Tales from the Crypto Keeper #015 - Bitcoin this, blockchain that... Crypto Safety & What about the Taxman?? :O

erratik (50)in #cryptocurrency • 6 years ago (edited)

Wow, it's been one crazy week. With no signs of slowing down, too. This is when the fear starts to set in. Can BTC really stay this high? How long will alts blast their ATHs (all time highs)on a daily basis? At this point, it seems like.. next year?

One thing I've noticed is just how much I hear the words blockchain, crypto, bitcoin - and bitcoins. #normies

Crypto: not so cryptic anymore

As I've travelled through this wonderful space over the last year, I wondered so many times: when is the rest of the world going to notice all this is happening under their nose? I started trading and I was immediately enamoured with the concepts - and the financial growth opportunities.

I told several friends and family about what I called the new gold rush. I emphasized the fact that it wouldn't be long until we would start hearing about it in the mainstream. And here we are. I look at Bloomberg and CNN Money and never fail to see t least 2 posts about Bitcoin (as if it's the only thing out there). I am even starting to see mainstream media wonder about Ethereum and Litecoin. And let's not talk about how much of my Facebook newsfeed has gone crypto-crazy.
And not only that, but more and more companies - my employer included, are talking about how to leverage this marvel of the internet, latest world wonder.

The normies are coming

Now that BTC is NASDAQ-friendly, this is definitely a new world rising. I can safely say 1 out of 3 of my friends is now involved in the crypto-space. The market cap went from $200B to nearly $600B: case and point. And they are throwing their money at this in a frenzy. I'm glad this is happening, my monies keep going up and when BTC gets this high, the money gets redistributed throughout the alt market - where I make most of my trades. FTW.

But with all this new tech they're using, I feel like I'm seeing how this could all blow up in their faces. People are buying, leaving on exchanges, not adding 2FA, probably using the same passwords they use for Facebook. Transferring money but not even aware of how the blockchain works so things like, "how do I know it's actually transferring?" and "so, wait, my money isn't on this piece of device?" are questions I get asked all the time. Now, I'll be clear, again: I don't play games I can't win, and even less games I don't know the rules to.

So as much this shit ain't so cryptic, it's still every bit as dangerous to be playing with. So I thought a little refresher on how these things work would be nice...

Crypto Safety

One thing that scares the bejeezus out of me is the idea that I could lose my private keys, and in consequence lose everything I've dumped into this market. This is basically my life savings I'm talking about so much like Wu-Tang Clan, crypto ain't nothing to fuck with.

Here are a few things you need to know and set up if you have not already:

Avoid using the same email you use to sign in everywhere and anywhere else: it's best for no one to know which email you use for any of this, reducing the risk for phishing scams and it ended up in super sweet mailing lists for erectile dysfunction.
Do not use the same password you use anywhere else: remember Ransomware and Heartbleed? These attacks are precisely why you shouldn't ever use the same passwords for anything, let alone for your precious crypto.
If you buy a coin and you're thinking of holding it medium to long term, pretty please, get a wallet for it. You don't want to have to leave your money on an exchange that doesn't insure your money and could be hacked at any time. Not to mention, they could just close and run away with your money, ahhhhhh!! I highly suggest using a paper wallet or a hardware wallet, like the Nano or Trezor wallet.
Be safe while you make transactions! Sending the wrong currency to an address for another currency means you have lost your funds. Sending funds to the wrong address, means you have lost your funds and someone else very happy but you are very very sad. Sending less than 0.1ETH anywhere means you need to send more ETH. These are things you learn, by reading the warning, and the fine prints. So this is even more important for all you newbies, this generation of people that accepts every checkbox without reading any of the actual text. READ THE FUCKING FINE PRINT. It is here to fuck with you.
Use 2FA Authentication where you can. With things like Google Authenticator and Authy, there is no reason you aren't double protecting your accounts. And if you do use 2FA, save those backup keys and guard them with your life. I lost my device not long ago and learned how ill-prepared I was. Now, I have QR codes backed up in several places, and I regularly check them to make sure I'm not missing any of them. This prevents anyone from getting into your account without your devices: and we know how tied we are to those. This makes it triple important to not share your device password, too.

Pardon my colourful language.

But how do I buy?

