Legal Risk for Cryptocurrency Investors 

We all are aware of the growing interest in Cryptocurrency, and people are getting interested in it. Still, at the same time, there is clarity needed regarding the legal implication of new currencies and the technologies that are driving them. Open an account to trade in Crypto and you will know about the legal risks and safety measures.

Tax authorities, regulatory agencies, and central banks worldwide are working hard to understand the meaning and nature of digital currencies. On the other hand, individual investors can expect a great deal of money by investing in them. However, at the same time, they also have to assume a few legal risks when they are buying or selling Cryptocurrencies.

Cryptocurrencies and Taxes

The most critical legal consideration for an investor is to see how the Government tax authorities view Cryptocurrency holding. An investor needs to keep an eye on all their latest announcement.

Capital Gains and Cryptocurrency

In other countries like the US, the IRS has considered Cryptocurrencies as property rather than currencies. In simple words, individual investors are subject to laws (capital gain tax) when reporting Cryptocurrency losses and profits on their annual tax return.

The fact mentioned above is only applicable to investors who purchase or sell Cryptocurrencies. If you are receiving Cryptocurrency as a salary, it is taxable as income. The amount will vary on the value of the US dollar of the currency at the time it was paid.

Cryptocurrency and Foreign Bank Account

Crypto trading usually involves holding currency in a foreign account. As per the latest news, federal law doesn’t view a foreign currency account as a reportable account. That is why the currency holder doesn’t require file disclosure of their foreign account to the FinCEN (an agency of the US department).

Cryptocurrency and The IRS

IRS form 8938, popularly known as FATCA, is the updated tax agency version of FinCEN. Taxpayers holding the substantial assets in the foreign account are ordered to file the statement of a specified foreign financial asset.

Whether the Cryptocurrency wallet holder should report their holding using form 8938 is still unclear. A huge debate is going on between lawyers, investors, and accountants about whether the wallet is a financial institution or the IRS thinking that.

Cryptocurrency’s Decentralized Status

One of the biggest demerits of a few digital currencies is the potential risk factor for the investors. As we all know, Cryptocurrencies are decentralized by nature which means they have no physical appearance and are not supported by any central authority.

Cryptocurrency Registration and Licensing

Several businesses are taking Cryptocurrencies as a method of payment. It is said in 2022, you can expect to spend your Bitcoin at Home Depot, Whole Foods, and Microsoft’s Xbox store. Businesses availing this may have to register and obtain a certain license for particular activities and jurisdiction.

The Bottom Line

We have mentioned a few legal risks that an individual Cryptocurrency owner may experience in the long run. However, the report says that these currencies will be very valuable in the long run.

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