Tax Free Today has many types of reader, there are the entrepreneurs, the investors, the savers, the digital nomads and, of course, those who invest in and have businesses based on cryptocurrency.
Christoph has been using and doing business with the different types of cryptocurrency, and also with Bitcoin of course, for many years and today he has been able to share a good part of what he knows about this field.
We have published one of those articles that we believe can become one of the basic cornerstones for anyone who uses cryptocurrency at any time.
Of course, there are many articles about Bitcoin and other cryptocurrencies but there are none that delve as deeply as this and, from an international perspective, pay special attention to the aspects of trade, anonymity, investment and taxation.
Table of contents:
- Bitcoin as a link
- About exchanges and electronic and offline wallets
- Anonymising with Bitcoin Mixer
- Cryptocurrency and taxes; avoid staying in the grey area
- Investing with cryptocurrency
- Mining of crypto
- Saving accounts for cryptocurrencies
- P2P Lending (cryptocurrency loans)
- HYIP (High Yield Investment Portfolio)
- Betting with cryptocurrencies
- Exchanges – trading of cryptocurrency
- Are we facing a bubble similar to that of dotcom?
- Promising cryptocurrencies
- Taking out the benefits of investment in cryptocurrency: business, bank accounts, legal security
More and more people are starting to believe that cryptocurrencies are here to stay.
Today you can use Bitcoin in both your private life and your business and even the states, who until recently have been ignoring cryptocurrencies, have started to give them attention (of course, as with the internet, a decision for the worse).
I have been talking about cryptocurrencies for some time now. I still remember back in 2011 when they gave you 5 Bitcoins (with a current value of about €50,000!) if you installed the wallet. Of course, we must remember that at that time getting started with Bitcoin was much more complicated than it is today.
There were no easy-to-use wallets for the different operating systems. In those times, Bitcoin relied on Windows, and perhaps Linux, and using Bitcoin required a great deal of time and effort, especially from a technical point of view.
I still remember the phone that was stolen from me in 2012, which I did not back up. In that phone were 5 Bitcoins, which at the time were worth nothing but today worth a good annual salary…
In 2014 I wrote my university dissertation on self-governance with cryptocurrency. Naturally, the academics did not like it, nor did they understand it, but at least I can say that I have proven to be right in most of my predictions. If you are interested in reading it and you understand German, you can download it here.
As I was saying, today I want to go a step further and talk about cryptocurrency as an investment. I myself am very active and invest in the different types of cryptocurrency and therefore, in the end, I am directly faced with a lot of problems.
Additionally, more and more customers are seeking our advice here at Tax Free Today about this topic, people who have become rich overnight and do not know what to do with their Bitcoin or Ethereum, nor how to convert them to other currencies or what taxes they have to consider.
This article is not intended as an introduction to cryptocurrency. It requires a basic knowledge of the subject, as it applies to those who have already begun to invest and trade with cryptocurrency and do so with some success. If you need this basic knowledge, you can get it by searching the internet for “Bitcoin basics” or “how cryptocurrency works.”
I have written this article over several months and it has taken two more to translate, so it is likely that in the fast-paced world of cryptocurrency there have been some changes. At the time of writing, Bitcoin was at about €3,000 and since then it has tripled its value and during translation, it has fallen again.
I think now is definitely a good time to publish!
Bitcoin as a link
It is impossible to talk about cryptocurrency without mentioning Bitcoin. Bitcoin is (at the moment) the cryptocurrency with the largest market capitalisation and goes down in the history books as the first ever cryptocurrency.
At the time of writing this article (taking into account the fast changes in this world), Bitcoin had a market capitalisation of around 170 billion with the total of all cryptocurrencies together being 310 billion.
Bitcoin continues to be the number one cryptocurrency but this is something that could change at any moment since other currencies like Ethereum seem capable of snatching the title.
In a way, all cryptocurrencies are somewhat dependent on the effectiveness of Bitcoin’s network, since it is the first and most famous cryptocurrency.
In fact, until recently, all transactions from Fiat (Euro or Dollar) to Altcoins (alternative cryptocurrencies) had to go through Bitcoin first. It was not possible to directly exchange, sell or buy other cryptocurrencies.
This is not the only cause of the overload of Blockchain, the driving force behind Bitcoin.
One of the main advantages of Bitcoin in the past, the ability to make transfers in a matter of seconds with hardly any fees, now no longer exists. Currently, you have to sometimes wait several days and pay large commissions to receive priority status for your urgent transactions.
At the moment, it is already possible to at least buy Ethereum directly and also other cryptocurrencies in part. Without a doubt, it can be a great alternative to Bitcoin to quickly introduce yourself to the “crypto market.”
There is no question that Ethereum is becoming an even more important currency than Bitcoin since, with its “decentralized programming language” and smart contacts, it delivers more value than Bitcoin in terms of its role as a currency.
Ethereum has become a great investment opportunity that we will speak about in more detail in another part of this article.
However, we will only talk a little about the future of Bitcoin and its structural problems (see below). Just as I am convinced that cryptocurrency is the future, I am also very sceptical of Bitcoin, at least for the moment.
Now I only keep some Bitcoin leftovers and I do not buy more (although I do still offer the option to pay for consultations in this and other cryptocurrencies).
Even though Bitcoin has multiplied tenfold in a few months (then promptly dropped back down again), it is possible to jump much higher with other Altcoin currencies.
In the cryptocurrency circles, people are already talking about “flippening.” More and more are doubting the supremacy of Bitcoin and believe that it is about to end, expecting a takeover by Ethereum or perhaps even Bitcoin Cash.
Of course, both currencies could coexist together, since each one has a different function.
Bitcoin is a decentralised, non-inflationary currency (although we will have to take the next hard forks or radical protocol changes into account, which we will talk about later).
