George Mentz: Why Cryptocurrencies Will Be Successful for Years to Come

With Bitcoin and Ethereum hitting lows in recent weeks, the stability of cryptocurrency is being tested.^[i] While digital coin exchanges like Coinbase (COIN) seem to be an amazing way to boost the use of digital currency, some exchanges are making statements about the security of assets held for clients.^[ii] With new lows for cryptocurrencies expected in coming weeks, this may be the time to reevaluate digital assets as a way to hold savings, make payments or diversify assets.

After speaking to experts and searching the Internet, I learned that there exists several huge digital currencies and multitudes of less known digital coins.^[iii]

Cryptocurrencies are defined as a digital currencies in which transactions are verified and records maintained by a decentralized system using cryptography, rather than by a centralized authority. Each cryptocurrency is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.^[iv]

Crypto is a digital asset based on a network distributed across a large number of computers. This decentralized structure allows the crypto block chain to exist outside the control of governments and central authorities. It does not necessarily matter what you think about crypto—but it does matter if it works as a means of online payments and has a reasonable track record of price appreciation or stability.

With the recent pull back in crypto prices, this may be the beginning of a long-term surge in crypto assets. The Wall Street Journal reported that $1 trillion in wealth has been wiped out from CAV Crypto asset values.^[v] In February of 2022, the WSJ reported that there was a $2 trillion dollar market value on all crypto assets.^[vi] In contrast, the U.S. stock markets have lost over $7 trillion in value in the last few months, according to CNN.^[vii]

Putting aside the debate on whether crypto is legitimate or a fiat currency, here are some 24 logical, ethical, and unethical aspects of cryptocurrency that make it a viable enterprise.

1) It is a real-time currency captured when transferred. You don’t wait for it to clear like a credit card payment. The money is there instantly.

2) The transaction fees are minimal compared to bank wires and credit card payments.

3) The digital money cannot be taken back once you have it, whereas with a typical credit card, there is typically “charge back”.

4) Users can mitigate state and city taxes on transactions if you are in the right jurisdiction providing services or products.^[viii]

5) There may not be any ad valorem taxes on the assets as per where they are located or stored.

6) The digital currencies can be converted to various sovereign currencies quickly these days as compared to just a few years ago.

7) There are cryptocurrency exchanges now. Thus, if you create an account with an exchange, you have access to buy, sell and trade digital currencies online without dealing with secret keys and complicated logins.

8) Other taxes may be more easily mitigated by accepting cryptocurrency.

9) Multitudes of companies now accept some type of crypto as a form of payment.^[ix]

10) Crypto can be easily managed through an app on your phone.

11) While gold and cash remain the historical go-to assets, crypto is popular for the same reasons as a means to diversify your savings against sovereign risk, war, or related catastrophic events such as stock or bank failure.

12) The total market cap of the cryptocurrency market in 2013 was about $1.6 billion. By June 2021, it rose to over $1.4 trillion.^[x]

13) Crypto can be a private means to exchange your local currency into an international currency.

14) Cross-border payments can be easier in many cases.

15) The crypto markets never close and are open 24/7.

16) There are various pro-crypto arguments made about security and privacy of the blockchain.^[xi]

17) With respect to the inflation the U.S. and the rest of the world is now facing, crypto has been said to be a hedge against inflation as there is a hard cap on the total number of some coins. Thus, while many countries keep printing money, which reduces its value, some crypto and digital currencies do not have that problem.^[xii]

18) Some businesses are blocked from using Visa and Amex, whereas crypto is the go-to payments model for many businesses and black-market items.^[xiii]

19) One hot topic is taxation of cryptocurrency transactions. One CNBC interviewee who works in the adult video and consultation business stated that she banked over $1 million in crypto in a year.^[xiv] Is it actually true that nobody is sure how this income is taxed? It might depend on the jurisdiction of the worker or where customer is located or where the servers are located. However, it is inevitable that Internal Revenue Service and state revenue authority opinions will sort this out.

20) At this time, the IRS considers cryptocurrency a type of property and not currency. This means that crypto owners and investors in the U.S. must follow tax rules for capital gains, not income tax.^[xv]

21) Governments are now beginning to approve of certain blockchain currencies as a form of fiat currency while investors are showing huge interest in DeFi, or decentralized finance.^[xvi] ^[xvii]

22) While crypto income is generally treated as a capital gain, ordinary income can be taxed at about 50% or more in the USA and many countries. If the cryptocurrency is located in a “capital gains” free zone or “retained earnings” jurisdiction, then all the better.

23) Global losses in crypto will be taken from many people who lost value in cryptocurrency.

24) In the long run, crypto may tend to be used more as an asset of savings, investment, diversification or for payments.

In sum, the global and sovereign taxation issues and sovereign risk issues will continue to propel cryptocurrency up as a store of value and mechanism to diversify assets. Many holders outside of the USA may also be inclined to hold cryptocurrency as a method of avoiding or preventing governmental abuses.

In the meantime, Visa, Mastercard, Amex, banks and various other tech companies will utilize their existing digital payments and merchant accounting systems while some companies will become exchanges for blockchain based assets just like any other money-changing services worldwide.
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George Mentz JD MBA CILS is a CWM Chartered Wealth Manager ®, global speaker - educator, tax-economist, international lawyer and CEO of the GAFM Global Academy of Finance & Management ®. The GAFM is an ESQ EU accredited graduate body that offers certification training in 150+ nations under ISO 21001 and ISO 9001 standards. Mentz is also an award winning author and graduate law professor of wealth management in the USA.

^[i] Crypto storm triggers new lows for 2022 in Ethereum (fxstreet.com)

^[ii] Coinbase warns customers they could lose their crypto if the company goes bankrupt | The Independent

^[iii] Cryptocurrencies - Real Time Market Data - Investing.com

^[iv] Cryptocurrency Definition (investopedia.com)

^[v] How More Than $1 Trillion of Crypto Vanished in Just Six Months - WSJ

^[vi] Crypto Investors Are Wealthier. No One Knows How Much They’re Spending. - WSJ

^[vii] More than $7 trillion has been wiped out from the stock market this year - CNN

^[viii] Cryptocurrency Tax Issues | Cryptocurrency Tax Basics | Texas CPA (calvettiferguson.com)

^[ix] The Business Benefit of Using Cryptocurrency | Deloitte US

^[x] Man Invests $20 in Obscure Cryptocurrency, Becomes Trillionaire Overnight, at Least Temporarily (newsweek.com)

^[xi] Privacy and blockchain - Wikipedia

^[xii] Inflation and Cryptocurrency: How Does Inflation Impact Crypto? | Ally