“Now Is Not the Right Time to Regulate Bitcoin”

The American Institute For Economic Research (AIER) senior research fellow Max Gulker argued in a recent column entitled “Now Is Not the Right Time to Regulate Bitcoin” that it is not a practical approach towards technological innovation to overregulate Bitcoin and digital currencies at the moment. Bitcoin and other cryptocurrencies such as Ethereum, Ripple, Litecoin, Ethereum Classic and NEM are all at its early stage in development. Bitcoin is yet to deal with its scaling issues that have substantially increased transaction fees for users. Bitcoin fee estimation service providers including the 21 Inc Bitcoin Fees are recommending users a $2 fee or a 420 satoshis per byte fee to have transactions verified and confirmed by miners relatively fast.

Ethereum and other cryptocurrencies and Blockchain networks are also dealing with their own scaling issues and developing infrastructures for their growing user base and clientele. Ethereum and Ripple, in particular, are in partnership with some of the world’s largest financial institutions and conglomerates to utilize smart contracts to settle transactions in an autonomous, transparent and secure manner. Hence, at this critical juncture, it would be significantly impractical for governments to step in and overregulate the cryptocurrency sector. Minimal and efficient regulatory frameworks have helped the global cryptocurrency market to mature. For instance, Japan’s legalization of Bitcoin led to an explosive growth in demand for Bitcoin and other cryptocurrencies like Ripple and NEM.

Regulatory frameworks damaging to startups

However, Gulker explained that regulatory frameworks such as New York’s BitLicense can be damaging to startups both financially and in the technical sense. As regulatory frameworks like the NY BitLicense require startups to pay a large licensing fee and keep tight records of their users, they create difficult ecosystems for both small and large-scale startups. Even startups that have millions of users and that have secured millions of early-stage funding such as Shapeshift have suspended services in New York due to impractical regulations. Emphasizing the damage over-regulation from governments can inflict on startups and the global cryptocurrency industry,

Gulker wrote:

”Cryptocurrencies are still in a very early period of innovation and adoption. It would be a shame for a disproportionate amount of that innovative effort to go toward satisfying regulators’ demands rather than users’ wants and needs. The true risk lies in over-regulating cryptocurrencies now.”

Ultimately, Gulker noted that governments should take a wait-and-see approach instead and implement the practical yet minimal regulation on the Bitcoin and cryptocurrency industry. When the technology, market and industry start to evolve, governments can step in to regulate the market for general consumers and investors. “Those who believe in the benevolent power of such regulation should remember the inevitable rent-seeking behavior to which it leads, where businesses lobby government for favorable regulation. So it might be best for regulators to take a wait-and-see approach,” added Gulker.

One of the most widely utilized trading platforms

Bitcoin exchanges in South Africa including Luno, one of the most widely utilized trading platforms in the country, stated that Bitcoin earnings are taxable in South Africa. When trading, the exchange suggested users consult registered tax professionals to ensure that they are compliant with South African regulations.

Should the tax on Bitcoin be eliminated?

Most countries that have fully adopted and regulated Bitcoin such as Japan have eliminated the tax on Bitcoin trading. On April 1, Japan officially declared Bitcoin’s exemption from consumption tax and eliminated the possibility of double taxation on trading. Recently, the Australian government also exempted Bitcoin trading from goods and services tax (GST). “The Government has released a consultation paper on changing the GST treatment of digital currencies. This change will ensure that consumers are no longer ‘double taxed’ when using digital currencies to buy goods and services already subject to GST,” read the 2016 – 17 Budget Report of the Australian government.

In South Africa, however, Bitcoin trading is subjected to general principles of South African tax law. The South African Revenue Service stated that transactions or speculation in Bitcoin are subject to tax and should be taxed accordingly. The government institution further emphasized that it is the responsibility of both citizens and residents of South Africa to report relevant details to the South African Revenue Service. Former BitX Product Design Director and Blockchain investor Simon Dingle also stated that Bitcoin trading in South Africa could trigger a capital gains event and encouraged traders and investors to consult tax professionals before trading on South African exchanges.

“It may trigger a capital gains event, or could qualify as income for active traders. All assets are treated equally in terms of tax,” said Dingle. More to that, income received in Bitcoin and other digital currencies are taxed as conventional income tax. It is still unknown whether double taxation applies and, as a result, if users are subject to both income tax and capital gains tax. Additionally, Luno Head of Growth Werner van Rooyen stated that various factors could impact taxation on Bitcoin transactions and trading depending on the situation of users.

Rooyen stated:

”There are various factors that could impact taxes an individual owes to the tax authorities, The short answer is that all income is taxable in South Africa and it is the responsibility of individuals to remain tax compliant.”

Regulations and taxation policies

The Australian Treasury changed its regulations and taxation policies on Bitcoin after seeing a sharp decline in interest in Bitcoin and other digital currencies in the country. Exchanges that used to operate in the country have left Australia to other Bitcoin-friendly regions such as Singapore and Hong Kong. For that reason, the Australian Treasury removed the double taxation of Bitcoin.

As its report read:

“For digital currency, the current treatment under the GST means that consumers are ‘double taxed’ when using digital currency to purchase anything already subject to GST. The Government recognises that this treatment may be preventing the use of digital currencies and hindering their further development.”

