Business Magazine

Top Things Cryptocurrency Investors Should Take Note of Legally

Posted on the 23 January 2022 by Gaurav Kumar @vhowtodo

With the viral attraction of digital currency to investors and modern and traditional businesses, there is a need to clarify the legalities that these currencies and technologies bring.

So with national governments, central banks, regulatory agencies, and other financial institutions.

Interest in digital currency has boomed and has dramatically influenced both new and traditional businesses.

As a result, there is now the need to clarify the legalities of these new technologies and currencies.

Different government entities, central banks, and other monetary firms try to understand the nature and meaning of digital currencies; individual investors can invest a great deal of money.

But on the other hand, investors assume certain legal risks when buying and selling cryptocurrencies.
Virtual currency is often confused with traditional electronic money; however, these two are not the same.

Virtual currency cannot be physically owned and transferred from one entity to another.

The confusion with the legality of virtual currency is that it has overshadowed traditional currency and other payment methods.

The following are some legal issues linked to cryptocurrency investing.
It is a prevalent idea that criminal organizations might take advantage of the loopholes of cryptocurrencies when committing money laundering, fraud, and other forms of financial crimes.

Illegal Activities:

This does not directly influence cryptocurrency investors who do not intend to utilize this technology to commit illegal activities.

However, these investors are exposed to potential victims of financial crime, which are not legally sanctioned by the law the same way as traditional victims of fraud.
This concern is linked to the decentralized nature of virtual currencies.

As a result, cryptocurrency investors risk when they buy and hold cryptocurrency assets.

For example, when a customer account is stolen because of the hacking of a cryptocurrency exchange, it would be challenging to recover missing funds because there are no standard operating procedures.

The decentralized status of various virtual currencies brings a potential risk for investors.

Decentralized Status:

Bitcoin, the first cryptocurrency, took the lead in operating in a decentralized status which means that it is virtual and is not regulated by any central authority.

The drawback comes with the virtual currencies' worth which depends on the value that other investors and owners ascribe.

Despite the legal actions brought about by various regulatory agencies in different national governments, Bitcoin and other virtual currencies are not linked to any institution or jurisdiction.
One advantage for investors is their freedom to control their investment from these institutions.

Moreover, investors might be left unassisted without a central regulator when their accounts are hacked.
Another potential risk associated with cryptocurrencies due to their decentralized status has to do with the particulars of transactions.

For example, there is a changing of hands with currencies in most transactions.

On the other hand, an intermediary creates and settles deposits and debt claims for electronic money.

However, these do not work with cryptocurrency transactions.

If you want to learn more about crypto trading platforms, we highly suggest that you check out Bitcoin Up.
Because of this fundamental difference, legal confusion between parties in various digital currency transactions is a real possibility.

Once again, because of the decentralized state of these currencies, the path of legal recourse in these situations can be challenging to assess.

Virtual currency developers and startups aimed to create security measures for holding virtual coins and tokens.

However, despite the technological advancements that new wallets release and the steps cryptocurrency exchanges take to upgrade their security measures, investors could never remove the legal risks related to owning cryptocurrency and might never will.

Cryptocurrency investors have to look at the legal side of central authorities when it comes to virtual coins.

Cryptocurrencies as Property:

The US Internal Revenue Service categorizes cryptocurrencies as property rather than currencies.

This rule mandates investors to follow capital gain tax laws when reporting their cryptocurrency expenses and profits on their yearly tax returns, regardless of where they purchased virtual coins.
With this in the equation, cryptocurrency becomes more tired and complex for US taxpayers.

There is still a grey area for cryptocurrency investors who bought their coins on foreign exchanges on whether they have to report these during the tax period.

However, it does not end in such a challenging situation.

CNBC reports that investors who own crypto greater than $10,000 are required to file a Report on Foreign Bank and Financial Accounts (FBAR) yearly with the Treasury Department.

Furthermore, specific US taxpayers are mandated by the Foreign Account Tax Compliance Act to enumerate their overseas accounts on Form 8938 when they file taxes with the IRS.
These laws that cover foreign cryptocurrency exchanges could complicate how US digital currency investors would abide by tax matters, hinted by Kevin F. Sweeney, former US federal tax prosecutor.

He further emphasized a possible addition to the requirements of FBAR.

This is further aggravated by the lack of assistance from the IRS, which caused more confusion with investors and tax professionals.

He thought it unfair for the IRS to expect taxpayers to know such when even tax professionals and practitioners are unsure if there is an FBAR requirement.

The number of business firms who grab the opportunity of virtual currencies as a payment method is increasing.

Business Registrations and Licensing:

The rules that apply to others in the financial industry might also be applied to virtual currencies.

They might be required to register and get a license for various financial activities.

However, depending on their jurisdiction, these businesses might be required to submit to particular cases.

Because of the evolving legal status and complexity of virtual currencies, businesses that operate in the crypto market might find it complex and confusing.
For instance, firms that only accept cryptocurrencies do not need to obtain licenses or register.

Thus, owners and managers should be responsible for following legal procedures so they can operate at both local and state levels.
Financial institutions at the federal level should conduct protection activities against illicit transactions such as fraud and money laundering.

This also applies to firms that deal with virtual currencies.

Cryptocurrency investing is risky because of the volatile market.


You can get more information about cryptocurrency from this website.

However, if you want to expand your investment portfolio, you should consult qualified professionals and research before engaging.

Still have any question, do share via comments.
Share it with your friends and family.
Don't forget to like us FB, and join the eAskme newsletter to stay tuned with us.
Other handpicked guides for you;

Back to Featured Articles on Logo Paperblog