One of the biggest remaining perceived risks of Bitcoin remains the possibility of governments around the world banning Bitcoin in some way or another.

As far back as 2015 there were already rumors of big countries and the EU planning on banning Bitcoin, but nothing has come out of that.

So let’s explore the whole scenario and how likely it is for all the or even a few of world governments banning Bitcoin…

The world used to be a small place. Before the modern era, people grew up and lived in a small geographic area. Even holidays were enjoyed a short distance from home.

The 20th century changed all of that. By the 1950s, advances in flight made it possible to cross oceans in hours, not days or weeks. As we moved closer to the 21st century, the rise of computers eventually led to the internet.

The wellspring of advances that have flowed from this innovation has made a truly international lifestyle possible. We can hire low-cost contractors to scale businesses quickly. Thanks to wi-fi, we can get work done from the cafe down the street or a beach bar halfway around the world.

More people than ever are becoming citizens of the world. However, just as a parachute exerts resistance on a runner, one issue holds many back – international money transfer. Even cheap money exchanges like Wise are relatively expensive, adding up to hundreds or even thousands of dollars lost to fees annually.

In an increasingly globalized world, these differences hold growth back. Some are touting cryptocurrency as a mass disruptor to this broken system. Can this innovation can provide universality to the global financial system? Or will nation-states mercilessly defend the status quo? We’ll search for the answer in today’s post.

Borders are becoming less meaningful with every passing year

Up until modern times, people defined themselves in part by what surrounded them. Thanks to their collective lack of mobility, regions differed significantly over relatively short geographic distances. If you travel across Europe, you’ll pass through a half-dozen countries with just as many languages/cultures in a few hours.

As monarchies evolved into nation-states, borders developed to define these regions. While war occasionally redrew these lines, they’ve mostly delineated the boundaries of cultural homelands over the centuries.

In the post-WWII era, though, the internationalization of business and increasing migration has put pressure on this model. As Western Europe began to embrace freer trade, an obstacle to growth became apparent very quickly.

With dozens of hard borders, trading in 1950s Europe was a Kafkaesque nightmare. Each nation had a slew of tariffs, regulatory differences, and currencies. To sort out these issues, six nations (Belgium, the Netherlands, West Germany, Luxembourg, France, and Italy) formed the European Coal and Steel Community (ECSC) in 1952. By integrating these two major industries and coordinating Marshall Plan funding, growth began to flourish.

Their progress snowballed, leading to the formation of the European Economic Community, or EEC, in 1957. This organization established a formal customs union between these same six nations. As these founding members saw their economies grow drastically, other countries, like Denmark, the United Kingdom, and Greece, joined.

In 1985, integration between member countries took a historic leap forward with the Schengen Agreement. Within the Schengen area, people and goods could move freely without being subjected to border checks. In 1992, the signing of the Maastricht Treaty formally created the European Union. Shortly after, a common currency known as the Euro replaced over a dozen national currencies.

In less than fifty years, borders have ceased to have much meaning in Europe. Other parts of the world have yet to embrace integration on a similar scale. Generally speaking, however, global trade and movement of citizens has become freer over the same period.

The writing is on the wall for all to see. From NAFTA to the recent creation of the African Union, borders are quickly becoming lines on a map.

People are sick of jumping currency hurdles

Free trade/free movement agreements and the internet have made the world a more international place. However, one major blockade stands in the way of true global citizenship – a common currency.

Every time an individual or business moves cash from one country to another, expensive problems ensue. Banks and currency transfer firms charge fees in return for the privilege of sending your money abroad. And then, they offer an exchange rate that can be 5% or more off the interbank rate.

Let’s say that you’re a British citizen. You just got hired by an investment bank in the Netherlands. As such, you need to move your assets (20,000 GBP) from Barclay’s to your new ING account in Amsterdam. Right away, you’ll pay 15 GBP for wiring money to a SEPA (Single Euro Payment Area) country. Then, you’ll exchange funds at the GBP/EUR rate of 1.0951.

All told, you’ll end up with 21,885 EUR on the other end. But your problems don’t end there. If you’ve already attained Dutch residency, you may be subject to the Dutch gift tax. It could trigger if the receiving account is in your spouse’s name. Given the amount in this example, a 10% rate may apply.

That means the state could walk away with 2,188 EUR of your money. Once the dust settles, 19,697 EUR would remain. But, what if you could move your money without having to deal with fees, margins, or taxes?

