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Category: Economics

How governments can benefit by imposing a range of taxes on cryptocurrency

This author raised concerns about government regulation of cryptocurrencies.

I’m coming to the view that such regulation is not only necessary but will be extremely beneficial both for the market and for governments. [See my comments here].

Cryptocurrency has two qualities in one: asset (store of large amounts of value) + money (being easily transferred in extremely small quantities).

While no taxation can be imposed on the money component, there is a huge taxation opportunity for the asset component, given that many cryptocurrencies are skyrocketing at 1000 or more per year.

Some governments are already starting to regulate cryptos. Such regulations will massively increase the legitimacy of cryptos in the eyes of the sceptical masses, who will then jump on (finally) into the bandwagon, thereby massively increasing the price of these currencies.

Governments should get a share of the profits from cryptos to plough that money into infrastructure and public goods. It will only be a really stupid government that kills the chicken that lays a golden egg.

Having myself made a small paper profit (currently a notional profit of $4000 AUD on my small investment), I see no reason why government should not be able to apply the following taxes on crypto transactions:

CRYPTO-CRYPTO TRADES

The tax would need to be very small on tiny trades (such as for a cup of coffee), but it could be incrementally larger for larger trades.

A tax of up to 0.05 per cent on crypto trades will harvest significant gain for governments.

Of course, traders will then shop jurisdictions and move to exchanges in countries that do not charge such a tax. Or the exchanges will go off-line (peer-to-peer).

FIAT-CRYPTO-FIAT CONVERSIONS

Two choices:

a) at the standard GST rate (possibly at BOTH ends of the transaction).

b) as capital gains tax at the end of the transaction (this, of course, also would allow investors the option to track any capital losses).

What about the ability of crypto-owners to move their conversion to a different jurisdiction?

Yes, they can. For instance, a number of exchanges now offer USD debit cards that can be used anywhere in the world. So I can transfer funds to a US exchange, then convert to cryptocurrency, then buy a world-cruise from USA which will totally short-circuit the Australian system.

But if I wish to convert my crytpo-money into AUD (to be drawn as cash or deposited into my bank account), then generally only an Australian exchange will do so. The Australian government could require all Australian exchanges to charge a GST on such conversions. It could alternatively require me to track all my crypto investments and report on any capital gains.

Of course, there remains the option of peer-to-peer exchange in which I can find someone in Melbourne who wants bitcoin and get sell it to him in exchange for cash. This will be entirely off the record keeping system and will evade any tax.

It is not my job to think on behalf of governments about how they can tax cryptos. But this is clear: they can’t avoid cryptos. These are here to stay. The only choice they have is to work out how to benefit from cryptos, which are essentially a great productivity enhancing device.

BTW, I agree with commentator Andrew Robbins here:

If a government starts to heavily regulate Cryptocurrencies they give themselves a massive disadvantage compared to other governments who don’t. We’re already starting to see this with ICOs preventing U.S. based IPs from participating. You do this too much, and people will eventually leave your country.

So, any government that regulates/ taxes will need to be keenly aware of competitive issues of this sort.

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The ultra-puerile, nonsensical “good people” theory of governance

Key comments from my FB post here. The “good people” theory of governance is the most obvious sign of someone’s ignorance about basic economics and governance. This theory is typical not only of the socialists but of the thousands of half-baked “economists” and “liberals”.

===MY COMMENTS==

India’s problem is the design of its governance system and policies. If people don’t understand this point, they can be as honest as they like and they will totally fail to change anything.

Half baked ideas continue to flourish. No takers for serious work, that will involve a lot of thinking and understanding.

FURTHER

It takes ENORMOUS intelligence to create good institutions, which neither you have a clue about nor most Indians. I’ve not seen one single writing of yours which shows how to create good institutions in India.

Hence the delusion that “good” people can do anything good for the country.

FURTHER

Just like LKY is not a “good” people alone, so also the leaders of Australia are not “good” people alone.

It takes ENORMOUS sense and competence to design good institutions. 99.99999 per cent of Indians have no policy competence or sense and hence cannot design good institutions.

You may be a “good” people yourself but will be entirely useless to India unless you understand this point that governance is a science, not some random thing that any “good” person can do.

Then you will need to start studying how good institutions in India must look like. Then work out a transitional path.

If you are interested, all this is already explained in BFN + SBP manifesto.

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There is something really big happening in the world of finance. Time to start paying attention

As the Singularity approaches, things are changing very, very rapidly around us.

Given we like to think about what we already know, this is a dangerous time for us.

This is the time to keep one’s ears to the ground for sounds of approaching change. And the finance sector is changing. RAPIDLY.

Came across this video (haven’t yet heard it in full), but worth listening to.

Some write-ups that discuss this video, first. This is from the following article: Davos: World Economic Forum Tackles Fintech

Event Report: The Transformation of Finance #Davos16 #WEF

Blockchain hype storms Davos

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Three strategies for trying out cryptocurrency – least risky to most risky

I was talking to someone on Friday about the risks of cryptocurrency. There are essentially three strategies:

a) LEAST RISKY

In this strategy, one invests something the loss of which one can live with (say, $200) and waits for the value to double (say, to $400). At that stage, one can withdraw the $200 and leave the remaining $200 to grow further, without limit. Any further fiat currency is invested with the same strategy – i.e. always pulling out the capital once the value doubles. [Note, this will need to be adjusted for transaction costs.]

b) MODERATE RISK

In this strategy one invests a fixed amount (say $100) each fortnight or month into cryptocurrency. This will smooth out all variability. The risk of loss is therefore minimised. However, the amount being larger (say $1200), there is a higher overall risk of loss should the idea of cryptocurrency go pear shaped.

c) HIGH RISK

In this strategy (only after one is 100 per cent sure that cryptocurrency is here for the long haul) one should put ALL of one’s savings into cryptocurrency. This is contingent on significant time spent on research. Overall, I’m very confident that cryptocurrency is here to stay on a permanent basis. But … !!

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