This is not something that can be said about Ethereum. In this case, the team that develops it has taken centralised control from the DAO-Hardfork (hence why the currency was split in two: Ethereum and Ethereum Classic) and new ETH are constantly being mined.
All in all, this is nothing more than a snapshot. In the world of cryptocurrency, changes are happening at a fast pace. It is very likely that, at the time of reading this article, everything has changed, that new currencies have appeared and that others have been left behind. This is the beauty of the cryptocurrency free market, investment is both exciting and lucrative.
About exchanges and electronic and offline wallets
Before talking about investing with cryptocurrency, it is important to familiarise yourself with the best way to safely store cryptocurrency, since this is one of the aspects in which many beginners make serious mistakes.
You can choose to store your money in the cloud, in exchanges and digital wallets or you can store it offline, using hardware as a wallet (i.e. a physical device).
On the whole, it is recommended that you save your cryptocurrency offline, i.e. save it securely and without an internet connection. Although, of course, when you want to trade with, transfer or receive them you will have to connect to the internet.
If you save your currency offline, you cannot be hacked and, as long as you have taken the necessary measures and you know how to restore them (with a backup copy), even if the hardware is damaged you can still access your currency.
Many Bitcoin have disappeared into digital Nirvana because their owners did not remember the Private Key or the mnemonic phrase needed for recovery.
Since, for security reasons, it is not advisable to keep the Private Key in the cloud or on any device with access to the internet, mnemonic phrases have become standard in the world of cryptocurrency.
You have to memorise 12 different words without any connection to each other in the correct order. It is advised that you take a pen and paper and create a paper wallet, meaning that you write the key on paper and make any digital trace of it disappear. Naturally, you must keep the paper wallet in a safe place.
The most “hardcore” people even choose to disregard this and rely on their memory to store the key.
In principle, there are no limits to creativity when it comes to storing your cryptocurrency. In fact, there is innovative hardware on the market such as Trezor or Ledger which allows you to store your cryptocurrency offline.
You could also store your cryptocurrency on a memory stick and bury it in the garden or implant a chip under your skin. Of course, not many go to these extremes, which could be seen as the modern-day version of storing your savings in the form of gold teeth.
People often choose to store the majority of their supply in exchanges and wallets online without being aware of the risks. These are very convenient and have the advantage of not having to remember anything.
Even if you forget your password, you still have someone who can give you access to your account (if you have verified your identity of course).
Although verification has the advantage of allowing you to re-access your cryptomoney in case you lose your key, it also destroys any chance of anonymity.
The advantage of cryptocurrency lies not only in its decentralised nature but also in it’s anonymous or at least pseudonymous nature.
Bitcoin transactions publicly appear in the blockchain and can be tracked by anyone.
Currently, there is specialised software that is capable of analyzing and evaluating the blockchain and although it is true that nobody can link the numbers that appear there to the people behind them, as soon as a public key is associated to a verified identity in any online platform, the person behind it will be exposed.
On the other hand, unlike what happens with offline wallets, exchanges and other online platforms may be subject to regulations, be manipulated or even banned at any moment.
Operators can also decide to take the entire cryptocurrency that is being hosted there, something that has already happened several times.
Or the large sums of money in these exchanges can attract hackers that manage to steal some or all of the cryptomoney. The best-known example of this is probably the Japanese exchange MTGox.
Nowadays, successful attacks have become much less common as security mechanisms are much better.
It is clearly essential that you use two-factor authentication for your online wallets, however inconvenient it may seem. It is better to lose a little time when logging into your account or making a transaction than it is to lose all your money in one fell swoop.
Depending on the platform that it is and the option you have chosen, they will send you a confirmation E-mail or SMS. In some cases, they use apps such as Authy or their own app. With this, at least you have some extra protection for your money.
Either way, you have to be able to fully trust the people behind the service you use since they do have full access to your account.
If you do not do trade daily, you should detach at least some of your cryptomoney from the internet. The cryptocurrency increases (or loses) value whether it is connected to the cloud or not.
Banks and exchanges are certainly more practical, but if you want to keep your cryptocurrency secure and anonymous, it is best to keep it on your own hardware and have some kind of backup.
Anonymising with Bitcoin Mixer
The pseudonymity of Bitcoin can be seen as an advantage or a disadvantage. If it were a totally anonymous currency, it would certainly not have been able to adapt to the market in the way that it did, nor would it have achieved the acceptance needed from regulatory frameworks.
Do not doubt that if you simply use the online wallet service, it will be very easy to reverse your anonymity.
There are several options for you to maintain your privacy.
As long as you do not try to change your cryptomoney, you will be able to trade without verifying your account in most exchanges. Only when you change to Fiat money or at the time of payment will you have to verify your identity.
You can transfer and convert your Bitcoins into more anonymous cryptocurrency, such as Darkcoin, Monero or Dash, and then later convert it back to Bitcoin. Of course, you have to keep in mind that you may have to pay exchange rates depending on the exchange that you are in.
If you only use Bitcoin, you can try to hide some of the payments by passing your Bitcoin from your verified online wallets to several offline folders before the payment reaches the final recipient. However, it seems that even in this case the transaction can be traced through special software.
Another good option is Bitcoin Mixer (also known as tumbler or mixing service). These services move and mix the Bitcoin from different users in a decentralised way.
It is undoubtedly important to consider whether the service providers have actually sent the cryptomoney.
Here are some providers that we believe to be trustworthy:
Cryptocurrency and taxes; avoid staying in the grey area
What has been said so far about online and offline electronic wallets, as well as the anonymity in cryptocurrency operations, also plays an important role in the handling of cryptocurrency for tax purposes.
Unfortunately, it is difficult to find clear answers about the taxation of Bitcoin and cryptocurrency in general. Even more so than financial regulators, tax authorities and Treasuries are still light years away from understanding the Bitcoin phenomenon.
