Company Crypto Investment: Legality And Opportunities

Cryptocurrency is a hot topic at the moment, with many prominent stock market brokers investing in it and more businesses accepting it for payments. It is a new version of digital currency, which can fluctuate in value from hour to hour. Cryptocurrency is taxable, and the tax treatment of a company's purchase of bitcoin will depend on the jurisdiction in which the company is located and the specific tax laws that apply. In the UK, companies are usually prohibited by their formal incorporation documents from gambling, so transactions where cryptocurrency is being bought and sold will be regarded as trading for tax purposes and taxed under the usual corporation tax rules. Cryptocurrency is extremely unpredictable, and there have been plenty of success stories that have turned into stories of substantial losses.

Crypto exchange platforms for companies

Crypto exchange platforms are a type of marketplace where users can buy, sell, and trade cryptocurrencies. Crypto exchange platforms can be centralized or decentralized. Centralized exchanges are run by a corporate authority and are more beginner-friendly, but they are less secure and go against the decentralized ethos of cryptocurrency. Decentralized exchanges are unregulated and distribute verification powers to anyone willing to join a network and certify transactions.

• Kraken: One of the oldest crypto exchanges, founded in 2011. It offers a range of coins with competitive trading fees and is one of the few US exchanges to offer margin trading and advanced trading tools. Kraken offers two platforms: the basic Kraken platform and Kraken Pro, which offers lower fees for advanced users. Kraken is not available in all 50 US states and does not support many fiat currencies.
• Gemini: Available in all 50 US states, Gemini is well-suited for crypto traders of any skill level. It offers a simple, intuitive user interface and a wealth of educational materials. Gemini also provides strong security measures, including an integrated hot wallet, and insures user funds. However, it has a convoluted fee structure and limited customer service options.
• Crypto.com: Crypto.com provides access to over 250 cryptocurrencies and unique perks and rewards for users of its Crypto.com Visa Card. It offers high cybersecurity ratings and trading fee discounts for users who hold high balances in its utility token, Cronos (CRO). However, lower-volume trading incurs higher fees.
• KuCoin: Headquartered in Seychelles, KuCoin provides access to a wide library of altcoins at low fees and is available in Asia, Europe, the Middle East, and Africa. It offers advanced features like margin trading and futures trading and accepts credit and debit cards. However, KuCoin is not licensed in the US, does not insure funds, and suffered a major hacking incident in 2020.
• EToro: A relative newcomer to the US market, eToro offers a crypto exchange and an online brokerage platform. It provides an engaging communal experience and allows users to copy the trading strategies of advanced users. Cryptocurrency holdings can be transferred off the platform.
• Coinbase: Coinbase offers over 200 tradable cryptocurrencies and a user-friendly interface that makes buying and selling crypto simple. It provides strong security features and allows users to stake several popular cryptocurrencies. However, Coinbase charges relatively high fees and is not available in all 50 US states.

Tax implications of company crypto investments

Cryptocurrency investments made by UK limited companies are subject to taxation. If the company is disposing of a capital asset, any gain arising from the disposal would be charged to Corporation Tax as a chargeable gain. This means that the company will be taxed on the profit made from the cryptocurrency investment, similar to most other types of investments made through a limited company.

For example, if a company buys £100 worth of cryptocurrency and sells it for £120, they would need to pay 19% tax on the £20 profit, resulting in a tax payment of £3.8. It is important to note that the tax is only payable in the tax year that the investment is sold, not if the company simply holds the cryptocurrency without selling it.

Additionally, if the company exchanges the cryptocurrency for another type of cryptocurrency, this is also considered a disposal and will be subject to taxation. The tax implications of cryptocurrency investments can be complex, and it is always recommended to seek professional tax advice to ensure compliance with the relevant regulations.

Furthermore, the tax treatment of cryptocurrency investments can vary depending on the structure of the business. For example, if the business is an LLP or a limited company, any gains or losses made when disposing of a cryptocurrency will be taxed as part of the profit and loss account if the gains or losses are made during the course of the normal trade of the business. However, if the cryptocurrency is held as an investment alongside a different trade carried out by the business, the gains or losses made will be taxed as investment income, and losses may not be offset against profits from other business activities.

The classification of cryptocurrency for tax purposes is also important. While it may be treated as property for tax purposes in some countries, it may be considered a currency for value-added tax (VAT) and sales tax purposes. This distinction can have significant implications for the taxation of cryptocurrency transactions and the potential for tax evasion, especially when individuals use pseudonymity to hide their transactions from tax administrations.

