One big reason is a belief in the decentralized asset. Many cryptocurrency investors, both business and personal, want to support the growth and development of digital currency because they can see the potential of a currency without a potentially limited government-mandated price. For some investors, the excitement of being involved in groundbreaking blockchain technology is enough of a draw. If businesses start thinking of bitcoin as digital gold in terms of scarcity-related value, it is easier to understand why they choose to liquidate fiat currency (government-issued currency not backed by any commodity) in favour of bitcoin. During financial crises, governments/central banks tend to print more money to stimulate the economy, but with the long-term effect of reducing the currency’s value. Businesses who have savings in diverse currencies, such as both fiat and crypto, are hit less badly during such financial depressions than those beholden only to traditional currency. The scarcity of bitcoin (and many other cryptocurrencies) is much like gold; the basis for gold’s high value is that there is only so much in existence. Governments cannot simply print more in times of crisis. Satoshi Nakamoto created bitcoin to be a finite resource, giving it intrinsic value. As the popularity of digital currency increases, so does the regulation – making it more institutionalized and bringing it to the forefront of consumer minds. This increase in demand for simple cross-border payments where location has no bearing on the funds used (unlike fiat currency that is subject to conversion fees) and a secure currency that can be moved in milliseconds means that even traditional financial institutions are becoming interested in what can be achieved with bitcoin. Visa and MasterCard have both said that due to consumer demand they are looking to launch some cryptocurrency services later this year. Nearly every jurisdiction around the world has created laws and regulations about the buying, selling, trading and holding of cryptocurrency. With military-grade security being offered for digital coin storage in wallets both online and offline, it is becoming much safer to invest without risk of theft or shady players getting involved. Businesses who regularly invest in other markets are aware that volatility can be a problem for holdings; this is sometimes truer when it comes to bitcoin and other cryptocurrencies as the market can rise or plummet from a single Tweet. However, the year-on-year increase in bitcoin value, even in its lows, shows that there is definite upswing occurring and savvy business investors are getting to grips with the fact that consumer investors are increasing demand, and therefore value.
What Other Cryptocurrencies Can Companies Invest In?
There are potentially thousands of cryptocurrencies available, and businesses can buy any of them. This guide uses bitcoin because it not only has the highest market share of digital currency, but is also the best known and most accepted for the growing trend of allowing purchases using cryptocurrencies. The rules and regulations for buying and selling altcoin (cryptocurrencies other than bitcoin) as a business and as an individual are the same (as is the processes involved).
Do Companies Get Taxed for Holding Cryptocurrency?
Taxation for holding cryptocurrency is not an issue in either the UK or the US, but tax implications can vary by location and need to be understood to avoid any problems with your return.
United States
Buying bitcoin is not classed as a taxable event. However, holdings of bitcoin are treated as property, so selling for USD or another fiat currency is a taxable event, and your business will be liable for capital gains tax based on the amount of gain (or loss) the business makes when selling. To make sure that the tax processes of the business consider the digital assets of the business, the sale of cryptocurrency must be reported on your tax return.
UK
With cryptocurrency in the UK, taxable events include any trading profit, investment income or gains, and the chargeable gain in disposal (selling) of assets. Crypto is not considered a currency for tax purposes, but it is described as an intangible asset that can be owned and has a value that is capable of being realized. Instead of capital gains tax, however, in the UK businesses will be charged corporation tax on disposal regardless of the method, whether exchanging bitcoin for fiat currency, a different cryptocurrency, using it for payment of goods or services, and even donating or gifting. Reporting of cryptocurrency corporation tax should be done in Sterling and reflected in the current financial statement. There are hundreds of choices, but some of the most popular ones that offer Enterprise or Corporate accounts include:
Binance Coinbase. Coinburp Bitpanda
It is important to note that you will need a business account to buy bitcoin or any other cryptocurrency as using a personal account will have ramifications in terms of tax. In some cases, you might need to initially open a personal account and then upgrade to a business account. There are usually other benefits to having a business or Enterprise account, including higher purchasing limits and better access to customer service and VIP functions.