There are few finance officials who have heard of Bitcoin, let alone other types of cryptocurrency. In fact, only a few countries in the world have already defined a clear fiscal status for cryptocurrencies.
Therefore, one of the main objectives of a crypto-entrepreneur or crypto-trader should be to move to one of the countries with a clearer legislation. Better still if it is also a country with few taxes and where dividends coming in from abroad are also not taxed. By doing so, you could set up your company in a country standing clearly in favour of the cryptocurrency (see below).
In Germany, for example, Bitcoin with a holding period of more than 1 year is not taxed. Sales in this period are not subject to withholding or retention tax but are added to the income tax as a private sale transaction.
Bitcoin in itself is exempt from VAT at the time of purchase or sale but, of course, VAT must be paid if services or products are paid for with cryptocurrency. Likewise, income tax must be declared and paid at the end of the year on profits obtained, regardless of whether it is for trade, in the form of commissions, for revenues of mining, etc.
Another factor that many forget: as soon as Bitcoins are lent, for example in high-yield investment programmes (HYIP) or Ponzi schemes, profits are not exempt from tax in Germany until after 10 years.
Due to the (relatively) little knowledge about cryptocurrency and the good degree of anonymity they offer, many opt for maintaining a low profile.
After all, keeping the books in order for earnings in cryptocurrency (continuously converting them to Euros) is not an easy task, especially if we consider that there are still no programmes that do this for you (perhaps this could be a business opportunity for a programmer, who knows!).
Be that as it may, you should avoid keeping transactions with Bitcoin a secret. The world’s financial authorities are slowly advancing, they are preparing and hiring experts to monitor the blockchain.
There is in fact already the necessary software to do this and although you do still have the option to use Bitcoin anonymously, in the end, it is a risky game that, in the long run, and as it happens with the profits of companies and individuals hidden in tax havens, you will lose.
There is no doubt that the lack of a clear legal framework is a big problem for investors and traders in cryptocurrency who are ever more willing to move to countries where cryptocurrency already has clear fiscal and legal legislation or where there are laws that are more likely to leave cryptocurrency operations exempt from taxes.
For example, the gain in private capital for profits made in the sale of cryptomoney is tax-free in Denmark. However, as soon as there is some kind of commercial transaction, it will be subject to normal income taxes.
We already know about this problem when we look at trading with Fiat money in countries like Malta and Ireland. In these non-dom countries, income from abroad is exempt from taxes so long as they are not brought into the country of residence.
Of course, those who believe that these countries are good at trading or investing in cryptocurrency have to take a closer look.
Entrepreneurs who invest with Fiat money must pay for their profits as if they were local income since, according to the tax authorities, it is an activity which takes place locally.
In non-dom countries, only the occasional stock market profits made by private investors remain tax-free. In Switzerland, we find a similar situation.
In spite of everything, it may make sense to move to a country like Malta. Cryptocurrency there is still not regulated, but the Maltese Prime Minister Muscat has previously spoken about Bitcoin in a positive manner and wants to turn his country into the epicentre of “crypto business” in the Mediterranean.
At this point, the smartest thing is to closely follow the development of Malta.
Holland can also be an interesting option. There, provided that it is not considered to be a professional activity, you will only have to pay 1.2% of taxes on profits made with Bitcoin and other cryptocurrencies.
Generally, it may be an option to keep fiscal residency in countries where the legal framework for cryptocurrencies is still unresolved, i.e. in countries where there is no clear legislation.
Especially in those countries with a more open attitude towards cryptocurrencies, since they are likely to choose to offer advantageous conditions for profits in this field.
For example, in this respect, in Europe, we have countries such as Malta, the Czech Republic, Lithuania, Switzerland and England.
If what you want is to remain completely tax-free in your dealings with cryptocurrency and it also be 100% legal, your best option in the EU is probably to move to Cyprus.
Profits on the stock exchange are always tax-free in Cyprus and there are also no dividend taxes. It is best to take advantage of the Easy-Non-Dom programme in Cyprus and set up an offshore company in a country with advantageous legislation towards cryptocurrency.
In doing so, you will have to pay something for Social Security (16.8% of your income with a minimum of around €100 per month) but you will not pay taxes on your dividends nor on any type of income from abroad.
You only have to spend 2 months per year in Cyprus to be able to keep your fiscal residency there and you will also have to rent a house for the entire year.
If we want to look for options beyond the European Union, in principle any country without direct taxes or with a territorial tax system is useful.
Apart from the typical European mini-states and Caribbean islands, the United Arab Emirates can also be a very worthwhile option.
In the Emirates, you can obtain a residence visa by establishing a company in a free trade zone for around €12,000. What’s more, you do not even have to use the company; Bitcoins remain tax-free at both a private and commercial level.
And that is not all. There are many nations with a territorial taxation system to choose from, nations in which income from abroad generally remains tax-free. In this group, we have countries such as Georgia, Panama, Paraguay, Thailand, the Philippines or Costa Rica.
Countries, where the capital increase for stock market profits is not subject to taxes, can also be worthwhile. These include New Zealand and the Islands of Mauritius.
Bitcoin is currently recognised as legal tender in Japan, for example. Of course, I must clarify that Bitcoin or other cryptocurrencies becoming legal tender is a desirable factor.
Other Asian states, such as Hong Kong and Singapore, are in the process of providing a legal framework for cryptocurrencies.
We can also identify other countries that can really be of interest, although not necessarily as a residence, but rather as the headquarters of the company.
Currently, many ICOs work out of Gibraltar or the Isle of Man, two autonomous territories belonging to the United Kingdom that offer great advantages to companies in the cryptocurrency sector, perfect for creating tax-free corporate structures.
Belize is another, much cheaper option to set up a company in the cryptocurrency sector. There it is even possible to choose cryptocurrency as a category of operations for your company.