As of the writing of this article, the GBP/EUR interbank rate was 1.1581. If money transfer were free, you’d have 23,162 EUR – that’s almost 15% more! Now, imagine if you’re a small business owner. Even if they’re picky with whom they move money, they still give up hundreds or thousands of GBP/USD/EUR annually!

It’s time the world adopted a global currency standard.

Will cryptocurrency become a universal means of financial exchange?

It’s January 12^th, 2009. Despite the collapse of stock markets worldwide months before, the Global Financial Crisis continues to grind on. As stocks continue to decline, Hal Finney receives a historic transaction from a mysterious man known only as Satoshi Nakamoto.

Nine days earlier, Satoshi had mined the first-ever bitcoin. Based on a system known as the blockchain, it offered the world its first alternative to central bank controlled fiat currencies.

Fast forward ten years. Bitcoin and other cryptocurrencies now enjoy unprecedented acceptance. It wasn’t easy – along the way, boom/bust cycles and hacker raids hurt confidence. Yet, as we write this in 2019, 1 BTC is worth 8,156 USD. That’s about 11.6 million times its initial worth in October 2009 – a mind-boggling figure!

Financial pundits have compared the mania around BTC to the tulip bulb fiasco of the 17th century. However, it has also done more than its share of good. Take Venezuela, for instance. In this formerly wealthy country, a horrendous hyperinflation crisis has raged on for several years now. Once plush salaries, like those made by engineers, have eroded away to tens of dollars per month.

Those unable to flee have turned to freelancing. On the web, many Venezuelans perform digital tasks in return for BTC. This has allowed them to survive even as the average salary can no longer buy staples like toilet paper.

But what if you don’t live in a failing state? For the rest of us, BTC and other altcoins have benefits beyond investing. Unlike fiat currency, you don’t have to route cryptocurrencies through the global banking system.

The tollgates erected by banks comprise a considerable portion of the expense of sending fiat currency. By and large, this rent-seeking behavior does not exist on blockchain exchanges. As a result, the cost of transfers via this method is markedly lower.

Exchange margins don’t exist if you’re not converting your BTC into another currency. All you pay is a nominal fee to your crypto transfer firm – compared to the status quo, it’s a bargain.

Or, will nation-states do everything they can to block cryptocurrency?

Cryptocurrencies have come a long way from their days of facilitating transactions on the dark web. However, these would-be global mediums of exchange still face barriers to universal acceptance.

While its volatility has certainly dissuaded many retail investors, government interference is also a concern. The 2018 BTC crash had many contributing factors. However, it is widely believed rumors that South Korea would ban crypto trading set the dominoes in motion.

Crypto has now become an economic force. In response, regulation talk by government officials has ramped up. To be fair, only a handful of nations have banned cryptocurrencies – none of which are in the developed world.

However, any fantasies that cryptocurrency will upend the global financial system are rapidly evaporating. The United States was quickest to respond – the U.S. Treasury recognized BTC as a virtual currency in 2013. By 2015, the Commodity Futures Trading Commission licensed it as a commodity. In April 2018, Australia recognized BTC as money, but required exchanges to register with the Australian Transaction Reports and Analysis Centre.

After reviewing the different crypto policies of nations around the world, a mass crackdown appears unlikely. However, the creation of oversight mechanisms suggests the state is waking up to the reality of cryptocurrency.

In the end, the will of the people always prevails

In 2020, we have seen governments and banks becoming even more controlling of their citizens the world over.

As has been the case throughout history, bar a few protests here and there, ultimately the majority of citizens abide by their governments’ requests, be it the compulsory wearing of masks, lockdowns or the confiscation of all their gold holdings. Governments and authorities have always been able to scare people successfully, as very few people have the time and inclination to think about things deeply and consider the real repercussions of certain government actions, especially those that on the surface appear to make sense.

Again, 2020 has been a great clown show and provided us with lots of lessons. Here’s an example of critical thinking, discussing the harms of lockdown.

With the backdrop of 2020, it makes sense for crypto holders to take a serious look at the possibility of governments taking action to maintain control of the monetary system. The fiat currency system is 100% controlled by governments, while the stock market is strongly influenced by government buying and selling as well as other closely-related big players.

Crypto and in particular Bitcoin have been running mostly outside the control of governments, but now that the market cap of Bitcoin is getting bigger and bigger, it is attracting the attention of institutional investors and public companies. Both of these entities are much closer to governments in the chain of power than your typical retail investor.

