How can you tell cryptocurrency is a legitimate investment?

How can you tell cryptocurrency is a legitimate investment?

Set up your BitMEX trading account in 30-seconds


It’s not a trick question. Many mainstream critics consider cryptocurrency and bitcoin to be Ponzi schemes or scams. They certainly don’t consider digital coins to be legitimate investments.


Two recent news stories can help us answer the important question of when cryptocurrency is a legitimate investment.


No one’s paying taxes on bitcoin… yet

Credit Karma reports that only 100 of 250,000 of federal tax returns filed by its clients this year so far have included reports on cryptocurrency gains or losses.


That’s only 0.04%, even though Credit Karma research showed 57% of Americans claimed they had gains on cryptocurrency investments and the same number said they have never reported cryptocurrency gains or losses on their taxes.


Nearly half of those surveyed also said they understood the tax implications according to the study according to a Reuters article.


Why not pay taxes?

So, what gives with cryptocurrency investors? There are a couple of possibilities:

-52% of those filing with Credit Karma are millennials and they either don’t know, don’t care, or they think the IRS will never find out about their cryptocurrency investments

-cryptocurrency investors haven’t realized either a loss or gain, and are simply on “HODL”

-there’s more clarity needed by the IRS to define these investments and a big education program required to inform taxpayers of the implications

-or, it just may be part of the pirate cryptocurrency culture.


What estate planning?

Again, given the younger age of cryptocurrency investors, they’re likely not thinking a lot about others’ access to their investments nor about estate planning either.


A Bloomberg story highlights the problem of not planning or ignoring the implications of what happens with your cryptocurrency investments in the event of your death.


For three years, Michael Moody has tried to resolve his 26-year-old son Matthew’s estate, which includes bitcoin his son mined on his computer and stored on a digital wallet at before his death.


“My son was actually one of the earliest people to mine it,” said Moody, a retired software engineer. “He used his computer at home to mine Bitcoins when you actually could do it that way and he had a few we think.”


No digital keys, no coin access

As everyone knows, without the keys to your digital wallet, it’s nearly impossible to access your cryptocurrency.


Nolan Bauerle, director of research at CoinDesk, says there is no authority to appeal to and these coins will likely be lost.


Michael Moody says planning is an important message for young entrepreneurs and cryptocurrency investors in general.


The same challenge is there with investments in ICOs where there is still a lack of definition and some confusion on the status of these tokens.


Some cryptocurrency exchanges responding

US exchange Coinbase has procedures in place to protect client investments and assist estates in acquiring assets with a death certificate, a will and other related documents.


Ian Purton, CEO of the StrongCoin digital wallet service says securing digital assets is part of the market maturing and investors need to consider their investment planning carefully.


The smart move is to secure your cryptocurrency investments and ensure future access for your family and potential heirs.


Is cryptocurrency there yet?

Coming back to the question I posed at the top. We’ll know cryptocurrency is a legitimate investment when there’s evidence investors are paying taxes on their cryptocurrency gains or accounting for losses, and doing a better job at estate planning around their digital investments.


Author: Jeff Domansky, Managing Editor

Visuals via Pixabay