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]]>Draft law to Amend the Income Tax Ordinance (Digital Asset), 2024- Two Sides of a Coin
At the start of November 2024, the State Comptroller’s report criticized the Israeli Tax Authority for not effectively collecting taxes on profits generated from crypto activities. It stated that the crypto market is already regulated in many countries worldwide, and is slowly gaining more and more momentum. A week later, the authority issued a draft law addressing the matter.
The draft law concerns the definition of cryptocurrency and the determination of location of income generated during the sale/conversion. Among other things, the amendment proposes that the taxation of Crypto will be determined according to the place of residency at the time of purchase. The proposed amendment will increase clarity in the digital assets market, which is currently worth $3 trillion.
In 2019, the district court issued a ruling in the case of Noam Kopel vs. Tax Assessor of Rehovot. The taxpayer argued that the use of crypto does not constitute as a taxable event, claiming it involves a foreign currency and the taxation of foreign currency is exempt under Section 9(13) of the Income Tax Ordinance. The Tax Authority stated at the time that cryptocurrency is not a currency but rather an “asset.” Due to the fact that cryptocurrency can only be classified as an official currency if it is recognized as a “legal tender” in any country and it is not. In other words, as long as no country has officially adopted a virtual currency (i.e. Bitcoin), as an official currency Crypto cannot be considered a “currency” for tax purposes in Israel. The district court upheld The Tax Authority’s position and ruled that the taxpayer was liable for taxes on the sale of the cryptocurrency.
Since then, the cryptocurrency market has grown, Bitcoin’s value has surged, and some countries (such as El Salvador) has officially adopted Bitcoin as a legal tender. This event arguably defined Bitcoin as a “legal tender,” undermining The Tax Authority’s stance in the Kopel ruling.
In light of this development, The Israeli Tax Authority issued the draft law. The draft law proposes adding the definition of “digital asset” to the Income Tax Ordinance, which would include all cryptocurrencies, thus addressing the legislative gap regarding crypto.
As part of the regulation, the draft suggests establishing a rule that determines the location where the capital was generated during the sale of cryptocurrency. The determination of the location of the sale is significant as Israeli residents are taxed on their income made worldwide. However, if an Israeli earns income abroad, the provisions of any relevant tax treaty is considered. Additionally, non-residents are only taxed on income or profits made from sources in Israel and are not taxed on income or profits originating from outside of Israel. However, if an Israeli resident earns income from a country which Israel has a tax treaty with, the provisions of the applicable tax treaty must be taken into account. As well, a foreign resident is only subject to taxes on income or profits which originated from Israel and not on those from outside of Israel. The proposed amendment states determining the location of income generated when realizing a digital asset will be based on the residency status of the seller at the time of the purchase. In other words, if the digital asset was acquired when the taxpayer was a foreign resident, the location of the income upon its sale will be considered outside of Israel, and vice versa.
The proposed amendment has advantages, but it has its disadvantages as well.
Advantages and Disadvantages of the Draft Law
Advantages:
- Certainty – Until now there have been many diverse positions from the Tax Authority regarding the location of income generated from the realization of cryptocurrency (i.e. the taxpayer’s residency status at the time of the cryptocurrency sale, the residence status of the exchange from which the cryptocurrency was sold, etc.). Now, the taxpayer will have certainty regarding the Tax Authority’s position. As many know, when there is legal certainty, it allows for planning and strategizing steps in advance to minimize tax liability.
- For the first time, the Israeli Tax Authority is establishing a “rule” regarding the location of income derived from a non-tangible asset. It is expected that this rule can also be applied to other intangible assets that are not within the scope of cryptocurrency. (Such as IP, goodwill, and other rights.)