It, therefore, makes sense that governments would get worried to see public companies like Microstrategy go all-in on Bitcoin, or PayPal to offer its users the ability to buy crypto.

So are the governments currently showing any menace? They are definitely showing signs of concern, although one of the major problems is their problem to understand even the basic fundamentals of how crypto works. In the U.S. we’ve seen the proposed STABLE Act, which can be seen as an attack on stablecoins.

We’ve also seen the threat to self-custodial wallets in the U.S. although nothing has been set in stone yet.

In the U.K., the FCA banned the sale of crypto-derivatives to retail consumers, as from 6 January 2021. Yet another case of a nanny state applying a blanket ban on all its citizens with the tagline being that it will save the uninformed from making bad financial decisions. Even then, however, UK citizens can easily bypass the ban by using non-UK based exchanges.

Ultimately, while I see more regulation encroaching on crypto, it is a bit of a stretch to go from regulating to outright banning crypto. Having publicly traded companies and big players in the investments space act favorably towards Bitcoin makes such an eventuality even more unlikely.

Barring an unforeseen Black Swan event, it also appears fiat currency isn’t going anywhere anytime soon. Fortunately, neither are cryptocurrencies. Authorities in most nations are keeping a sharp eye on crypto – they aren’t banning it.

As blockchain technology improves and fintech innovation progresses, crypto exchange will only get better. Sadly, travel without a passport isn’t on the horizon. Thankfully, super-low cost cash transfers likely are.

What are your thoughts on the subject? I’m still thinking about the topic and would welcome your ideas. I will develop this article further based on my research and further opinions.

Further reading

• Can Governments Stop Bitcoin? / Podcast discussing that article

In both traditional and crypto markets, there are all sorts of proverbs to help investors navigate through the volatility. You may have heard phrases like “don’t put all your eggs in one basket” or “only invest what you can afford to lose.” While these are certainly nice little reminders, they do little in terms of depth and detailed explanation. That’s where the Barbell Strategy comes in.

The Barbell Strategy, made famous by the author, statistician, and trader Nassim Nicholas Taleb, is a portfolio balancing concept that involves keeping some part of your portfolio in low risk and stable assets while allocating another part to profit from market movements. Today, we’re going to cover the basics of this strategy and how to use it in real life on a platform like YouHodler, which is one of my favorite platforms for crypto lending and borrowing.

The Barbell Strategy: Understanding the Basics

What comes to mind when you first hear the term “barbell strategy?” Most likely, you think of some buff weightlifter in a gym attempting to find the perfect balance for his barbells for a more efficient workout. You’re not necessarily wrong in picturing that image but fortunately, the Barbell Strategy of this article requires no exercise whatsoever.

Much like a barbell in real life, the Barbell Strategy involves finding a perfect balance between assets to ensure you have the most efficient and profitable portfolio possible. On one end, you have investments with low risk and low reward potential. On the other, higher-risk assets with a potentially higher reward.

To use an example from the traditional world of investing, a portfolio using this strategy could consist of higher yield, short-term bonds on one side, and long-term, lower yields on the other.

Let’s see a second example with stocks. In this case, one side of the portfolio would consist of the top 10 stocks on the market while the other side consists of high quality, but low-performing stocks on the other. There is no middle ground here.

The barbell strategy doesn’t have to be a 50/50 split per se. It all depends on the investor’s personal level of risk.  For those that want strong protection against big market swings, then the majority in safe, stable assets is a wise choice, but at the same, time you can miss out on huge opportunities for profit playing with volatility. Again, this part is all up to you and should be taken into consideration before practicing this strategy.

Why would someone want to use the Barbell Strategy?

Are you ready for an unsettling fact? Here we go. No one can predict the markets. That’s right. Even those “expert analysts” and their fancy Fibonacci sequences, “head and shoulder” patterns, etc. are more or less guessing the future based on past behavior. Sometimes they are right but sometimes, they are very wrong.

Hence, it’s more valuable if you spend time learning how to balance your portfolio as opposed to learning how to predict the future. The Barbell Strategy helps you with this. If you learn to design your portfolio in a specific way, then you can protect yourself during bad times and gain heavily during good times. The idea here is that the investments that are low risk can help absorb the bulk of the damage done to preserve your capital while the risker assets can carry you to great profits during bullish markets.

