Cryptocurrency

In the USA, the IRS ruled that Bitcoin are to be treated as personal property for tax purposes, therefore liable to capital gains tax, but the issue of cryptocurrency regulation of exchanges and investments has become highly contentious in relation to virtual currency law. On 3rd March 2014 in the UK, the HMRC published a document in regards to the tax treatment of any income received from Bitcoin and other cryptocurrencies with provisional guidance. This brief excluded Bitcoin from VAT, with corporation tax, inheritance tax and CGT depending on activities on a case-by-case basis.

There have been many warnings from regulators around the world concerning use of cryptocurrencies as potential investments, as well as being a store of value or a unit of exchange. On 12th September 2017, the FCA issued a warning that these can represent ‘high risk speculative investments’, only for experienced investors who should be prepared to risk losing their entire stake.

The SEC have also taken steps to define whether or not a proposed ICO represents a security (or investment in UK terms), which requires a robust regulatory regime including a prospectus, rigid financial controls, and marketing on regulated exchanges to investors who have passed money laundering and other controls. Other countries have followed suit.

Some jurisdictions, however, are encouraging the use of this form of fundraising. This is because it is becoming recognised as an alternative method by which start-up businesses using blockchain technology can fund their new projects, without having to rely upon Venture Capital, which can be difficult to attract. Gibraltar is leading the way with a new licence issued by the Gibraltar Financial Services Commission (GFSC). The new DLT (Distributed Ledger Technology) is highly regarded and likely to be followed by the FCA in the UK.