Disadvantages:
- Discrimination against new immigrants/ returning residents– According to the Income Tax Ordinance, new immigrants, returning residents, and veteran returning residents are entitled to various benefits upon their immigration or return to Israel. Among these benefits is an exemption from tax for a period of ten years on capital gains generated from outside of Israel, regardless of timing or country of residence. For example, if a new immigrant holds securities of a foreign company and later purchases additional securities from another foreign country, then sells all of them during the 10-year exemption period, the capital gains from both sales will be exempt from tax. However, if the new immigrant arrives in Israel with Bitcoin that was purchased while they were a foreign resident, and sells the Bitcoin to purchase Ethereum (another cryptocurrency) during the 10-year exemption period, only the first sale (of the Bitcoin) will be exempt. The second sale (of the Ethereum/ other cryptocurrency) would be subject to tax as it’s considered to be a digital asset purchased after the individual became an Israeli resident. Therefore, even though the sale occurred during the 10-year exemption period, it would not be exempt.
- Double Taxation– While the Israeli Tax Authority integrates the rule that capital gains will be determined based on the country of residence at the time of purchasing the digital asset, there is no guarantee that foreign tax authorities will adopt this rule as well. Therefore, they may operate according to the tax treaty or their own domestic laws (in the absence of a tax treaty.) This discrepancy can lead to double taxation. For instance, if a taxpayer purchased Bitcoin while being a resident of Israel, then left Israel to move to Germany and sold the Bitcoin several years later, the German Tax Office would require taxes according to their domestic law, as the taxpayer would be a German resident at the time of the sale. (In the case of Germany, taxes would be determined based on the tax treaty between the two countries.) In addition to the taxes paid to the German authorities, the Israeli Tax Authority would also demand taxes, as the Bitcoin was purchased while the individual was a resident of Israel. (A similar situation could arise due to section 100A of the Income Tax Ordinance, which deals with exit tax). There is no reference in the Tax Treaty to cases such as these, leading the taxpayer to possibly paying double tax on the same income.
Possible Tax Planning
As mentioned earlier, when there is law, there is certainty, and when there is certainty one can prepare in advance, plan, and strategically/legally take steps to achieve the minimum possible tax through various tax planning strategies.
As highlighted, this regulation, like any regulation, primary leads to certainty and stability, which brings both advantages and disadvantages. The key is to take advantage of the benefits provided by the regulation, while also being cautious of possible setbacks.
It is important to remember that this is a preliminary draft that may undergo changes before it becomes law. Our firm specializes in Israeli and international taxation, including all matters regarding the digital assets market, as well as the implications arising from this amendment.
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]]>The post Compensation from MtGox – Tax Implications appeared first on נמרוד ירון ושות׳.
]]>The Fall of MtGox
In 2014, when Bitcoin was still in its beginning, Ethereum had not yet been launched, and most people were unfamiliar with terms like crypto, blockchain, digital wallet, etc. At that time, the value of one Bitcoin was less than $1,000, the Japanese crypto exchange MtGox declared bankruptcy due to a security breach.
MtGox, at that period, was the trading platform with the highest trading volume, handling about 70% of all crypto transactions. The exchange had around 850,000 Bitcoin, and due to the security breach, about 650,000 Bitcoin were stolen. Approximately 200,000 Bitcoin remained because they were not on the platform at the time of the breach but were stored in MtGox’s cold wallet.
One February morning 2014, many people around the world, including many Israelis, felt their world had collapsed.
A trustee was appointed for MtGox, who began the process of liquidating the company and repaying some of the debts to the creditors, partly by cashing out Bitcoin in 2017 at a value much higher than its 2014 value (the debt to the creditors is based on the Bitcoin’s value at the time of the theft).
Receiving compensation from MtGox
At the end of 2023, many creditors began receiving compensation from MtGox in cash (FIAT).
Additionally, starting from mid-July 2024, some creditors began receiving the additional compensation component from the MtGox trustee in Bitcoin/Bitcoin Cash, and sometimes both.
Although the creditors are not compensated for all the Bitcoins they had at the time of the breach, it is important to remember that the value of Bitcoin skyrocketed from the time of the breach in 2014 to the time of compensation in 2024, increasing by approximately 6800% (!!).
