Busting Bitcoin Myths: A Guide for Crypto Advisors

• Crypto for Advisors Wraps up 2023
• Crypto for Advisors: Your Weekly Digital Asset Guide
• Debunking Bitcoin Myths - A Guide for Financial Advisors
• Technology Infrastructure
• Regulations
• Law Enforcement
• Ask an Expert
• Q. What tax-related considerations should investors keep in mind?
• Realized gains
• Unrealized gains
• Realized losses

Crypto for Advisors Wraps up 2023

As the year concludes, we express appreciation for the wealth of knowledge imparted by all contributors to the Crypto for Advisors platform. The year-end spotlight falls on Kunal Bhasin, co-leader of KPMG Canada's crypto asset and blockchain practice, who dedicated his time to busting prevalent bitcoin myths. Here's to a promising 2024 in the crypto arena.

Crypto for Advisors: Your Weekly Digital Asset Guide

Subscribe and stay updated with Crypto for Advisors, CoinDesk's weekly newsletter that simplifies digital asset understanding for financial advisors.

Debunking Bitcoin Myths - A Guide for Financial Advisors

In 2023, the crypto world experienced significant challenges such as the FTX$3.28 -5.38% stumble and Terra LUNA's fall in 2022. These events led to a major loss of trust, liquidity issues, and market instability. Despite these, the digital asset ecosystem showed remarkable resilience, growing by ~150% YoY by the end of 2023, as reported by CoinDesk.

Yet, several myths continue to circulate the digital asset ecosystem. These misconceptions are often a result of a lack of understanding, biased perceptions, and enduring stereotypes. In light of the increased interest from investors and the possible launch of a spot bitcoin ETF in the U.S., it's crucial for financial advisors to provide informed and unprejudiced responses to these myths. This article explores one of the most prevalent myths - bitcoin is primarily used for illicit activities and money laundering.

In the early days of bitcoin, a small but visionary group of individuals and organizations saw its potential. But as bitcoin's value grew, so did its attractiveness to criminals. This led to a number of illicit uses, contributing to bitcoin's reputation as a criminal currency.

To counter financial crime and money laundering, three key pillars are essential - technology infrastructure, regulation, and law enforcement. The early adoption of bitcoin among illicit users was not due to its alleged untraceable and anonymous nature, but rather the lack of sophisticated crypto intelligence and analysis infrastructure, as well as lack of applicable regulations at the time. Contrary to popular belief, bitcoin is pseudonymous, not anonymous.

Let's dissect the three pillars as they related to bitcoin:

Technology Infrastructure

Since 2014, significant efforts have been made to develop and execute infrastructure to prevent, detect and investigate bitcoin and other crypto transactions. Today, there are numerous tools available for financial institutions, regulators, law enforcement, and virtual asset service providers (VASPs) to track and analyze bitcoin and crypto transactions. This has led to the identification and capture of criminals in various cases. The level of traceability in bitcoin surpasses many other financial systems, especially cash transactions which can be much more opaque.

Regulations

The view that bitcoin and other crypto assets are unregulated is a major misconception. Regulations often follow innovation. Several countries, including the U.S., Japan, and South Korea, have imposed registration, reporting, and recordkeeping requirements for AML/CTF purposes. Presently, 83% of G20 nations and major financial centers have enacted or are developing national crypto laws.

Law Enforcement

Between 2013 and 2023, approximately $8.496 billion in crypto and fiat have been seized due to law enforcement actions. Collaborations across global law enforcement agencies and public-private partnerships are enabling more efficient identification and investigation of financial crime thanks to bitcoin's underlying technology and unique characteristics.

Ask an Expert

Q. What tax-related considerations should investors keep in mind?

Investors should consider whether they have realized or unrealized gains or losses in their crypto trading accounts, each carrying unique implications that could greatly impact the next tax year.

Realized gains

If investors have realized gains from selling digital assets this year, they should set aside enough money to cover their capital gains taxes due next April. Caution should be taken when reinvesting proceeds from profitable trades, as taxes will be owed, and a loss in new investments could result in an inability to cover the future tax bill.

Unrealized gains

Given the volatility of crypto, it may be beneficial to delay selling winning investments until 2024, allowing for additional time to reinvest and earn a return before taxes are due.

Realized losses

Crypto losses can be offset against other capital gains and can be carried forward indefinitely for future years. Losses can also

Edited by Jonathan Stoker