In the past year, there’s a very high chance that you may have witnessed the surging popularity of crypto-currencies. According to finder.com.au, 22% of Australians possess cryptocurrency holdings, boasting one of the highest adoption rates in the world. Currently, the market capitalisation of all cryptocurrencies is AU$1.67 trillion, which is greater than that of the entire Australian share market! The rapid growth of cryptocurrencies within the past two years has caused it to emerge as a mainstream asset class. However, if you decide to invest there are several important considerations which you need to be aware of.
Firstly, if you purchase or sell cryptocurrencies, you may have tax obligations to fulfill. Similar to shares or property, cryptocurrencies are considered a capital asset and any profit on trading will need to be reported in your tax return for capital gains tax (CGT) purposes (even if you made a loss). This is often further complicated as one cryptocurrency can be traded for another, which results in two CGT events occurring for one transaction! For these reasons, it is important to maintain strong records of your trading activity for tax purposes. Most major trading platforms are able to generate detailed reports of your transactions containing key information (cost base, proceeds, quantity, transaction dates, etc…).
When compared to more traditional investment assets, cryptocurrency is extremely volatile and can be difficult to understand. The value of a cryptocurrency can also fluctuate widely based on market speculation and media coverage. Investors should perform their due diligence before deciding to invest. In addition, due to the low regulation, there is a looming danger of theft from scammers. The digital and relatively anonymous nature of cryptocurrencies also means it may be difficult to recover your assets in the case of theft. Investors should also be wary of scammers promising get-rich-quick-schemes promising unrealistic returns.
To conclude, cryptocurrencies present vast opportunities for investments however potential investors should ensure that they perform adequate research before investing. If you have any queries or concerns, please do not hesitate to contact your Harris Black team member and we will provide as much support as necessary.