Tax Consequences of Receiving Compensation
The reception of compensation from MtGox may have tax implications.
The creditors receive cash and Bitcoin, which are worth more than at the time of the breach. It’s important to note that the creditors receive only about 20% of the total coins, so 80% of the coins have effectively become an asset that will likely never be recovered, which may create a financial loss offset against capital gains.
In some cases, we managed to achieve a minimal tax payment for the compensation receiver, and in most cases, we concluded that there is no tax liability at all. Our firm includes former senior officials from the Tax Authority, lawyers, accountants, tax advisors, and economists with rich experience in crypto, voluntary disclosures, and tax liability regulation for unreported income.
Our firm accompanies individuals who have received, are receiving, and will receive compensation from MtGox, assessing their tax implications, reporting methods, and minimizing tax liabilities by offsetting losses, providing expert opinions, managing assessment discussions with the Tax Authority, and/or filing reports to the Tax Authority.
If you have received or are about to receive compensation from MtGox, contact us today for an initial consultation at no cost with one of our lawyers or accountants who specialize in crypto.
Additional articles on Taxation of Cryptocurrency:
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]]>The post Voluntary Disclosure Procedure of the Tax Authority – Crypto appeared first on נמרוד ירון ושות׳.
]]>In 2005, the Tax Authority first introduced a voluntary disclosure procedure. This procedure allows taxpayers who have not reported their income to regularize their reporting and tax obligations and, in return, to receive criminal immunity. Between 2011 and 2019, the Tax Authority published three additional temporary orders for voluntary disclosure, but it is noticeable that the conditions for voluntary disclosure have progressively hardened from one procedure to the next.
For example, while the initial procedures aimed to “catch in the tax net” taxpayers who had not reported their income over the years through a relatively simple and expedited process to regularize their tax liabilities for the ten years preceding the tax year, the later procedures marked a “step up” by the Tax Authority.
Although criminal immunity is granted for every voluntary disclosure procedure, it is noticeable in the latter procedures that the Tax Authority is not satisfied with merely capturing the taxpayer and bringing them into the tax net. It also examines aspects of money laundering, especially following Amendment No. 14 to the Prohibition of Money Laundering Law, which determined that tax evasion offenses would constitute predicate offenses for the purposes of said law.
In practice, this is reflected in the Tax Authority requesting documentation for the source of funds. In cases where it is not convinced that the source of the funds is “kosher and legal,” taxation (in addition to the tax on current income during the ten years) is applied at a rate of 10%/15% and in exceptional cases, even 50% on the principal amount of the funds.
Recently, it has come to our attention that the Tax Authority has been working on a voluntary disclosure procedure for crypto and plans to publish it soon.
In 2024, the value of Bitcoin has risen and is expected to rise significantly, among other things due to the reduction in the rate of new Bitcoin entering the market (a professional term called “halving event”), as well as the approval of Bitcoin ETFs by the SEC, which may lead to realizations by investors.
Recently, a temporary order for the acceptance of tax payments for profits from the realization of distributed means was issued, aimed at easing the burden on crypto investors in paying taxes due to the difficulties banks have in accepting these funds, suggesting that the Tax Authority is preparing the ground for the soon-to-be-published crypto voluntary disclosure procedure.
Several interesting points to consider regarding the voluntary disclosure procedure, especially in the context of cryptocurrencies, have been highlighted:
- Tightening of the Procedure Over Time: Based on the history of voluntary disclosures, it is expected that the crypto voluntary disclosure procedure will be more stringent than in the past. The scrutiny over the source of funds and the tax rates applied in cases where the tax officer is not satisfied are likely to be higher.
- Voluntary Disclosure Before Initiated Contact by the Tax Authority: Typically, the Tax Authority operates on a “carrot and stick” basis. Previous voluntary disclosure procedures provided a window of opportunity to regularize unreported incomes before the Tax Authority began enforcement actions. For example, the 2014 voluntary disclosure procedure was introduced about a year and a half before the Tax Authority announced it had received information on countless Israelis holding bank accounts in Switzerland, which made the path to criminal proceedings very short for those who had not reported.