If you live in a country where you would have to pay taxes but there are no CFC rules or any type of restrictions towards administrating foreign companies, a good option could be to set up your company in Hong Kong or Belize.
In the end, it is important to not lose sight of the legal and fiscal aspects of Bitcoin. There are not many countries where the taxation of cryptocurrency is clearly regulated. It is to be expected that in the long run, cryptocurrency will be subject to rules equal to or more stringent than those that already exist for Fiat money.
Due to the high-profit margin, it is likely that we will end up with an even higher tax on cryptocurrency than on stock market profits, perhaps even above 50%.
Undoubtedly, the best you can do is act according to the rules of Flag Theory: think internationally and search for security and greater profit.
Taxation of Bitcoin and cryptocurrency in Spain
In Spain Bitcoin and cryptocurrency do not have a clear legal framework either. In fact, given the lack of clear or even half-clear answers from the tax agency, many have chosen to hide, which may be a problem in the long run.
In Spain, there is also a difference between the uses of cryptocurrency as a form of investment and as a form of payment.
If it is used as a form of payment, VAT must be added to transactions but is not applied to the transfer of the currency.
If the cryptocurrency is used as a form of investment, the income must be accounted for in the annual income tax declaration and, of course, taxes must be paid on it (between 19% and 23% depending on the capital gain).
If you focus on mining or trading professionally with Bitcoin and company, you usually have to register your activity.
So far everything seems clear but, naturally, the problem lies in the details.
The sale of Bitcoin or other cryptocurrency is a capital gain or loss that is obtained from the difference between the purchase value and the retail value. The FIFO method (First In, First Out) is used to calculate the profit made. In Spain, you always have to calculate the difference in Euros.
Generally, even if you kept the money in cryptocurrency, you would have to pay for the equity gain when exchanging between different cryptocurrencies since, according to the law, as soon as there is an alteration of the composition and valuation of the equity, you have to declare it and pay taxes.
Of course, some people interpret that to mean that if you keep your money in cryptocurrency, even if you buy and sell different types, you will not have to declare anything until you convert it into a Fiat currency. However, this is not clear and in fact, it is likely that the Tax Agency does not see it this way.
As for losses with cryptocurrency, it is clear that you can compensate them with other capital gains that you had the same year, no matter what type they are. You can also compensate for them with capital gains from the following 4 years, just like with stock market losses.
Then there is the issue of Form 720 which requires you to declare all assets abroad. In principle, money in crypto does not have to be considered as an asset abroad, however it remains to be seen how this will be decided.
And finally, the receipts. If you want to avoid getting into trouble for money laundering and the like, you have to keep receipts of all your transactions so that you can justify your capital increase.
Another example: Taxation of cryptocurrency in Portugal
In Portugal, cryptocurrency is not legally considered currency. However, it does take into account that profits can be obtained that would be subject to taxes, including:
- Profits obtained through the purchase-sale of cryptocurrency and the exchange to Fiat money (what they call “real money”)
- Commissions obtained for the provision of services related to obtaining or possessing cryptocurrency
- Profits obtained through the sale of products or services paid with cryptocurrency
The income generated by the purchase-sale of cryptocurrency (the first of the three cases above) is sorted into three different types:
- Capital gains, category G
- Investment income, category E
- Business and professional income, category B
Given that the purchase and sale of crypto is not (yet) seen as category G and that said category is exclusive, these profits would not be taxed according to category G and will therefore be tax-free in Portugal as long as it is not considered a regular operation nor constitutes professional or business activity (in these cases it would be taxed under category B).
Keep in mind that this is the case in 2018 and it is very likely that legislation will be made against it (there are already proposals for this), meaning that in future years cryptocurrency profits obtained by individuals may be taxed in Portugal.
Ultimately, it is a similar situation to that of other countries such as Benelux, Switzerland, Malta, Ireland, Holland….as long as it is a non-professional activity, you only pay very few taxes or even none at all.
A non-professional activity means that you only invest your own capital and that you do not spend all day dedicated to it (the number of transactions is also important, meaning day trading would not count). It also takes into account if you have other occupations or if you only live off of your investment.
Investing with cryptocurrency
When we talk about Bitcoin investors and traders, we are talking very generally. In fact, there are many ways to earn money with cryptocurrency, ways that we will only briefly look at in this article.
There are two things that we must take into account if we are going to enter this field.
Firstly, cryptocurrencies are extremely volatile. On the stock market, the shares only fluctuate between 5% and 10% from day to day and that is in exceptional circumstances. This is normal for cryptocurrencies. It is not uncommon for there to even be fluctuations between 50% and 100%.
This aspect of cryptocurrency can be very appealing at first, but it can also go wrong. Ultimately, it is important not to invest more money than you can afford to lose in cryptocurrency. Putting all of your grandfather’s retirement savings or all of yours down on the digital table is not a good idea.
If you are going to invest a good chunk of your assets in cryptocurrency, you should at least make sure to diversify enough. Not only by dividing the Bitcoin into different wallets and exchanges offline as we said before, but above all also choosing different types of cryptocurrencies.
At the beginning of 2018, there were already 1,300 types of cryptocurrency, of which only around 800 are actively used. Many of the projects that seem promising at one moment have failed terribly and millions have been lost.
Despite all the “crypto euphoria”, it is important to remember that it can happen just as quickly with your beloved Altcoins (which, by the way, is the abbreviation of alternative coin, meaning alternative currencies).
The second warning is even more essential.
The anonymity given by cryptocurrency and the possibility of making immediate international payments have also had a strong effect on certain so-called shady characters and hidden figures.
It is not only the hackers who are looking for the slightest hint of vulnerability in the wallets and exchanges to steal cryptocurrency. Among the providers of Bitcoin services, digital mining or even the creators of new cryptocurrencies, there are also many unsavoury characters (so-called black sheep).
