The dark side of cryptocurrencies: a new tax haven?

Crypto currencies have recently made headlines as a new way to invest money. Is all that glitters really gold? The short answer is no.

While you may have heard that crypto-currency helps people reduce their tax liability and take advantage of an unregulated decentralized banking kingdom, the truth is that crypto-currency is not the best option if you are looking for a new tax haven.

Your assets, in the form of cryptocurrency

First of all, let’s look at what cryptocurrency is. Cryptocurrency involves a digital currency like Bitcoin that operates without a central bank by using encryption to conduct transactions. In theory, cryptocurrency allows people to invest money without limit, and it cannot be confiscated in this way. Does this mean it can’t be taxed?

Well, for a while that was the case. Initially, people could put their money into crypto currencies without worrying about any tracking or being taxed. However, this is fast becoming a thing of the past. Today, the IRS asks taxpayers if they hold assets in crypto-currencies, and taxpayers are supposed to pay taxes on any money they have in crypto-currencies. Obviously, this is not good if you are looking to use cryptocurrency as a tax haven.

Yet it is an evolving way to invest your money, and there are many opportunities to put assets in it. In terms of regulation, there is actually very little, and this is perhaps the worst thing a “banking” system can offer.

No regulation is not a good thing

You may think that no regulation would be a good thing, but there is another point of view that many people do not take into account. It is through regulation that your transactions in a bank can be recorded, and it is through regulation that lost assets can be recovered. If someone steals assets from your bank account, you have a paper trail to prove it. With cryptocurrency, however, this is not the case.

In the eyes of regulators, this lack of regulation is a major concern. It means that people who invest in cryptocurrency could be vulnerable to a long list of problems that regulators can’t do anything about at the moment. Regulators are looking closely at cryptocurrency to see what they can do, and that’s problematic because anyone who wants to protect their assets doesn’t want regulators ogling their investment vehicle.

For asset holders, cryptocurrency can be very volatile. Prices are subject to rapid rises and falls that cannot be predicted, making crypto-currency less desirable for those who want a stable place to invest their assets.

Another thing to keep in mind is that cryptocurrency is linked to the shadow banking system, and governments around the world want to ban or at least control this system. Cryptocurrency could also disappear or become more centralized and regulated in the future. Only time will tell.

Crypto-currency as a tax haven is not here – yet.

In the meantime, where can you put your assets if cryptocurrency is not the best option? Offshore banking offers an exceptional alternative to onshore banking and cryptocurrency. While cryptocurrency has been considered the “new” offshore banking for some time, more and more people are seeing that this is not the case.

Offshore banks still hold the same promise of eventual lower tax liability and higher levels of privacy and protection. Offshore is better for asset holders, and it is also better for regulators. We don’t see regulators giving offshore the same extra attention that cryptocurrency is currently receiving.

Offshore banks are completely legal. They are safe, sound and reputable, and in many cases, they are better than onshore banks. Cryptocurrency is still controversial around the world, while offshore has proven itself.

Is cryptocurrency the future tax haven?

While it is true that cryptocurrency may have a place in a diversified portfolio, it is unlikely to become a major investment vehicle due to its volatility and ambiguity.

There is still so much that is simply unknown about the future of cryptocurrency. We don’t know how regulated it will be or how private assets will remain, and we certainly don’t know what the future value of cryptocurrency will be.

We do know, however, that centralized banking has been around for a long time and that most of our assets are in that system for a reason. The most important thing to consider here is where you want your assets: onshore, offshore or unregulated.

Offshore is the best option because it’s a great middle ground. You get better tax and interest rates while protecting your assets from political and economic turmoil, and you don’t have to worry about regulators watching your every move.

Would you like to protect your business the dark side of crypto currencies? Contact us today.

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