With the explosion of interest in cryptocurrencies, there is a growing need for clarity regarding the legal implications of these new currencies and the technologies that drive them. Regulators, tax authorities and central banks around the world are all working to understand the nature and meaning of digital currencies. Meanwhile, individual investors can make large sums of money by investing in them, but they also assume certain legal risks when buying and selling cryptocurrencies.
Much of the uncertainty of the legal status of cryptocurrency is due to its novelty relative to more traditional currency and payment systems.
The regulation of cryptocurrencies is in an uncertain state. The smart crypto investor should consider declaring their holdings as foreign assets, although the terms remain unclear. One thing is for sure: profits from cryptocurrency trading can be taxed as capital gains in Turkey. The absence of a central authority can be a legal and financial risk for cryptocurrency holders.
Cryptocurrencies and Taxes
One of the most critical legal considerations for a cryptocurrency investor relates to how government tax authorities view crypto assets. In fact, their views are changing and crypto investors need to keep an eye on their latest statements.
Capital Gains and Cryptocurrency
Studies on taxation of cryptocurrencies in Turkey continue. In the US, however, the IRS has defined cryptocurrencies as property rather than currencies. This means that individual investors are subject to capital gains tax laws when it comes to reporting cryptocurrency profits and expenses on their annual tax returns, regardless of where they purchase the tokens.
Note that the above applies to traders who buy and sell cryptocurrencies. If you are an employee and receive cryptocurrency as a salary, it is taxable as income. The amount is based on the dollar value of the cryptocurrency at checkout.
Cryptocurrency and Foreign Bank Account Regulations
Cryptocurrency trading usually involves holding cryptocurrency in a foreign account. As of January 2022, federal law does not consider a foreign cryptocurrency account a type of “reportable account”. That is, cryptocurrency account holders are not required to report their foreign account disclosures to the Financial Crimes Enforcement Network (FinCEN), an agency of the US Department of the Treasury. In Turkey, however, such a statement is still not in question, but the studies are continuing.
Often referred to as FBAR for Foreign Bank Account Report, this is FinCEN Form 114 and is filed by significant overseas account holders.
Cryptocurrency wallets are not included in this requirement, but this is subject to change at any time. FinCEN plans to propose changing the filing requirements for foreign bank accounts to include cryptocurrency assets.
The Decentralized Nature of Cryptocurrencies
One of the biggest advantages of many digital currencies is the potential risk factor for the individual investor. Cryptocurrencies are by definition decentralized, meaning they have no physical existence and are not backed by a central authority.
While governments around the world step in to defend their regulatory powers in various ways, BTC and other digital currencies like it are not affiliated with any jurisdiction or institution.
On the one hand, this saves investors from being indebted to these institutions. On the other hand, this can cause legal complications.
When There Is No Central Authority
The value of digital currencies depends entirely on the value that other owners and investors ascribe to them. depends; this applies to all currencies, digital or fiat. Without a central authority backing the value of the digital currency, investors could be in a difficult position should complications arise with transactions or ownership.
Another potential risk associated with cryptocurrencies as a result of their decentralized nature relates to the details of transactions. In most other transactions, currency, which is a physical asset, changes hands.
When it comes to electronic transactions, a trusted financial institution is involved in the creation and settlement of deposit and loan requests. None of these concepts apply to cryptocurrency transactions.
Due to this fundamental difference, legal confusion between parties in various digital currency transactions is a real possibility. Once again, due to the decentralized nature of these currencies, the legal remedy in these situations can be difficult to assess.
Cryptocurrency Registration and Licensing
An increasing number of businesses are taking digital currencies as a form of payment. In 2022, you can spend your Bitcoin at Microsoft’s Xbox Store, Home Depot, and Whole Foods.
As with other financial areas, businesses may eventually be required to register and obtain licenses for certain jurisdictions and activities. However, due to the complex and evolving legal situation of digital currencies, this area is significantly less clear for businesses operating in the cryptocurrency market.
For example, companies that only accept cryptocurrencies may not need to be registered or licensed. On the other hand, depending on their jurisdiction, they may need to refer to special considerations.
The responsibility falls on business owners and managers to ensure that they follow appropriate legal procedures for both their local and state operations.
At the federal level, for example, financial institutions must maintain certain protection activities against money laundering and fraud, forwarding of funds, and more. Considerations like this also apply to businesses dealing with digital currencies.
Fraud and Money Laundering
There is a widespread belief that the series provides new tools for committing other financial crimes. This may not directly affect most cryptocurrency investors who do not want to use this new technology to commit such crimes. However, investors who find themselves in the unfortunate situation of being a victim of financial crime are likely not to have the same legal options as traditional fraud victims.
This issue is also related to the decentralized state of digital currencies. For example, when a cryptocurrency exchange is hacked and clients’ assets are stolen, there is often no standard practice for recovering missing funds.
Digital currency investors therefore take a certain amount of risk by buying and holding crypto assets.
Digital Security Issue
Therefore, developers and startups related to digital currency have shown great interest in creating secure tools to hold digital coins and tokens. Still, with new types of wallets being released all the time and crypto exchanges always improving their security measures, investors have not been able to completely eliminate the legal risks associated with owning cryptocurrencies, and they probably never will be.