If you do not inform yourself and secure your account well before launching and operating, you could find yourself waking up the next morning with an empty account.
The variety of options, from obvious fraud to complex pyramid schemes, is very large in the cryptocurrency world.
Certainly, cases of fraudulent currencies like One-Coin have shown us how easy it is to exploit man’s greed.
Before investing in a new cryptocurrency, you should stop to think about whether what you can see makes sense, or whether it is indeed too good to be true. We all like to think that we are unique and smarter than others. Stepping outside of the box and doing something different is important, but if done blindly, it is rarely a good move.
You should be particularly careful with all cryptocurrencies (such as OneCoin and Bitconnect) and also with digital mining service providers (such as Bitclub Network) that have no basis other than multilevel marketing.
Mining, at least with respect to Bitcoin, is no longer profitable in micro-investments.
Generally, you should completely avoid getting into the mining of the most capitalised cryptocurrencies, unless you are an expert or you know that you are working with one. It is certainly preferable to opt for crypto-investments in currencies with less capitalisation, as they are much less susceptible to fraud and are also more profitable.
Despite the high volatility and susceptibility to fraud, cryptocurrencies are an excellent opportunity to increase small amounts of money.
For example, in the autumn of 2016, I invested €500 in automatic ETH/BIT transactions on Poloniex. I did not look again until half a year later. In that time, the value of the account had multiplied by 20 to almost €10,000, largely thanks to the rise in Ethereum.
That €10,000 has become a good basis for new investments in cryptocurrency that in a matter of 8 months have multiplied the original amount by 50.
Given the low-interest rates paid by banks in general in Europe, it certainly makes sense to divert a small part of your savings to crypto-investments, although you must take certain precautions into account and only do it if it really is money that you can live without.
Mining of crypto
Cryptocurrencies do not suddenly appear from nowhere but are usually created or discovered.
Since cryptocurrency is a decentralised open source peer system, there are publicly known parameters that determine the amount of money, the inflation and other relevant factors of any cryptocurrency.
I do not want to get into the technical background of the mining process here. If you are interested, I recommend the following 22-minute video entitled “how Bitcoin works under the hood.”
Direct mining is rarely worthwhile, so if you do not understand it well, it is not an attractive field, in my opinion.
The following mining service providers in the cloud are currently fairly reliable and also generate profits:
Savings accounts for cryptocurrency
Instead of leaving your cryptocurrencies rotting in an insecure exchange or in any physical wallet, you can choose to invest them by placing them into so-called crypto-savings accounts.
They are no safer than exchanges, but at least you can gain interest and generate certain secure profits over time, even if they are only small.
Be that as it may, these accounts have certain advantages over bank accounts. Interest generally accrues on a daily basis and there is no inflation. The impact of the resulting compound interest should not be underestimated, even if the annual interest rate only amounts to 3%.
In addition, you can withdraw or trade with Bitcoin at any time.
Possible savings accounts:
P2P Lending (cryptocurrency loans)
The loaning of cryptocurrency in the P2P exchange (peer to peer, that is, in layman´s terms) is more profitable than the cryptocurrency savings accounts, but also riskier.
Margin lending in exchanges such as Bitfinex is also a good option to put your cryptomoney to work in low-risk operations.
Among the best providers are:
HYIP (High Yield Investment Portfolio)
HYIPs are highly profitable investment programmes and, essentially, the equivalent of a pyramid scheme. The longer your money is there, the more likely you are to lose it.
HYIPs are designed to fail from the start. They promise high profits that in principle cannot be achieved, much less so in the long-term. If you allow greed to blind you, you can lose a lot of money in search of some quick cash.
Ultimately, HYIPs are funded by recruiting new members, often through network marketing.
Once the pot is full enough, the person or people behind the HYIP will leave with all the cryptocurrency that has been invested so far. The investors will notice it as soon as they see that the money has stopped flowing.
However, there are also ways to take advantage of HYIPs. In fact, there are even mathematical formulas that are more or less capable of calculating the lifespan of HYIPs.
If you get involved relatively early and take advantage of the demand, you could make a considerable profit.
In my opinion, as long as you only do this to accumulate assets and not to go looking for and convincing other gullible investors to join, it could be worthwhile.
Some HYIPs that existed at the time of writing this article:
Betting with cryptocurrencies
As for betting, there is not much to say. Everything you can bet on in the real world, you can also bet on in the Bitcoin world and for other cryptocurrencies.
Since cryptocurrency bets are not subject to any type of regulation, anyone with a certain level of programming knowledge can set up their own betting site and offer the possibility of depositing and withdrawing cryptocurrency, something which would require a license in the real world and also numerous rules.
Naturally, we can also find a lot of these “black sheep” and shady characters in the betting sector.
Here are some cryptocurrency betting sites that I think work well:
Exchanges – trading of cryptocurrency
And finally, we come to the different exchanges that allow us to buy and sell in a similar way to how we do with Fiat money.
Here you have to differentiate between the exchanges where you can only trade with cryptocurrency and the exchanges that also allow deposits and withdrawals of Fiat money.
Contrary to what happens in the former exchanges, in the latter exchanges you have to identify yourself following the KYC process which we know from banks (i.e. photocopy of your passport, a bill or bank statement, etc.)
In the cryptocurrency exchanges, you can also exchange crypto for dollars, but it is not possible to directly withdraw the money. By doing this, you could keep part of your assets in Fiat money, which is much less volatile than the cryptocurrency.
The operation of the exchanges is not too different from that found in classic brokers. Depending on the provider, it can be relatively straightforward.
Anyone who wants to invest in the stock market (whether in Fiat money or cryptocurrency) must understand the basic concepts of trading, what constitutes the limit order, the market order, stop orders and conditioned orders.