Verify Your Account
If you are using a regulated or centralized exchange (which are usually considered more secure) then users need to verify identity before they can trade. This is usually the most time-consuming part of the process, but it is essential to make sure that you can buy crypto simply and withdraw funds when needed. Verification at most cryptocurrency exchanges includes personal details (of the company director) and business incorporation proof. This might be registration documents with the state in the US or the business registration documents held by Companies House in the UK. The exchange you are using will list the verification documents needed, with alternatives where necessary. In most cases, opening an account is completely digital, with scanned copies of essential documentation usually accepted as proof of identity.
Transfer Funds to Your Trading Account
There are two main ways that you can get fiat currency into a trading account. Most exchanges accept deposits made by credit or debit card, so a business card might be a good option. Almost all exchanges accept deposits via bank transfer, but some more traditional financial institutions block transactions with cryptocurrency exchanges, so it is always best to check what the policy is at your bank. You can decide how much you want to transfer, but bear in mind that some exchanges have minimum deposits, and this is usually a bit higher for corporate accounts than it is for personal accounts.
Buy Bitcoin
The next step is to actually buy some bitcoin. There are two main ways to do this – through a market order or a limit order.
Market Order
This is an easy and convenient way to buy – you simply pay the value of the coin that it is currently marketed at (the current price). Simply enter the amount you want to buy, and you will pay whatever price is available for the amount that you need. This can prove expensive for large amounts, as the exchange will automatically buy the cheapest available but as scarcity grows, so does the price.
Limit Order
In this method, you indicate the price that you want to buy at, and the order is fulfilled when the bitcoin is available at that price. This means that you have more control over your purchase and know that it will have a fixed cost, but the order might not be fulfilled for some time if the price of the coin goes up (and stays up). The way your business purchases cryptocurrency is a personal choice and there is no right way to do it. For larger enterprises making purchases above $100,000, an OTC desk can offer a specialized concierge service to buy the bitcoin on your behalf in a private and fast transaction. OTC desks can be in-house at an exchange or an independent service. Big corporations can get faster fulfilment even when making limit orders.
Decide How You Want to Store Your Bitcoin
As a digital currency, bitcoin does not need to be kept in a bank vault – but it does need to be stored securely. There are two main ways that you can store your cryptocurrency:
Third-Party Custody
Most exchanges have built-in wallets that you can use to store your bitcoin. This means that they will have the details of your private key (the ‘password’ that allows access to the altcoins in the wallet), which can help you keep it safe. Otherwise, if you lose your key, your funds would be unrecoverable. However, funds in third-party custody are at risk from hacking. Although many larger exchanges have wallets that are protected by military-grade security, there is a risk of an attack that could see your bitcoin wallet emptied by hackers – so it might not be the most secure way of storing a large amount of cryptocurrency.
Self Custody
When you have completed your bitcoin transaction, you can also withdraw it to your own personal wallet, and this means that you are responsible for storing the keys and ensuring that it is kept safe from hackers. One of the best ways to do this is with a hardware wallet – similar to a USB memory stick, this is a removable piece of hardware that is accessible by a specific program. This type of storage is known as cold storage because it is not connected to any networks and is protected from most attack vectors that hackers might use. The very security-minded could feasibly store this hardware wallet in a bank vault, of course.
Final Thoughts
Buying bitcoin as a company is a simple and straightforward process once the account is verified. The consideration as to whether your business should invest in cryptocurrency and follow some of the biggest companies in diversification is a personal one – there is an inherent risk in any type of investment and although some proponents of altcoins are passionate about it being ‘digital gold’, the volatility of the market might make it too much of a risk for your business. If your company does invest, be sure to use a regulated exchange for the transaction and prepare a hardware wallet for the most secure storage. WikiJob does not provide tax, investment or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.