- Voluntary Disclosure Without an Official Procedure: In practice, it is currently possible to regularize profits and unreported incomes, including those from the crypto sector, without an official voluntary disclosure procedure. This can be done through tax assessment discussions with the Tax Authority and signing a tax agreement at the end of the process.
Reporting profits from crypto can raise professional doubts (e.g., whether it’s business or capital income, VAT liability, etc.) and technical challenges (collecting information from the blockchain, tracking transactions, etc.), thus it’s advisable to seek assistance from experts in the crypto field.
The firm, including lawyers and accountants specializing in crypto, is ready to assist with all matters related to reporting to the Tax Authority. It’s important to note that this does not constitute investment advice and does not replace comprehensive professional advice in the fields of taxation and investments.
Additional articles on Taxation of Cryptocurrency:
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]]>The post Voluntary disclosure – Crypto appeared first on נמרוד ירון ושות׳.
]]>From the year 2005, the term “voluntary disclosure” entered the public consciousness when the Tax Authority introduced its first voluntary disclosure procedure. In its initial form, this procedure allowed individuals who hadn’t reported their income to rectify their reporting and tax liabilities while receiving criminal immunity in return. Over time, between the years 2011-2019, the Tax Authority introduced three additional provisions that allowed for voluntary disclosure of unreported income.
The conditions for voluntary disclosure have evolved over time. In the earlier stages, the Tax Authority’s primary goal was to “catch” individuals who hadn’t reported their income, making the process relatively simple and expedited for those willing to come forward and settle their tax debts in the ten years preceding the tax year. However, in the later stages, the Tax Authority has become stricter.
While criminal immunity is granted under each version of the voluntary disclosure procedure, it is important to note that in the latest procedures, the Tax Authority focuses not only on capturing the taxpayer but also on examining aspects of money laundering. This is especially relevant following Amendment No. 14 to the Prohibition of Money Laundering Law, which took effect on October 7, 2016. This amendment established that tax evasion offenses constitute a source of offense under the aforementioned law.
In practice, this has resulted in the Tax Authority requesting documentation for the source of funds. In cases where it is not convinced that the source of the funds is legitimate and compliant, it imposes taxation (in addition to the regular income tax for the ten preceding years) at a rate of 10%/15%, and in exceptional cases, even 50% of the entire fund.
Recently, the Tax Authority introduced a new voluntary disclosure procedure known as “Crypto.” The cryptocurrency market is gaining momentum by the day, especially with the anticipated Bitcoin halving event this year and the recent approval of Bitcoin ETFs. The Tax Authority has also released a “Guideline for Receiving Tax Payments for Profits from Distributed Means” to simplify the tax payment process for cryptocurrency investors, addressing the challenges banks face in receiving these funds. It seems that the Tax Authority is laying the groundwork for an upcoming crypto voluntary disclosure procedure.
It’s important to pay attention to two interesting points:
- If we examine the history and development of voluntary disclosures, we can anticipate that the process for a voluntary crypto disclosure will likely be more stringent. Additionally, investigations into the funds, as well as the tax rates applied in cases where the tax officer is not satisfied, are expected to be higher.
- Typically, the tax authority employs a ‘carrot and stick’ approach. Previous voluntary disclosure procedures offered a limited-time opportunity to regulate undeclared income before the authority initiated enforcement actions. For instance, the 2014 voluntary disclosure procedure was introduced about a year and a half before the tax authority made a significant announcement about receiving information on numerous Israelis holding bank accounts in Switzerland. Following this, the transition to criminal proceedings for those who had not reported was notably swift. It should be noted that in practice, even today, it is possible to regulate both general and crypto-specific profits and income that were not reported at all, through assessment discussions with the tax authority and signing an assessment agreement at the end of the process.