So now that we understand the basics of the barbell strategy in traditional markets, let’s put this philosophy into action using cryptocurrencies and stablecoins.

[Read more…]

Before we start – the usual disclaimer that this should not be taken as tax advice. Always consult a qualified tax lawyer or consultant before you take tax-related financial decisions.

Towards the end of every year, you will come across a lot of talk about tax loss harvesting, especially in the USA, where it is a very popular technique.

This is also true in the crypto space, where tools like Cointracking can help you do tax loss harvesting for your cryptos. What this means is that if you bought Bitcoin and other cryptos when their prices were high and were forced to sell for a loss, there’s a silver lining: these losses could place you in a lower tax bracket. What’s more, claiming those losses is easier than you might assume. Read on to find out everything you need to know about how to file your crypto losses.

So what is tax loss harvesting?

Tax harvesting is basically the sale of non-performing investments so that for tax purposes the resultant realized loss can be set-off against realized capital gains registered during the same year. This is based on the premise that unrealized capital losses cannot be set-off against realized capital gains in one’s tax computation.

E.g. In 2020, Mr Smith sells one BTC at a profit of $10,000 but he also has an unrealized loss on the holding of XMR. Under the tax harvesting strategy, Mr Smith can sell the XMR on the 31^st December (thereby realizing a tax-deductible loss) and re-purchase the same amount of XMR on the 1^st January at basically the same price. This would minimize Mr Smith’s tax liability for the year.

Note that this repurchase can occur on the same date as the sale unless there is any provision in the law against it. You don’t need to wait for the following year to commence.

In practicing tax harvesting one should however be aware of the transaction costs incurred in selling and re-purchasing investments and any tax abuse provisions that tax regimes might have on this sort of practice, e.g. they might not allow as tax-deductible any losses incurred on the sale of investments unless there is a minimum period of say 30 days before any eventual re-purchase of assets in the same class takes place.

In the United States, there are no existing provisions against tax loss harvesting on cryptos, so investors are free to do so. On the other hand, there are provisions against doing so with stocks. So you need to consider carefully the asset in question. For now, cryptos are game.

Filing Your Crypto Taxes 101: How Does it Work?

For the purposes of taxation, the US and most other governments consider cryptocurrencies to be assets. This means that whenever you trade cryptocurrency, the transaction falls into one of two categories: a capital gain or a capital loss.

• Capital gain. A capital gain occurs when you sell cryptocurrency for more than the amount that you paid to purchase it.
• Capital loss. If you sell cryptocurrency for less than the amount that you paid for it, this is considered to be a capital loss.

You have to sell or buy an asset to trigger a taxable gain or loss. Once you decide to make a move, tax authorities consider the loss to be “realized.” If your loss is great enough, you may be able to use it to enter a lower tax bracket.

Deducting Your Crypto Losses

One of the biggest benefits of claiming a loss is that you can offset income gained from other sources.

In the US, the IRS lets you deduct up to $3,000 worth of net capital losses each year from the amount of money you’ve earned at your day job. If the amount you lost was greater than $3,000, you can get another deduction of up to $3,000 when you file your taxes next year.

If you currently make just over $50,000 per year at your job, that $3,000 cryptocurrency loss could place you in a lower tax bracket. This could result in significant tax savings.

What’s more, if you’ve earned some income through stocks or through the sale of property, there’s no limit to the amount you can deduct from those revenues.

Here’s Where It Gets Complicated…

Figuring out how much you’ve made or lost can be a headache, particularly if you haven’t been keeping track of your purchases or if you placed a huge amount of trade orders last year. Fortunately, there is software available that can crunch all your crypto tax data for you.

The tool depicted below, called CoinTracking.info, can import your transactions from all your cryptocurrency wallets and exchanges. The interface walks you through how to do the imports.

At the end of the import process, you can download IRS form 8949. This is the form you need to submit to report your loss.

Other download options include CSV, TaxACT and TurboTax.

Conclusion

If you lost money in crypto markets, you may be able to offset some– or perhaps even all– of those losses at tax time. Reporting your capital losses might help you move to a lower tax bracket. If your deductions qualify you for a lower bracket, filing them could save you thousands of dollars when you submit. Visit CoinTracking.info for more information.

There are of course other software alternatives to CoinTracking, although the latter is one of the earliest and most reliable ones. Read my article about crypto tax preparation tools for more information.