It is not uncommon for parameters that have been wrongly established by a trader to lead to a chain reaction of people buying and selling at unintentional prices.
Those starting in cryptocurrency are usually not interested in another more than the initial purchase of their chosen cryptocurrency. They do not trade daily, but instead follow the long-term approach of the buy and hold strategy.
I also do not usually trade on a daily basis, but I do bet on the increase in value of certain cryptocurrencies that have caught my attention.
If you follow this type of strategy, you shouldn’t be affected by strong losses or low values, quite the opposite, in fact, you should see them as an opportunity to buy more at cheaper prices. In the long run, following this type of strategy and resisting during difficult times usually yields good results.
Exchanges offer many more options for advanced users, such as margin trading, a topic that we won’t go into in this article.
It is essential to bear in mind that, as we said at the beginning of the article, cryptocurrency exchanges are susceptible to fraud and can be hacked at any moment.
It is wise to only use exchanges that offer two-factor authentication and, of course, if it is optional, we should use it, even though it is inconvenient to have to enter the key every time. By using this, we can avoid the theft of all our money in the exchange.
Exchanges do not offer the possibility of trading with all cryptocurrencies, often it is very selective and depends on each region. Even the Altcoins with the highest market capitalisation are only available in one or two of the largest exchanges.
Currently, only Bitcoin, Ethereum and Litecoin can be traded in virtually every exchange.
If you want to know where to trade with your preferred Altcoin, you can take a look at the website of the currency itself or on the CoinMarketCap page that shows the price of a large number of cryptocurrencies.
Anyway, the best way to follow the price of the currencies that you are interested in is through the Blockfolio application.
Among the most used exchanges are:
Bitfinex: Bitfinex’s headquarters are in Hong Kong. It is the second largest broker in the world and focuses on the few cryptocurrencies that, in their opinion, have the greatest potential. Usually, it is the top 10 cryptocurrencies plus some promising projects with lower market capitalisation.
At present (October 2017), the currencies that can be traded here are Bitcoin, Ethereum, Bcash, Litecoin, Ripple, NEO, OmiseGO, ETP, Lota, Zcash, EOS, Dash, Ethereum Classic, Monero, Aventus, Santiment, Streamr, Eidoo and Qtum.
You can also currently exchange, buy and withdraw dollars and euros. The exchange also allows you to loan cryptocurrency using margin funding to get a few low-risk interests.
Bitfinex is somewhat lacklustre and has suspicious connections to the cryptocurrency Tether, which is linked to the dollar. Many fear that Tether is not actually backing up the currency with dollars and that, therefore, a large part of the rise in Bitfinex shares, especially Bitcoins acquired by Tether, will disappear as soon as this is discovered.
In spite of everything, I think that Bitfinex is a good exchange for people who are getting started in cryptocurrency and I would recommend it.
Binance: Binance is a good alternative to trade with some cryptocurrencies.
Poloniex: Poloniex is a broker only for cryptocurrencies, which means that you can only transfer and receive cryptomoney, albeit a large number of cryptocurrencies, even the least known ones.
Bittrex: Bittrex is one of the largest brokers in the world and is quite easy to use.
Are we facing a bubble similar to that of dot com?
Given all the euphoria for cryptocurrencies, it is not a bad idea to pay attention to those who say that Bitcoin and co. are no more than a craze or a momentary trend that will end up failing dramatically.
In my opinion, I am convinced that cryptocurrency is a ground-breaking innovation that will change the rules of the game in the long run, although certain parallels with the dot-com bubble cannot be ignored.
Today, just as in those days, the “new market” is seen as a market in which money is invested in an increasingly reckless manner. Today, just as in those days, there are many extremely interesting ideas and technologies for which the time is just not right.
There are many cryptocurrencies and decentralised applications that still have no real specific use. This can change 15 years from now, as it happened with many of the technologies and ideas that did not go ahead during the dotcom crisis and are now extremely profitable.
Each generation has its own “tulip mania,” and now we can include cryptocurrency among these.
However, despite all the parallels, there is indeed a decisive difference.
Many of the best crypto-ideas come from communities and voluntary developers and the fruits of their labour are open source, meaning they are accessible to everyone.
This means, even if these groups lost the motivation or funding to continue with the project, others could continue at any moment.
Beyond the knowledge of common programming languages, there are hardly any barriers stopping you from entering the cryptocurrency sector: a large capital investment is no longer necessary, which means that there are no bankruptcies either.
The projects that are going to go under usually do so because there was a fraudulent intent from the very start, something that we find with numerous ICOs. In that sense, there is a bubble, but for a very different reason than the dotcom bubble.
Anyway, from my point of view, the value of Bitcoin is somewhat exaggerated (remember, this article was originally written in German, four months before its translation into English.)
Bitcoin has become mainstream, we find success stories everywhere and everyone wants to repeat them. Even rappers like Sido recommend it, people without the slightest idea about it have started investing all their savings.
This is likely to raise the price for a while, but in the long run, it will undoubtedly lead to a shortfall. Especially if we take into account that the current Bitcoin community tends to sell as soon as things get ugly. Also, do not forget that we are facing a potential market manipulation with Bitfinex (for the Tether issue).
In another article, I previously predicted an imminent fall of 80% in the value of Bitcoin in 3 months. Even if that did happen, Bitcoin would be even better than it was at the beginning of the year.
Bitcoin continues to have a strong network effect that, in my opinion, will not be enough in the long term. Technologically, Bitcoin is very inferior in terms of speed, price and scalability, something that the next hard forks will not be able to change.
The traceability of Bitcoin will get many investors, who until now had chosen to not pay taxes, into hot water.
The problem that I see with hard forks is that they make Bitcoin inflate artificially.
Instead of having 21 million Bitcoins, we currently have more than 25 million in the variant of Bitcoin Cash, Bitcoin Gold and company.