Our office includes former senior officials in the tax authority, lawyers, accountants, tax consultants, economists, and has extensive experience in the field of crypto, voluntary disclosures, and regulating tax liabilities for undeclared income.
Additional articles on Taxation of Cryptocurrency:
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]]>The post Temporary Order for tax payment arising from Digital Currency appeared first on נמרוד ירון ושות׳.
]]>On January 17, 2018, the Israeli Tax Authority published Circular No. 5/2018 regarding the taxation of activities in Decentralized payment method (hereinafter: ‘the Circular’). According to the Circular, the Tax Authority’s position is that cryptocurrency should be considered an asset for tax purposes and not as a currency. This implies that when realizing cryptocurrency, the conversion of one cryptocurrency to another or to any other asset is a taxable event requiring reporting and, if necessary, tax payment in Israel.
In many cases, even after the taxpayer reported income derived from cryptocurrency, and in more specific cases, even after signing a tax assessment agreement with the Israeli Tax Authority, the taxpayer found themselves helpless and without options when facing Israeli banks that refused to accept funds originating from cryptocurrency activities, even when presenting the tax assessment agreement with the Tax Authority. This was due to the banks’ concerns about money laundering.
Recently, the Tax Authority has acknowledged the challenges in this area and, in response, issued a new guideline on December 31, 2023. Named ‘Temporary Order for Tax Payment Arising from Digital Currency’ (hereafter referred to as ‘the Procedure’), it specifically addresses these issues.
In 2024, the cryptocurrency sector anticipates several key changes, including the introduction of a voluntary disclosure procedure. To facilitate this and other updates, the Tax Authority is preparing to implement a new Procedure for receiving tax payments. This step is crucial to effectively enable the cryptocurrency voluntary disclosure process.
It is important to note that the Procedure is designed to allow tax payment only for cryptocurrency activities. It is not intended to enable tax payment on all sources of the taxpayer’s income using the realization of virtual currencies.
What does the procedure determine?
The procedure establishes two conditions that must be met in order to start implementing it:
- The procedure applies only to tax payments on activity in virtual currencies.
- The taxpayer has proven to the Tax Authority that at least one bank has refused to accept funds originating from cryptocurrency activity.
After meeting both of these cumulative conditions and for the purpose of paying tax on behalf of the taxpayer, the representative of the taxpayer must approach the tax assessment officer responsible for their tax file. They should provide details of their activity in virtual currencies, their taxable income from it, and the tax arising from this activity, and attempt to reach a tax settlement with the Income Tax Authority.
The Income Tax Department of the Tax Authority will have several options
- To determine a tax assessment agreement with the taxpayer.
- To partially determine the taxpayer’s assessment, which will only apply to profits derived from cryptocurrency.
- To leave the taxpayer’s self-assessment as reported by the taxpayer (this does not prevent the tax assessor from determining an assessment for the taxpayer later on).”
It should be noted that this regulation does not affect any criminal proceedings that may be brought against the taxpayer for cryptocurrency-related activities. In addition, the tax authority is currently working on a disclosure regulation for unreported cryptocurrency income, which is expected to provide criminal immunity. For more information on cryptocurrency disclosure regulations, click here.
Upon approval by a tax official, the funds will be transferred exclusively in Israeli Shekels to the account of the Israeli Tax Authority. Any conversion fees or additional charges incurred during this process will be the responsibility of the taxpayer. These funds will originate from the taxpayer’s foreign account, investment, or cryptocurrency holdings, provided the taxpayer has demonstrated a clear association with these assets.
The taxpayer will provide an attachment to their request that allows the tax authority to verify their details and waive confidentiality under section 231 of the Income Tax Ordinance, as well as a declaration stating that any excess amount paid, whether due to calculation errors or loss deductions, will not be refunded to them. The purpose of this declaration is to prevent the possibility of money laundering through the tax authority’s mechanism.
For the purpose of this regulation and for cryptocurrency disclosure in general, which is expected to be released soon, it is recommended to keep all relevant documentation related to cryptocurrency activities and to prove the money trail.
