people will borrow against it instead.
The more they borrow, the greater need for collateral, the greater need for collateral, the higher the APR to attract investors to supply liquidity.
Have your say
What do you good people of HIVE think?
So have at it, my Jessies! If you don't have something to comment, "I am a Jessie."
Let's connect
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| Safely Store Your Crypto | Deposit $100 & Earn $10 | Earn Interest On Crypto |
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damn i can't understand a thing :P it seems so complicated for me... i guess for now that i am holding i don't care that much. if i were to cash out though i will search everything before doing so.
i bet till then we gonna see so many new laws and regulations :P
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Lol it’s a painful process having to cover your ass! From what I can see Greece charges 15% but they don’t say what the threshold is so you’ll have to find that out too! And then run your own calculations
yeah and the funny thing is that nobody knows :P and when i say nobody i don't mean us. For example there is a greek community here, we are small in numbers but we know each other for around 2-3 years now! Everyone has asked an accountant even more than one.
Everyone has received a different answer and mostly every accountant added that " i am not so sure :P "
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LOL that’s some crazy ass rules you got there, If no one knows what to do or what to follow I guess everyone’s going to make up their own rules and be like I guess this seems right
!ENGAGE 30
yeah up until now everyone that is buying cryptos and want cash them out via bank they do it in small portion just to avoid the bank call them out :P
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ENGAGEtokens.This is great guidance, thank you!
In the US, altcoins aren't like-kind anymore, which means for every altcoin I receive (even 0.01HP here from Hive) I'm supposed to put it in my ledger, at its current market price, as income.
Which means I'm now in this awkward spot where if I plan on continuing to accumulate altcoins as payment for things like writing online, I'm going to have to either earn fiat or sell some of my crypto to pay my taxes!
Now, interestingly, what I can do is sell the coins that have depreciated since I received them, and then take that as a capital gains loss, to reduce my tax burden! I wasn't doing crypto stuff for the last tax year, but I'm really curious to see how this plays out when I'm wrapping up my books for this year.
Y'all have any similar issues around altcoins? I know you're stacking sats (and I think I've said, I agree with that,) but you're here on Hive earning tokens too, so... yeah. Is that a problem for y'all or what?
So the vast majority of my crypto was purchased, regarding HIVE and any crypto I earn that has to first be put into fiat here and then it will be part of my income tax.
So I can pick amount I want to cash out as income pushing me into a higher tax bracket so all I do is power it up and I don’t have to worry about that so much.
If I trade the HIVE for another coin then yes that’s part of cap gains if I make profit. So to save me a headache I just power it up and support the network
This is huge! Looking forward in getting to know some DATA via encryptet memo. That is Decentral Autonomous Tax Acountant. !ENGAGE 10
Lol I’m no tax expert I just wanted to run the math out of interests sake
Not a question. Thank you. !ENGAGE 10
ENGAGEtokens.I am perplexed by the tax policies in other countries which are nonexistent in this part of the world. I imagine the government trying to tax an unemployed fellow like me. 🤭
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It depends on the laws of your nation if you are unemployed but the government considers it capital gains on your holdings and you break their threshold ofcourse you’re liable for tax
A lot of money was spent on lockdowns around the world and with all the job losses government will want to stimulate the economy and when it’s up and running you best believe they coming for every cent they can get
In this part of the world, people can move money around under the nose of the government. The government even creates those channels for their fraudulent activities.
The same cannot be said for Nigeria where the government was hoarding palliatives meant for the citizens. There isn't much of a tax culture here and rightly so because the government has done little or nothing for its people.
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I guess we all deal with out own pain points if you can get your crypto tax free in Nigeria that's great and how I feel it should be but here in South Africa they going to chop off as much of your balls as possible if you're not careful on how you cash out your crypto
Come to Singapore where there's no capital gains tax 😀 But in all seriousness, the treatment of capital gains needs to be worked out for crypto properly.
In the US, I believe crypto gains are taxed even if you don't convert it back to fiat. What a mess.
Lol I'll have to do my research on whats the best places to move to if BTC keeps running the way it does. I heard Portugal is tax-free on crypto, I fully agree with cap gains when you convert to fiat, their money, their rules, but tax when im still in crypto nah I can't agree with that.
That's like buying duty-free stuff and keeping it on the boat and still paying tax on it, the internet is international waters in my view. I know the US and UK are running with that tax method and South Africa want to do the same
ENGAGEtokens.