It could be challenged that these are different cryptocurrencies but, unlike what happens in stock splits, with a hard fork, the price isn’t reduced by 50%. What happens is that the new currency starts to exist at similar standards and Bitcoin drops almost unnoticeably, only to return a few days later at the same status or even above the standard it was before the hard fork.
Of course, when making a new hard fork, investors usually buy more Bitcoins to take advantage of the additional profits. This, in my opinion, can be very risky in the long run.
Personally, I only have 1 BTC in case I was wrong and Bitcoin passed the million dollar threshold. However, I expect that within 3 years Bitcoin will no longer be among the top 50 cryptocurrencies and that it will be replaced by better alternatives.
Better alternatives like Dash, for example, which is already among the 6 most important cryptocurrencies. It is a currency that allows anonymous, scalable, fast and convenient transactions and also is developed and publicised by a very professional team.
There is no denying that the cryptographic scene will have changed a lot in 5 years time. We do not even know if Bitcoin will survive, especially if we take the numerous hard forks into account.
Of course, I have no doubt that cryptocurrencies will end up on top. The question is which. Ultimately, the market capitalisation of all cryptocurrencies are the personal assets of the three richest people in the world.
Billions of euros from anonymous cryptocurrency accounts or bank and industry assets will be introduced over the next few years into the crypto market and will launch the price to unprecedented boundaries.
Personally, I have invested in many different cryptocurrencies and tokens since the beginning of all this.
Next, I am going to very briefly introduce projects that I feel have a very promising future and in which I, of course, invest or am involved.
I am a big fan of the technologies that have evolved, leaving the problems of blockchain in the past. In fact, I am an active member of the team for one of these projects, about which I am not able to provide any information, for the time being anyway.
In general, I keep a pragmatic approach to crypto-investments.
From an ideological standpoint, you can be against interesting projects regarding the benefits they can give (such as Iota), and projects that cooperate with banks, states, etc.
However, from an investment point of view, I consider them to be a good option. On the other hand, I do also own substantial shares in more ambitious projects, such as in the totally anonymous cryptocurrency Verge or BitNation.
For beginners who have no knowledge but still want to profit from the cryptomarket, I usually recommend investing in some of the emerging index funds that cover the 12 best cryptocurrencies equally, funds such as Iconomi or Crypto20.
By doing so, it is possible for you to obtain large profits at low risk and be part of the trillions of dollars that are expected to flow over the next few years in the strongest cryptocurrencies.
A token or two of the fund can go bankrupt, but you can also simultaneously take advantage of values that rise substantially.
I do not want to go into detail about ICOs in this article. Ultimately, investing in an initial coin offering (ICO) does not differ much from buying the token on an exchange when it already exists. Of course, during the ICOs or in presale, acquiring these comes with certain bonuses that are used as an incentive to purchase in advance.
Even if you like the project very much and it seems very promising, I would not normally invest in an ICO.
The problem is that promising projects need a certain development time during which the token value will drop dramatically, below the value reached during the ICO.
You can often see that the price after entry into exchanges, during the first few days at least, experiences strong increases; however, the euphoria usually disappears quickly, with the token forgotten for a while.
For this reason, I no longer invest in cryptocurrencies during ICO, no matter how much I like them, but rather I wait until after they have entered the main exchanges when I consider it to be the right time.
A distinction must be made between cryptocurrencies and crypto-assets. The latter can also be sent and received, but have other technical aspects as a priority and their objective is not to become a universally accepted currency, but rather to solve other problems.
The situation is different with classic cryptocurrencies, which do intend to become a means of payment. These focus on scalable, cheap, quick, and as the case may be, anonymous transactions.
And remember: cryptocurrencies or crypto-assets can only be decentralised and open-source projects. The centralised projects with proprietary code can be called digital currency, but not cryptocurrency.
Dash: Dash has already become a real alternative to Bitcoin for many people. Significantly faster transactions, greater anonymity and its extensive approval make Dash a worthwhile alternative. In particular, I like the professional development and marketing and that is the reason why Dash is the cryptocurrency I have the most of.
Iota: Iota does not use blockchain, but uses a concept called “tangle” instead. Not only is it already prepared for future quantum computers, but it also offers very fast and highly scalable transactions. As the name suggests, Iota is based on the “Internet of Things” and in the future will allow the micropayment of a large variety of things. The Iota Foundation, which surprisingly is currently registered in Germany, is already collaborating with numerous companies in search of practical applications and will most likely have great long-term success. Iota is another currency which I have invested heavily in.
TenX: TenX is a digital wallet and physical card provider that aims to make it possible to convert cryptocurrencies into Fiat money at any time. Its objective is to make a large number of cryptocurrencies available for conversion into Fiat money, and not only Bitcoin. The company has already made substantial progress with this. The owners of TenX will regularly receive dividends on the transaction fees of the card.
Verge: Even more so than Dash, Verge is probably the most anonymous cryptographic currency. Through the Tor network and IP6, it hides who is behind the transactions in the blockchain. This project, led by an open community, is not well known yet, but in my opinion is quite promising.
Bancor: Bancor raised a record of over 153 million euros in an ICO in 3 hours and since then a great technological breakthrough has been expected of them. The objective is to create “smart” tokens that, for example, can be backed up with various reserve currencies. Therefore, decentralised crypto-ETFs or numerous other projects can be created.
Aeternity: Aeternity is another platform similar to Ethereum, but its technology is superior in many ways. It is not known if that will be enough to replace Ethereum.
Polybius: Polybius is a manual project, a bank especially designed for cryptocurrencies. During the ICO, they raised 20 million dollars and since then contributions have been falling considerably. Of course, Polybius is clearly a long-term investment. The bank will conduct hardly any activity before 2019. From then on, those with tokens will have a pro rata share in the profits of the Polybius financial institution.