Voluntary disclosure in the field of cryptocurrency will involve complex actions, including:
- Conducting a comprehensive review of the sources of funds to provide an opinion and justify the matter to banks and tax authorities.
- Performing calculations for various alternatives to calculate the tax arising from cryptocurrency activities.
- In certain cases, drafting a legal opinion for the classification of funds originating from cryptocurrency.
- Dealing with the conversion of funds from USD to ILS and transferring them to the tax authority.
- In some cases, integrating the issue with corporate structure and tax planning to facilitate future fund inflows to Israel.
The regulation will come into effect after the relevant authorities within the tax authority, particularly the investigation departments, have verified that there are no ongoing investigations, no information regarding tax evasion, and no pending criminal proceedings, whether open or concealed against the taxpayer requesting to apply the procedure.
The effective date of this regulation is January 1, 2024, and it will initially apply for a period of only 6 months. It’s important to note that even though there is currently no regulation for the disclosure of virtual currencies, our office is still engaging in discussions and reaching agreements with the tax authority in specific cases.
Our office includes former senior tax authority officials, lawyers, CPAs, tax consultants, and economists with extensive experience in the field of cryptocurrency, voluntary disclosures, and arranging tax debts for unreported income. Please feel free to contact us, and we will be happy to assist you.
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]]>As we enter 2024, two significant regulatory procedures concerning cryptocurrencies are anticipated to be released. The first is a regulation framework for accepting tax payments derived from cryptocurrencies and virtual currencies. This aims to resolve existing challenges faced by banks when processing tax payments sourced from virtual currencies. The second initiative is a voluntary disclosure procedure for income generated through cryptocurrencies. This procedure encourages individuals to proactively declare their cryptocurrency earnings and pay the corresponding taxes for previous years.
We will review both of these anticipated procedures in this article. It is important to emphasize from the start – the voluntary disclosure procedure may be aggressive, and it is advisable to report the income within the framework of tax liability regulation even before its enforcement begins.
Cryptocurrency Income Reporting Procedure – Tax Payments from Cryptocurrency
Income from the sale of cryptocurrencies and additional virtual currencies is subject to capital gains tax in Israel. For more details about cryptocurrency taxation and income classification, click here. The Israeli Tax Authority has prepared a draft of a new procedure for reporting on cryptocurrencies starting from the year 2023. This procedure is expected to enrich the state treasury by millions of shekels.
The procedure will enable the reporting of current income. Additionally, it is designed to address the refusal or difficulties posed by banks in accepting money related to cryptocurrencies, due to fears that it might be challenging to prove that they are not associated with money laundering or terrorism financing. The purpose of the procedure is to regulate the process and inspections that will enable the acceptance and collection of tax money derived from virtual currency activities into the bank account of the Israeli Tax Authority.
The procedure applies only to those who have proven that they previously attempted to transfer funds to a bank. The reporting according to this new procedure will include, among other things: details of the taxable income, the due tax, and bank documentation on the refusal to accept the funds. The tax assessor will determine the tax liability. Unlike the voluntary disclosure procedure, this specific procedure for cryptocurrencies does not provide protection from criminal liability due to the reporting of cryptocurrency incomes. For further details about the procedure, click here.
Cryptocurrency Voluntary Disclosure Procedure
The Israeli Tax Authority has also prepared a draft voluntary disclosure procedure pertaining to cryptocurrency income. Those who have not reported income or who have evaded taxes until now, will be able, under this procedure, to report for previous years and regulate their tax payments. The goal is to allow residents to proactively approach the Tax Authority to regulate the reporting of unreported cryptocurrency assets and income.
To avoid the stringent conditions of the new voluntary disclosure procedure and its sanctions, it is recommended to approach a tax expert office before the official procedure takes effect, to regulate the tax liability. Our office, in a structured accompaniment process of our clients, classifies the income optimally and most suitably to the circumstances, and will determine the correct method of reporting – whether reaching a tax assessment agreement or submitting reports for previous years. In certain situations, it is advised to obtain a legal opinion from a tax office about the source of the funds and the classification of the income, and the absence of money laundering. Such a tax opinion may also assist in transferring the funds to a bank account.
