I think it would be fair to say that many of us wondered about the values of bitcoin and cryptocurrencies when they first came to light. Is it a fad? Is it a safe investment? Does it really exist or is it all a big scam?
To clarify, a cryptocurrency is a form of virtual or digital money, which more often than not takes the form of tokens or ‘coins.’ But more than ten years on – yes it really has been around that long – and with over 5,000 different digital currencies; it is clearly not a fad. Bitcoin has made some of the more daring very rich indeed; and others will have greatly regretted their decision to dabble.
But, some big household names have reportedly stated that they will be accepting cryptocurrency as a valid form of payment in the future, including PayPal in the US, and a Facebook-backed cryptocurrency is also set to launch in 2021.
However, interestingly, although Tesla had stated that it would accept Bitcoin as payment in February 2021 and they purchased £1.5 billion in Bitcoin; they then sold off around £272 million in Q1 of 2021, before announcing the company would no longer accept the currency on 16th May.
At the same time, it was also rumored that Elton Musk had sold all of his Bitcoin holdings. This saw Bitcoin drop 10% in value, literally overnight; before he tweeted to confirm that this was not the case and the value then rocketed back up again. So… please exercise some caution! If nothing else, this clearly demonstrates the currency’s highly volatile nature.
And remember… although cryptocurrency is not regulated; with tracking only available through a secure ledger upon which all currency transactions are recorded, cryptocurrency is taxable. HMRC regards it as an asset and classes it as a digital currency. Therefore, disposal of an asset is subject to capital gains tax and this applies to digital currencies too.
The result? In less upstanding circles, HMRC believe this digital currency is being used, especially by crime syndicates, for tax avoidance and to hide monetary assets and they are cracking down. This drive also coincides with the publication of the new Cryptoassets Manual, originally created in 2018. And, HMRC are clear; the claiming to be ignorant of the law in the digital currency sector, will no longer be tolerated as a viable defence.
Additionally, HMRC are also collating information on cryptocurrency holdings for those they suspect of tax avoidance and tax evasion. And, the ‘statement of assets’ form used to gather complete accounting information during an HMRC investigation, most importantly, now includes a request for all digital currency and assets to be comprehensively detailed.
The demand includes a wide rage of digital currency assets; including Bitcoin and Ethereum, assets in value-transfer systems such as Black Market Pesos, (said to be used mainly by Mexican and Colombian drug cartels) E-money wallets such as PayPal, Fei ch’ein, an unregulated body used in China’s shadow banking system, and Hundi, an Indian credit note system.
HMRC are very clear that those found with ‘hidden’ assets will be prosecuted. Not surprising as the rise in unregulated crypto transactions currency and hidden wealth, is believed to be increasing. So, believe me when I say HMRC are now on the case, and taking strong action to stem this.
Interestingly, I also note that concern is paramount in two of the UK’s top banks. NatWest announced in April 2021 that they will not engage with a business who accepts payment in cryptocurrency; and HSBC has stated that it will not allow money transfers from digital wallets, or the purchasing of shares in companies associated with cryptocurrencies such as MicroStrategy or Coinbase.
With the colourful and sometimes alarming history of crypto, both HSBC and NatWest are advising caution when investing in cryptocurrency. It is widely known that overseas cybercriminals take ransom payments in Bitcoin to avoid detection; and that value transfer systems like Black Market Pesos are predominately used by organised crime, with the proceeds then running through Bitcoin to avoid detection. However, with the new regulations now in place, companies not declaring these assets, which incidentally includes these less savoury companies too, can now be charged and prosecuted by HMRC.
But come on, where does the pizza come in to all of this you ask? Well… This story is now a crypto legend! The most expensive pizza purchase ever made was bought in Bitcoin in the UK. The first real-world crypto transaction took place on 10th May 2010 and was for two Pizzas. And, a very hungry Hungarian developer paid 10,000 bitcoins for a £25 order.
At the time, Bitcoin value was on the rise and the pizza was estimated to have cost anywhere between $21 and $300 dollars. In 2011 the Bitcoin value he paid for the pizzas had increased to $10,000 and in today’s markets, his pizzas would have cost 35 million dollars!
Bitcoin Pizza Day is now an actual, recognised and celebrated milestone for the first real-world use of cryptocurrency and the meteoric rise in Bitcoin value. However, for my part, I prefer to heed the warnings of the UK’s biggest banks and view cryptocurrency with some caution. Remember… it is not monopoly money; it is a valid currency. It is taxable and HMRC are going all out to reduce tax evasion and the outstanding evasion taxes associated with cryptocurrency. So, enjoy the pizza, but carefully consider how you are going to pay!