The Tax Related Pros and Cons of Paying in Bitcoin

You might simply own a business that accepts payment in bitcoin, or you might be an active trader of cryptocurrencies as well, always looking to make the best out of a volatile market. However, in truth, it is smart to do both, since bitcoin’s volatility is matched by nothing else out there, including forex and the share market. However, as the recent drops in price have shown us, it is always going to be a gamble, and how well you are at understanding the market will always decide how much you may profit, or lose, from your trades.

With that perspective in mind, we are quickly going to go over the various pros and cons of bitcoin next, so that new traders can avoid the common mistakes, while maximising the volatility. But first, a brief introduction to the market’s volatility in numbers should help in getting the pros and cons across. Let’s dive right in.

Volatility of Bitcoin: The Source of Its Pros and Cons

If someone is not familiar with the volatile market of bitcoin trading, there is no possible way for them to understand how much potential there is in bitcoin and that goes both ways. Only by analysing the history of bitcoin’s constant rise and fall through the years can we estimate how much money people have lost and gained by investing in the cryptocurrency. The following points should provide a better picture.

  • ­On 15th December 2017, bitcoin broke all previous records and skyrocketed to a price of £14,748.90
  • ¯By 29th of December 2017, the price dipped down to £9,499.80
  • ¯It was down to just £6542.01 on 2nd February 2018
  • ¯By the 14th of December 2018, people had lost all hope as bitcoin’s price had dipped to £2,528.38
  • ­By 28th June 2019, bitcoin was showing a sign of resurgence again, thanks to a price tag of £9,346.34
  • ¯On the 13th of March 2020, a 90-degree dip to £4,209 was creating further havoc in a market that was already torn apart by Covid-19
  • ­Despite all odds, bitcoin sore again in the middle of the global pandemic, right up to £9,2025.36 on 31st July 2020
  • ­After a few dips and ups in the following months, bitcoin began to rise like a comet again and broke through its previous highest value on 16th December 2020 with a price tag of £15,819.87/coin
  • ­On 8th January 2021, bitcoin was priced at £29,988.12
  • ¯It dipped down to £22,253.89 in the same month (29th Jan).
  • ­Bitcoin jumped from £28,295.46 to £33,740.79 in just a few hours’ time in between 7th and 8th February 2021
  • ­£40,000 (£40,027.75) – the barrier was broken by the cryptocurrency in less than a fortnight on 20th February 2021
  • ¯By the last day of the same month, bitcoin was lingering at £32,394.24
  • ­£41,319.36 on 11th March 2021 meant that bitcoin had once again broken its previous record
  • ¯The cryptocurrency reached one of its lowest points of the year on 20th July 2021, when the price took a nosedive to £21,849.85
  • ­By 8th of November 2021, bitcoin had reached its highest point yet and almost broke through the £50,000 (£49,838.79) barrier for the first time.

Pro: Massive Gains

As anyone can tell by looking at a graph of bitcoin’s rise and fall throughout the years, or even by simply looking at some of its many bulls and bears in the shortest amount of time, there is huge potential to invest in bitcoin and earn enormous profits. However, we must be ready to expect the unexpected.

Con: Massive Losses

The same volatility which has created so much potential for traders has also been the cause for grief. People have ended up holding on for too long and selling at a comparative loss later, despite them having the opportunity to earn a much greater profit earlier. Then there have been those who had panicked and sold off their satoshis at an actual loss, believing in the hype that bitcoin was a sinking boat.

Pro: Accepting Payments in Bitcoin Can be a Superb Investment

In order to maximise the potential of bitcoin without letting its volatility affect revenues too negatively, it is important to set a limiter first. For example, if you own a business where you generate £1,000 as revenue on an average day, a 20% limiter would mean that the business will not be accepting payments in bitcoin worth more than £200 per day. No sane business accepts bitcoin or any other cryptocurrency without setting a limit first.

Anyone willing to pay in bitcoin on that day will not be able to do so once the £200 limit in value is generated as revenue. Depending on your understanding of the crypto trade market, you can change the maximum limit frequently to best suit the market conditions of the day. When done right, that 20% could end up counting as 120% of your daily trade at the end of the financial year! This can actually be problematic as well because calculating the ensuing taxes is no easy task!

Con: Crypto Tax Can be a Nightmare for the Uninitiated

Even seasoned accountants cannot always figure out the taxes when bitcoin is involved, which is why it can be a nightmare to deal with for any business owner. Due to the fluctuating nature of bitcoin, the tax laws surrounding it are also dynamic and complicated. Thankfully though, there are accountants in Cardiff, such as Hodge Bakshi, who are well aware of the situation and handle cryptocurrency-related tax issues on a regular basis. Solving countless complex problems that arise from all the confusion, Hodge Bakshi has a dedicated team of crypto accountants in Cardiff who were dealing in cryptocurrencies even before the general population started investing in them. As a result, Hodge Bakshi can not only take care of all things related to crypto tax filing, but they should also be able to guide your crypto investments for reaping the maximum benefits.

Pro: Rewarding for the Patient Investors

Those that never lost their faith in bitcoin were always rewarded because bitcoin has always soared like a rocket and came down like a meteor! Consider the fact that people who bought their cryptocurrency at £14,000+ in December 2017 had to wait for more than three years to see bitcoin’s price go through the roof again. Naturally, not many did hold onto their bitcoins for that long, but some investors both small and big did. They were rewarded because of their patience and understanding of bitcoin, cementing the claim that bitcoin will almost assuredly always come back.

Despite its serious potentials, bitcoin is not an asset where anyone should invest all their savings or earnings. Unfortunately, that always happens, and it never ends well. The issue with an all-out investment is that you will need quick returns to not go broke. Admittedly, such instances are not uncommon to see with bitcoin, but on several occasions, it has taken months, or even years, for bitcoin to shoot up higher than before. Therefore, it is a bad idea to invest in bitcoin without restriction and professional guidance.

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Adam Ali