Waves: Waves is another platform like Ethereum that is supported by a large community of users. With Waves, you can create your own cryptocurrency for a few euros. For example, Burger King did this and now you can pay with WhopperCoins.
Tezos: Tezos is another alternative to Ethereum and has been in development for quite some time. Its technology is based mainly on the method of ¨formal verification¨. During the ICO, over 232 million dollars were raised by Tezos.
ChainLink: ChainLink promises to be able to connect different types of blockchains and external providers. The aim is to get rid of any barriers in the use of “smart contracts.”
Ark: Ark has certain similarities to ChainLink, but is based on other technology. It´s amazing how easy it is to use your wallet.
Chronologic: Chronologic aims to develop a new token concept that incorporates the constant of time to the blockchain technology and thus allows new interesting uses to be found. Of course, you do not know what will come out of all of this.
Tierion: Tierion tries to set a new standard in data verification and collaborated with industry leaders such as Microsoft.
Bitnation: I have already spoken about Bitnation previously. After a long development period, the platform will soon be launched, offering decentralised alternatives to government services. You will be able to get married, register titles or sign all types of contracts, no matter what it is, everything will be registered in the blockchain in a format that cannot be modified or edited and will follow a reputation grading system.
Taking out the benefits of investment in cryptocurrency: business, bank accounts, legal security
Finally, let’s try a topic of practical interest for most cryptocurrency owners. Eventually, there will come a point when you want to change at least a part of your cryptocurrency for Fiat money.
We have already talked about how this works in Spain. Generally, in order to exchange cryptocurrency to euros or any other traditional currency, you will have to identify yourself.
Those who do not want to follow the official path will face more and more difficulties each time.
In many countries, the burden of proof is on your site, meaning that you have to be able to prove before possible tax inspections that the origin of the funds is lawful. Otherwise, the government may confiscate your money.
This, coupled with the distrust by governments and tax authorities in most of the world, can quickly leave you without money and even send you to jail, especially when we keep in mind that we often talk about large sums of money.
If you have large amounts of cryptocurrency and you do not want to experience all these problems, perhaps the time has come for you to say goodbye to your home country once and for all.
We previously spoke about the best countries to reside in if you do business or invest with cryptocurrencies.
Everyone, but particularly the crypto-millionaires, should make sure that they find a scheme that allows fully legal and secure access to the profits of their investments in cryptocurrencies.
From countries with CFC rules, this can be problematic but not impossible.
Apart from the option of moving, you can also transfer your cryptocurrency to a company incorporated abroad, into a tax-free country with a positive attitude towards Bitcoin. Belize, Gibraltar, Hong Kong or the Isle of Man are good choices for this.
In doing so, you will not have to be paid in cryptocurrency with its great difficulties in proving its origin, but rather in the form of Fiat money dividends.
This way your cryptocurrency remains anonymous, apart from all regulation and accounting, as well as tax-free in the relevant offshore company.
This type of organisation is especially recommended for people who live as permanent tourists, moving from one place to the other, i.e. people who otherwise would have great problems when it comes to proving the origin of their assets.
The fiscal residence of these permanent tourists must be fixed in a country that does not have restrictions on administrating and managing offshore companies (i.e. without CFC rules) and also a country that does not tax dividends or only does so marginally.
The United Arab Emirates is a good choice for this, or countries with territorial taxation such as Panama, Paraguay, Thailand, Georgia or the Philippines. The special system in Cyprus is also a good option.
Ultimately, it depends on the individual preferences of each person. There are also countries that have few taxes on dividends, like Bulgaria and Romania, with a rate of only 5%.
It is essential for your offshore company to have a suitable bank account, which guarantees direct, simple and hassle-free exchange to Fiat currency. Many banks still have problems with cryptocurrency and explicitly prohibit transactions with cryptocurrencies in their terms and conditions.
For large amounts, the best options are certain Swiss private banks which, among others, have been perfectly prepared for the new crypto-billionaires for some time.
For smaller sums, the following financial service providers have explicitly stated that they are open to cryptocurrencies and that they allow the opening of company accounts over the internet for most offshore companies.
MisterTango: MisterTango offers company accounts with IBAN owned by Lithuania. Low rates, quick transfers and your own Bitcoin exchange make this a very worthwhile financial service provider.
CryptoCapital: CryptoCapital is based in Panama and provides a link between the cryptocurrency exchanges and Fiat currency. This financial service provider is not subject to the exchange of information (CRS – Common Reporting Standard) and manages deposits and withdrawals in the Eurozone through a shared Polish IBAN.
I-Account: I-Account is based in Hong Kong, is not subject to the exchange of information and allows the rapid opening of accounts to companies in almost all jurisdictions. Deposits and withdrawals of money are made through SWIFT accounts in various Asian countries.
It is foreseeable that sooner or later the regular banks will stop seeing cryptocurrencies as shady territory, suitable only for criminals. Although it is also true that most of these banks will eventually disappear.
In principle, we could say that the delay of any bank in adopting cryptocurrency is a clear sign of its ability to survive in the long term.
Indeed, several crypto banking projects already exist, such as Polybius, and these projects will be launching soon.
I hope that I have been able to help you with this article about cryptocurrencies, the longest article that we have published so far, and if your opinion differs from mine in terms of the future of cryptocurrency or any other aspect – you know where the comments are (they are there for debates!).
We have recently also begun specialising in consultations for the cryptocurrency sector, so if you are looking for the best solution for your case or you still have doubts after reading this article, you can write in the comments or directly request a consultation.
Naturally, we accept payment in cryptocurrency, in fact, we prefer it since we have gotten tired of dealing with banks and payment gateways. You can pay us with Bitcoin, Bitcoin Cash, Litecoin or Dash, as well as with Iota and Verge.