I've written about this before, but to save you the trouble of going back to that post, here is a breakdown of buying and selling crypto in Canada. I don't use the traditional funding options, mostly to limit how much money I put into this on a weekly basis.This is why I like to use Coinbase: it limits my crazy ass from putting more than $1k into the market every week and it conveniently lets me use my debit card. If you want to put more in, I would suggest you use something like QuadrigaCX, with bank wire transfers. The real truth is I'm too lazy to go set that up, so I stick with Coinbase.

Wait, you only buy 3 coins?
Yes. I buy and hold ETH and LTC, I use BTC for buying other currencies. And then I sell them back into BTC if it's not something I am holding medium or long term. ETH and LTC get sent to my Nano for cold storage.

With BTC, I send it to my favourite exchanges and buy other currencies. I personally use Bitfinex, Binance, Bittrex and Liqui.io (in no particular order). This gives me the possibility to fully diversify my altfolio. Let's be clear, this isn't exactly diversification, since all my money is in crypto and my retirement plan, lolz.

And once I have made my profit, I trade back into BTC and send it back to be wallet! Voila!

Okay... but have you even cashed out?

This has got to be the funniest meme to enter the crypto space: the idea that nobody can cash out back to fiat and get their money back easily into their bank accounts, whence it once came from. Untrue. I know this, because I have done it. In Canada, the easiest way is to use QuadrigaCX and cash out. Simple. You have options, they explain how they work. There's no magic to it or any risk as far as far I know.

Except like, if you try to get a cheque for hundreds of thousands of dollars. I have never tried, so yeah, not worried about that. Yet. One day, the owners of the exchange could buy themselves a bunch of lambos, assuming no one will need to cash out and when they day comes a few whales want to cash out, I hope they have the liquidity.

But just remember, that in itself isn't any different than your own bank: it works on credit where crypto works on cash monies. The latter part making it something I trust more than central banking systems.

Now the scary shit: what about taxes?

I did much research online for how to handle this in Canada. I have found little to no information, to be honest. But from what I've gathered there are a few things to consider.

Companies like QuadrigaCX and Coinbase and the like will eventually be reporting to revenue agencies. It's possible they don't right now, as I've seen no evidence to support it (at least not for QuadrigaCX). but it's inevitable that they will. In Canada, it seems, we should be taxed for every virtual currency transaction we make, when we are profiting.

This means trading from BTC to ETH, ETH to XLM, you name it... if you made a profit, your taxes should work as follows:

(amount you made, assuming it's positive, minus fees) - (amount you initially paid, with fees) x 0.5 x your marginal tax rate.

This is a pain in the ass because it means you need to keep track of all transactions, on all exchanges. Wow. I'm 100% sure absolutely no one is doing this. And then it gets even more complicated when talking about profits and cashing out.

It's my understanding that it works as follows:

If you cash out one fiscal year after the last trade on it, you are considered a "long time trader" and the income is a capital gain, as mentioned above. This is just like how are work bonuses get taxed when we cash them out immediately instead of leave them in our RRSPs.
If you cash out within a single fiscal year, you could be flagged as a "professional trader", in which case your profit is considered part of your income, getting 100% taxed at the marginal rate instead of 50%. Yeouch.

I don't know about you, but this is something to really consider. If you really are planning on using crypto to grow your capital, assume you won't touch that money for another year after your last trade, if you don't want Mr. Morneau reaching into your pockets for those taxes. Now I'm sure they don't really care if we are talking about small amounts, but when we are talking about tens of thousands of dollars, this can hurt, big time.

The best advice I've seen from a trader?

[...] if you want to be safe, declare your income, pay your taxes and keep proof of your trades as a sign of good will. That way you will keep CRA far from you even and if they ask you proof, send it to them and you will never hear from them again.

My best advice?
I used to be a waitress, bartender and DJ: declare at least part of it, enough not to be flagged. In the service industry, that was about 1/3 of what I got in tips because I could chalk it up to being a bad waitress. Also, use cash as much as possible. I personally plan on selling most of my BTC through cash transactions to avoid this mess as long as I can. And I mean, if you hold for the long run, until crypto assets actually taxed by the CRA, you are laughing.
And wait one year. That 50% capital gains tax is the worst thing ever invented by the Canadian Government.

Obligatory disclaimer

If you just got in here, you are most at risk. Let there be no mistaking it: a deep market correction will eventually come for us all. I advise to hold your children very closely. Frankly, I thought it would come when 10k BTC got here. And then when 15k BTC got here. Now 20k is upon us... You can bet my sell orders are ready... to be canceled! MWUAHAHA.

Are yours? ;)