Ultimately, regulating the tax liability arising from cryptocurrency and virtual currency income will allow for the use and enjoyment of the funds without criminal risk.
For information about the general voluntary disclosure procedure, click here.
An initial consultation with our office can be held free of charge, so you can understand if further treatment is needed and the level of urgency.
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]]>The post Stablecoins appeared first on נמרוד ירון ושות׳.
]]>Exploring Stablecoins as a Potential Hedge Against Cryptocurrency Volatility - Insights
As Bitcoin drops below USD 42,000 in early January, questions are being raised if the coin is a good measure of anything about its extremely high volatility.
Stablecoins Are designed to be “linked” to traditional Fiat Currency. For example, USDC for United States Dollar Coin is a cryptocurrency that is not affiliated with the United States Government but claims to keep its value tied to the USD.
“USDC is fully backed by cash and equivalents and short-duration U.S. Treasuries, so that it is always redeemable 1:1 for U.S. dollars. Each month, we publish attestation reports by Grant Thornton regarding the reserve balances backing USDC.” (Circle.com)
While USDC asserts that its assets are backed by US Treasury securities, skepticism remains due to past controversies in the crypto sector regarding the actual backing of such investments. This leads to a question: why wouldn’t investors simply choose traditional government-backed investments instead? For a US citizen, there might be reasons beyond the apparent to prefer holding assets in USDC over conventional options.
Moreover, the United States government has initiated research into the feasibility of a government-issued digital currency, known as a central bank digital currency (CBDC). As we progress through 2022, the evolving role of the U.S. economy in the global post-COVID recovery landscape could significantly highlight the true value of stablecoins in the cryptocurrency market.
At Nimrod Yaron & Co., we serve as a professional resource for individuals and companies invested in the global marketplace. We are specifically assisting with intelligent tax planning. Contact us today to learn about all of the services we offer.
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]]>CBDCs are a Real Competitor for Cryptocurrency
CBDC Compete Crypto – In December 2021, the governments of France and Switzerland and their associated government-run central banks, along with commercial partner banks, completed Project Jura, a digital currency trial to settle transfers of significant funds between the country.
A CBDC, or a central bank digital currency, is just a form of a country’s money in a digital-only format. The most significant difference between this and crypto is that the CBDCs value, backed by the government that issues it, is the traditional backing of 21st-century currencies. Specifically, this was a trial for the large transactions that banks do between each other; this was not a test run for retail use, although that is in the works.
“The trial involved the Bank for International Settlements (BIS), Swiss banks UBS (UBSG.S) and Credit Suisse (CSGN.S) and France’s Natixis, alongside Swiss bourse operator SIX, fintech R3, and consultancy Accenture (ACN.N).” (Reuters.com)
“During the three-day trial in November, 200,000 euros of commercial paper was issued against a wholesale CBDC and transferred between the banks, along with foreign exchange transactions ” (Retuters.com)
CBDC Compete Crypto
Comparing Cryptocurrencies to CBDCs, there are a few significant differences. The previously mentioned government backing of CBDCs is a considerable difference. Additionally, the oversight and regulation are vastly different. The global banking system is subject to stringent rules and auditing practices to ensure no materially misstated information that could harm bank users and investors. Lastly, although Cryptocurrency is advertised as decentralized, there are severe market manipulators. Big crypto exchanges, banks, and even countries are known for manipulating the market with large purchases and sales to benefit themselves. While this is also possible with CBDC, a more regulated space allows for a lower chance of market manipulation.
At Nimrod Yaron & Co., we serve as a professional resource for individuals and companies invested in the global marketplace. We are specifically assisting with intelligent tax planning. Contact us today to learn about all of the services we offer.
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