India ranks among the top countries that lends talent to support the technological breakthroughs around the world.

33% of NASA scientists are Indians.

Almost 3/4th of H1B visas go to the Indians.

Indians are the richest ethnic groups in the US.

What would have happened if we banned the internet?

Do you think Indians would have accomplished all these great milestones?

Any sane person would say ‘no’.

Something as ridiculous as banning the internet is in the works in India with a proposal to prohibit the cryptocurrencies.

While the government might say that they are encouraging blockchain technology but discouraging the cryptocurrencies, it will have a broad impact on the entire space.

You cannot exploit the full capabilities of blockchain technology without the cryptocurrencies. For instance, a simple supply chain blockchain network will need a reward system to make it more efficient.

Variants of blockchain technology have always been in existence, what makes the current version of blockchain technology so great is the underlying cryptocurrency reward system.

Most amount of illegal activity in India (and elsewhere) takes place in cash transactions. That is why India’s demonetization accomplished so little.

Bitcoin and many cryptocurrencies (except truly privacy based cryptocurrencies) are not really anonymous. The transactions lay bare for anyone to access for the eternity of time.

In fact, the probability of tracing and tracking transactions over cryptocurrencies is far better than those that happen in cash or physical gold transactions.

The argument of illegal activities is a baseless one.

Cryptocurrencies could open flurry of investments into Indian startups

Having a legal framework encouraging the more legitimate cryptocurrencies will have another advantage: flourishing of startups.

Can you imagine how many people would participate in the development of startups from bright Indian minds if they could contribute from anywhere in the world?

Have a dollar threshold, let’s say $1000, for anyone to invest into an Indian startup idea. This itself could take the Indian startup space to the stratosphere.

Government doesn’t have to then dish out 100s of millions of dollars into building the startup ecosystem.

Current fiat system will not let people living outside the US to easily take part in the development of Indian startup ecosystem.

Benefits outweigh the risks

In our view, an ideal crypto regulation should ‘prohibit’ the privacy based cryptocurrencies while encouraging the public and decentralized cryptocurrencies like Bitcoin, Ethereum and many others.

In enumerating the benefits of cryptocurrencies as it relates to India, we can argue that:

• Cryptocurrencies are worse choice for nefarious activities; anyone using cryptos for illegal activities is only doing so in ignorance
• Indian startup ecosystem could be a big beneficiary if cryptocurrency is legitimized
• With a dollar threshold for investment (to avoid hostile takeovers), India could open a direct investment flurry from commons folk around the world into Indian economy benefiting everyone

Dire consequences of outright prohibition

• India will deny the youth from being part of the Web 3.0 on which the future tech will be built
• India could lose its edge in producing the great talent that could cater to the future of internet
• India’s internal systems could become so antiquated that they may not be compatible with the rest of the world in 10-20 years

Need for a sensible framework

Start with a ‘do no harm’ framework.

Bring the more notorious projects, like privacy coins, that make governments’ jobs difficult into the prohibition fold.

Hire the best of industry to be on the committee in building more progressive and sensible regulations that help blockchain thrive in India.

Drive the framework that will make India the cornerstone of the world’s Web 3.0 revolution.

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

Crypto Loss Harvesting

Many of the popular projects from 2017 are trading at discounts of 90% or more.

For instance, if you invested in XRP at its peak of $3 which is trading now at 22 cents, a loss of 93%.

Some crypto tax professionals have proposed to harvest the losses to take advantage of a loophole in the existing tax system.

What is crypto tax loss harvesting?

Crypto tax loss harvesting is simply disposing your digital assets that you bought at peaks that are down in the market and buying them back immediately.

This way, you are not losing your position in the asset but you get to accumulate losses to write off against other gains.

In our example above with XRP, if you keep holding on to your XRP that you bought at $3 while you are making gains on other projects, you are simply paying too much taxes.

Is harvesting tax losses worth it?

Let’s assume following details for this example:

• You bought 10,000 XRP for $3 each
• You made gains of $25000 in crypto trading on other assets during the current year

Let’s see how your taxes will look like if you harvested the losses.

You would be able to save $7500 in taxes and have $2800 (worth $840 in tax dollars at 30% tax rate) in capital losses to carry forward to next year to take more advantage.

Why would anyone not do this?

Is tax loss harvesting flawless?

You know how they say taxes are ‘complex’, here is where we will deal with another example to explain a twist in the tax plot.

Let’s say you got VeChain (VET) for a conversion of 1:100 when the VET price was $5. Current price of VET is .02 (that is $2 for 100 units that you got). You sell your position to harvest the loss for the current year.

For simplicity, we will use the 10,000 units example; The year after you harvest your losses, bulls push the VET price to 50 cents.

Thankfully you still have your position in VET, so you now sell your 500,000 units for $250,000.

Let’s see what happens.

