- Amid COVID 19 crisis, bitcoin trading seems to gain a foothold, as it crossed the USD 12k mark twice in the recent weeks.
- Factors like pandemic-driven scenario, stock market volatility, ongoing geopolitical issues, and recent US President’s determination to provide additional stimulus seem to be driving the surge in bitcoin prices.
- Cryptocurrency prices are highly volatile in nature, and digital currencies are a popular target for highly sophisticated hackers.
- There are separate tax policies applicable to digital currency transactions.
The pandemic era is also the digitalisation era, and it seems that the digital currency is gaining a foothold during this unprecedented crisis. Bitcoin is a cryptocurrency that uses revolutionary blockchain technology. It is a decentralised system that allows people to make a direct payment to each other online.
The market is primarily driven by enthusiasts who keep trading in the technology despite several scepticisms around it. In recent years, the bitcoin market witnessed a significant increase in activity and its value. On 10 August, bitcoin again crossed the USD 12k mark. This is the second time that bitcoin surpassed the mark in recent weeks; however, until now it could not remain there for long.
There are several factors associated with the surge in bitcoin prices including pandemic-driven scenario, stock market volatility, and ongoing geopolitical issues. Moreover, there are reports that the traders were driven by President Trump’s determination to provide additional stimulus to support the ailing economy amid the prolonged ongoing crisis. A series of executive orders were released recently, with the President providing unemployment benefits of approximately USD 400 a week.
Related: Cryptocurrency usage booms amid COVID-19 crisis
Bitcoin Value is Highly Volatile in Nature
Price of cryptocurrencies, including bitcoin, is highly volatile in nature. Last few years witnessed a rise in the value of cryptocurrency and also related activities; however, there has always been a high degree of volatility associated as the price fluctuates quickly.
At the beginning of the year 2017, bitcoin’s value was around USD 1000 and at the end of 2017, it was nearly USD 20,000, and in early 2018, it plunged to USD 7,000. It’s just an example of how its value can change quickly.
Australian Tax Policies for Cryptocurrencies
Cryptocurrency, also known as digital or virtual currency, began with the concept that no central administrator will govern the chain of transactions, and it will be entirely decentralised, which was made possible due to blockchain technology. Still, while trading, the regulations are applicable. So, if one is involved in buying and selling of digital currencies, they must be aware of the tax policies that are applicable as per the nature of circumstances.
For the one who dealt with digital currency or foreign exchange, there may also be taxation consequences for the selling/buying in a foreign country.
Transacting with Digital Currency: When one disposes of their cryptocurrency, a capital gains tax (CGT) event occurs. Disposal occurs when someone – sells or gifts digital currencies, uses these currencies to get goods and services, trades or exchanges cryptocurrency including exchanging one cryptocurrency for others or convert to fiat currency.
If one gains capital while the disposal of cryptocurrency, some or all of the gain may be taxed. However, if the disposal is part of a business transaction, then the profits will be considered as an ordinary income and not as a capital gain.
Using Cryptocurrency in Business
Businesses that involve cryptocurrency usage are – cryptocurrency or bitcoin mining, trading and exchange businesses including ATMs.
However, not all people acquiring and disposing of cryptocurrency will be carrying on businesses. To do business using cryptocurrency, one will usually:
- Do transactions to do business, in which one prepares a business plan and acquires capital assets as per the plan.
- Carries out the activity for business reasons, prepare accounting records and intend to make a profit.
- Market a business name or product.
Financial Regulation and Consumer Protection in Cryptocurrency Transaction
Digital currencies are right now in limited use; hence it is not yet raising the alarm about competition, efficiency or risk to the financial system, according to the RBA. The digital currencies are not currently regulated by the RBA or subject to regulatory oversight.
However, the central banking system is assessing whether its regulatory framework can include alternative mediums of exchange like bitcoin or other cryptocurrencies. Also, as per the Australian Securities and Investments Commission Act 2001, cryptocurrencies are not considered as the financial product.
Cryptocurrency Trading Risks
Similar to traditional trading, cryptocurrency trading has its risks. Since not regulated by the central authority, traders are responsible for any losses.
Some of the risks associated with cryptocurrency transactions include:
- One may lose money:The platform used for such transactions is not regulated; hence there is no protection if the platform fails or gets hacked.
In several countries, cryptocurrency trading is not considered legitimate, and people in the past have lost money. So, it is always advisable to first understand the risks and then only invest in such trading.
- Volatile in nature:The value of cryptocurrencies can fluctuate significantly over a small period as per the popularity, perceived value, underlying blockchain technology, and other factors.
- Money could be stolen: There is a possibility of your money getting stolen due to hacking.
Bitcoin is an asset that has often observed to gone up, when investors are nervous. However, there are several other factors that are helping to push bitcoin higher. Market experts are anticipating further surge in this cryptocurrency price, primarily owing to ongoing economic uncertainties.
Good Read: Five-Point Action Plan to Survive COVID-19 Storm
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