No longer just defining lifestyle and business, digital technology has now also successfully invaded the economy. What was once originally intended for use in Internet-based services, Bitcoin and other digital currencies are now moving into mainstream markets, such as real estate. This follows after Bitcoin and other cryptocurrency investors recently enjoyed a spike in their value, and as such, gained prominence in the financial industry.
Today, cryptocurrencies are no longer associated with lack of regulation and high risk due to unpredictability; instead, accountants offering tax planning and financial forecasts are seeing an increase in the use of cryptocurrency for investments and other financial transactions. One of these is a man from Toronto, who, reportedly is selling his condo only for Bitcoin.
But how does cryptocurrency play into real estate and the digital economy as a whole?
Market Opportunities for Bitcoin
In the case of the Toronto man selling his condo unit to bitcoin users only, the market for buyers is then automatically limited to a smaller pool of people who invest and transact in bitcoin. However, doing so today can also expand the demographic in another way.
Take for instance foreign buyers. Some countries are known to pass restrictions on taking money out of their country, which then excludes buyers from making sizable foreign investments in cash. But by using cryptocurrency such as Bitcoin, they can still enter a foreign market, due to its digital nature. Plus, the use of Bitcoin can be especially attractive to those who have purchased a lot of the tender, and are now looking to swap it for a more stable, tangible asset.
The allure of Bitcoin and other cryptocurrencies lie in their volatility itself. Sales during record highs of Bitcoin could provide sellers with generous profits; while dips in its value would be prime for acquiring cryptocurrency at a much lower value.
Impact on Income Taxes
Despite not being centralized to, and regulated by a government body like traditional currencies, the Canada Revenue Agency has altered existing tax codes to respond to the growth in cryptocurrency.
First, income from or expenses made in trade and barter transactions using cryptocurrencies must be declared when filing an income tax return, notwithstanding whether actual cash was even tied to the transaction. When declaring cryptocurrency transactions, an accountant can help you assign the typical dollar amount that corresponds to the transactions.
On the other hand, if cryptocurrency is regularly used in business, both income and expenses should still be declared as dollar amounts. Assigning dollar amounts depends on the exchange rate between the cryptocurrency and the dollar on the date of the transaction.
Finally, if you invest in Bitcoin, and as such, buy, hold, and sell it throughout the year, profit earned in the process must be claimed as capital gains or income depending on the facts of the situation. The CRA issued a letter in 2013 that stated that Bitcoin would be treated like a commodity and not legal tender. The U.S. has taken a similar position. As the digital economy continues to grow, so do the potential uses of Bitcoin and other cryptocurrencies. No longer marked by a lack of regulation, digital transactions are becoming more enticing and common, and, as such, also require financial services such as tax planning to accurately reconcile with reporting standards.
Bitcoin Financial Forecast
Despite extreme volatility, the outlook for Bitcoin and other cryptocurrencies remains positive. Financial forecasts from the same analyst who predicted Bitcoin’s rise to the $2000’s has now also gone on to predict that Bitcoin could hit between $50,000 to $100,000 this year. This, of course, will depend on many factors. Note that some analysts are predicting a fall as the regulations on the trading of cryptocurrencies are increasing.
In response to Bitcoin’s volatility stemming from qualms regarding the legitimacy and little public knowledge of cryptocurrency as a whole, futures trading contracts were launched last year. This entailed rallying support for cryptocurrency trading among institutional investors, so as to help legitimize it. While the launch was off to a lukewarm start, financial forecasts also indicate that more investors are likely to embrace Bitcoin and cryptocurrency investment over time.
There are significant risks when buying or investing in cryptocurrencies – Buyers Beware.