Overall, the tax implications of company crypto investments can be complex and depend on various factors such as the structure of the business, the type of cryptocurrency transaction, and the classification of cryptocurrency for tax purposes. It is crucial for companies to stay informed about the evolving tax regulations and seek professional advice to ensure compliance with their tax obligations.

Crypto as a hedge against inflation

Crypto has been touted as a hedge against inflation, but this is not always the case. While it is easy to access, has a predictable supply, and cannot be arbitrarily manipulated by central banks, it is not always treated as a hedge against inflation.

For crypto to act as a hedge against inflation, it must establish its fundamentals and achieve mass adoption. Currently, cryptocurrencies are speculative investments, and their value is tied to the potential of the technology rather than their current capabilities. Additionally, crypto markets often mirror the stock market, and issues such as high energy costs and security problems need to be addressed.

However, crypto has the potential to become a genuine hedge against inflation as blockchain protocols mature. It has performed well during periods of stable growth but has struggled during times of financial crisis and market uncertainty. Over a long time horizon, such as five or ten years, Bitcoin has been an effective hedge against inflation, with a trailing five-year return of 1,100% during a time when the CPI increased only 18.5%.

Therefore, while crypto may not currently be a reliable hedge against inflation, it has the potential to become one in the future as it establishes itself and gains wider adoption.

Crypto as a form of payment

Cryptocurrency as a form of payment is a growing trend. A report by PYMNTS and BitPay found that 85% of big retailers (earning more than $1 billion per year) currently offer crypto as a payment method. This is in part due to the advantages that cryptocurrencies offer as a payment method.

Cryptocurrency was initially designed as a peer-to-peer payment system, providing a new level of financial autonomy and privacy from banks. It allows for cheaper transactions, near-instant settlement, and borderless transactions. Additionally, it is available to everyone with an internet connection, even those without quick access to financial services like banks and loans.

However, there are some challenges to using cryptocurrency as a payment method. One of the primary concerns is price volatility, which can result in a business having less money in their account if the crypto market experiences a downturn. Regulatory barriers are also a significant challenge, with many governments and institutions remaining sceptical or threatened by cryptocurrencies.

Despite these challenges, the number of companies accepting cryptocurrency as a form of payment is growing. Some notable businesses that accept crypto outright or through a service provider include Overstock, Microsoft, Expedia, Starbucks, Twitch, Norwegian AIR, Etsy, and Burger King.

In terms of payment methods, most merchants use non-crypto-native wallets like PayPal and Venmo to enable crypto payments. Other methods include cryptocurrency wallets, gift cards purchased from websites that accept cryptocurrency, and cryptocurrency debit or prepaid cards.

Overall, the use of cryptocurrency as a form of payment is an evolving megatrend that is shaping the future of finance. With increasing regulatory clarity and innovations in the crypto space, it is likely that more businesses will begin to accept cryptocurrency as a legitimate form of payment.

Crypto storage options for companies

There are several options for companies to store their cryptocurrencies safely. These include:

Crypto Exchanges

One of the simplest ways to store your company's cryptocurrencies is to use the exchange where you bought them or plan to trade them. Many leading platforms, such as Coinbase, Binance, and Kraken, offer storage services and even reward customers for doing so through "staking" programs. However, entrusting your company's cryptocurrency to a third party does involve some risk, as exchanges can be hacked or suffer technical failures.

Cold Storage Wallets

Cold storage wallets, such as Trezor and Ledger, are not connected to the internet, offering a high level of security for your company's crypto assets. They are ideal for storing large amounts of cryptocurrency and give you maximum control over your assets. However, they require more setup than exchange-based hot wallets.

Hot Crypto Wallets

Hot crypto wallets, such as Guarda and Mycelium, are connected to the internet, making it easier to access your company's crypto for frequent transactions. While they are more susceptible to hacks, they are relatively safer than cold wallets if your device is secure and free from malware.

Paper Wallets

Paper wallets are a phasing-out method of storing crypto offline. They are highly vulnerable to physical damage and can be easily stolen, but they are inexpensive and allow you to keep your crypto completely offline.

When choosing a storage option for your company's crypto, it's essential to consider security, fees, the number of supported cryptocurrencies, and the level of customer service offered by the platform. Additionally, make sure to do your research and only use reputable and regulated exchanges and wallets.

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