In year 1, when you sold your VET worth $30,000 at 2 cents, you realized a net loss of $5000, as shown above.

In year 2, bulls takeover the market and push the price of VET to 50 cents and now your gains from the sale are $250,000. However, these gains will now be taxed at ordinary income tax rates instead of capital gains tax rates.

Capital gains tax rates are usually favorable and only apply to assets you hold for more than 1 year.

Unfortunately, when the bull market is in full swing, you cannot wait to qualify for the capital gains tax rates by holding onto your assets for 1 full year, you will probably sell to realize the gains.

In the example above, because of tax loss harvesting in year 1 you lost the long-term capital gains tax rate benefit and your tax bill was $16000 bigger (tax differential in year 2 of $23500 minus benefit of $7500 in year 1).

When is crypto tax loss harvesting most beneficial?

Generally speaking, we cannot time the market, however, if you are confident that the project you are invested in will not experience a bull run in the next year or so, then tax loss harvesting might make most sense.

If you expect the assets you hold to do well in the next few months or so, it may generally make sense for you to assess the difference in taxes by running a quick scenario.

Again, each individual’s situation is different and it is important that you consult a tax professional before pulling the plug on a transaction.

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

Bitcoin broke the 2017 highs by a mile and seems to continue its tear.

Many people, including HODLers, have started to wonder - will this sudden meteoric rise end up in an ugly crash?

Should I sell my Bitcoin and wait to accumulate more sats when the correction happens?

We cannot give you a ‘yes’ or ‘no’ answer, however, we can give you various perspectives so you can make your decision.

• Perspective 1: $100,000+ bitcoin predictions for 2021
• Perspective 2: Elliot 5th wave view
• Perspective 3: Global macro market crash and bitcoin
• Perspective 4: Inflation and crashing fiat
• Perspective 5: Devaluation of fiat currency
• Perspective 6: Other scenarios

Perspective 1: $100,000+ bitcoin predictions for 2021

Here are the recent price predictions for bitcoin by December 2021.

$100,000 based on Stock-to-flow ratio

$200,000 as per crypto analyst Will Woo

$300,000 as per Citibank report

$400,000 as per Guggenheim assessment

$500,000 as per Cathie Wood of ARK Investments

And there are a lot of predictions that put the bitcoin price over a quarter million dollars.

If you believe in the most conservative of these predictions and expect bitcoin to hit $100,000, how does it matter if you buy it at $15,000 or $25,000, you are going to be happy.

Using this perspective one might conclude to HODL bitcoin into 2021.

Perspective 2: Elliot 5th wave view

Seasoned traders who understand the charts and are experts at trends believe that we are on the third wave of the Elliot’s 5 wave pattern.

These traders believe that bitcoin will shoot higher between $30,000 to $36,000 by the time we reach the 5th wave and then correct.

They think that the correction after the 5th wave will be nasty although they expect bitcoin to recover immediately after the correction.

Will that recovery lead to another major bull run to carry us into the $100,000 zone? These traders are not so sure.

Using this perspective, one might be tempted to cash out profits in bitcoin in the $30,000+ zone.

Perspective 3: Global macro market crash and bitcoin

With Corona virus variant 2 making waves on the news, what will happen to the economies around the globe?

This pandemic’s 2020 effect itself will have lasting impact on global economies, what happens if a second wave happens?

What if the economies continue to lag and people become desperate?

If people lose jobs or panic sets in, we could see people liquidating their crypto assets into fiat currencies until things come back to normalcy.

Under this perspective, one might infer that cashing out profits is the wise thing to do.

Perspective 4: Inflation and crashing fiat

From the looks of it, governments around the world seem to be poised to go through another round of stimulus.

If the fiat printing machines keep at it, it is quite possible that bitcoin’s value in fiat terms will continue to shoot up and up, with no real cap.

What good will it do if you cash out profits in fiat if that fiat keeps losing its value?

Inflation has a lot of investors and companies flocking to safe haven assets and Bitcoin has been gaining momentum as Gold 2.0.

We have already seen a lot of people in Argentina who bought Bitcoin to hedge against inflation have been rewarded handsomely while those who kept their savings in fiat got burned quite bad.

Under this perspective, whether or not there will be a correction in bitcoin prices, cashing out into fiat seems foolhardy.

Perspective 5: Devaluation of fiat currency

What if countries come together and devalue their currencies. Countries could devalue their currency to increase exports and decrease imports.

Devaluation can also be used as a tool to manage excessive debt.

Can it happen?

It is possible but not probable.

But if it were to happen, Bitcoin’s price will automatically increase in fiat terms.

It may send people in overdrive to get hands on bitcoin at any price.

Under this perspective, it not only makes sense to HODL but to continue to accumulate irrespective of bitcoin prices in fiat.

What are you going to do with your bitcoin?

Thank you for reading and sharing this article. We appreciate you.

Stay safe and healthy!

IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.