Aggressive taxation policies on Bitcoin could also result in a delayed andlimited growth for the South African exchange market and Bitcoin industry. The South African government must consider the effect of double taxation and clarify the taxation policies that apply to Bitcoin and digital currencies.

South Korea is becoming a Bitcoin and Ethereum powerhouse

in terms of trading volumes, liquidity and activity. Over the past few months, South Korea’s three largest digital currency exchanges Bithumb, Korbit and Coinone have added support for Ethereum traders by integrating Ether. In a relatively short period of time, South Korea has become the largest Ethereum exchange market with a $335 mln daily trading volume and 38 percent market share. In fact, the ETH/KRW pair processes more trades than the ETH/BTC pair, which used to account for over 50 percent of all Ethereum trading.

The largest Bitcoin exchange markets in the world

South Korea has also become one of the largest Bitcoin exchange markets in the world. Although South Korea is currently the fourth largest Bitcoin exchange market behind the US, China and Japan, a month ago, its trading volume and market share was larger than China and Japan and secured its spot as the second-largest Bitcoin exchange market for awhile. South Korean investors within the cryptocurrency market are very easily moved and influenced by the media. Ethereum’s recent Enterprise Ethereum Alliance deals with large conglomerates such as Toyota and JPMorgan have further validated the value of Ethereum to more local investors and have shifted the trend from Bitcoin to Ethereum.

Eyes set on altcoin

More importantly, because Bitcoin has become a conservative asset amongst other cryptocurrencies, investors in South Korea have started to look into altcoins such as Ethereum and Ripple that are supported by local exchanges. Most South Korean exchanges are funded by multi-billion dollar corporations within the country. Korbit, South Korea’s second-largest exchange, is invested by SK Telecom, the largest telecommunications company in the country. Therefore, when exchanges add support for cryptocurrencies such as Ethereum and Ripple, immediately, investors dive into altcoins. Particularly, investors that believe they missed Bitcoin’s rally invest in altcoins for large short and mid-term gains.

The demand toward Bitcoin has increased to the point where there always exists a huge arbitrage opportunity for overseas traders. Bitcoin is being traded in South Korea with a premium price of $2,800. That is a 21 percent premium over the global average price and other major markets such as the US. While it is still possible to purchase Bitcoin outside of South Korea with other options such as credit cards to avoid premium rates, it is difficult to trade large amounts of Bitcoin without being flagged by anti-money laundering systems. If the current growth rate of the South Korean Bitcoin and Ethereum exchange markets can be sustained over the next few months, South Korea could become a powerhouse for both the Bitcoin and Ethereum markets.

The pioneer cryptocurrency Bitcoin crossed the $2,400 line

At 11:00 GMT+2 on Thursday, the pioneer cryptocurrency Bitcoin crossed the $2,400 line by appreciating 10.22 percent and recording a market price of $2,419. The aftermath of last weekend's panic has seen the price going up and down like a pendulum. But this morning robust growth has returned to the cryptocurrency ecosystem. There are talks of Chinese exchanges resuming withdrawals and if that is the case then it is a good omen for the industry. For almost four months now, Chinese exchanges have suspended Bitcoin and Litecoin withdrawals. This was supposed to last for just a month when the directive came from the People's Bank of China (PBoC) in February.

Top achievers

Moreover, the top 10 on CoinMarketCap is green with the only exception of Stratis, with the Blockchain application going down 9.14 percent. Ripple seems to be making amends with a grand 39.45 percent hike, being the biggest achiever at the elite altcoins club for the day. New Economic Movement (NEM) is not dim-witty either by attaining 20.93 percent. Dash is not relaxing after losing some points and it is up to an admirable 18.17 percentage score. Moreso, Monero and Litecoin appreciated more than 11 percent. Bytecoin brightens the bottom of the top 10 with a 10.97 percent growth rate. It is amiable to see Ethereum and his younger brother, Ethereum Classic managing the least gains of the day. They went up modest 1.78 and 0.07 percent respectively.

A bountiful weekend ahead?

There are talks about back to the winning ways in the community. For instance, there is a lot of optimism on various platforms especially Bitcoin Powpow. Are we heading for a weekend of bounty harvest with prices going up and cryptos bloating their market capitalization? Friday will tell if the current gains are sustained and improved upon. For now, the news is refreshing and just the opposite of what we went through last week. Let us hope the industry will end the week on a very good note.

Tax authorities across the globe have set their sights on Bitcoin traders.

The latest to join the set is the FBR (Federal Board of Revenue) in Pakistan.

Bitcoin in Pakistan

While Asian countries like Japan, China and South Korea have been in the news for people taking a fancy to Bitcoin, adoption in Pakistan has been low key. The first Bitcoin exchange in Pakistan, Urdubit, was established in 2014. There is tremendous potential for Bitcoin in Pakistan, with the country receiving remittances of $20 bln every year. Pakistan also has a vibrant freelance economy, with estimated revenue of $1 bln. Wider adoption of Bitcoin can bring efficiencies in both remittances and payment for online freelancing.

Windfall profits

The recent rapid increase in Bitcoin price has meant that Bitcoin investors were able to reap windfall profits. Not all of them declare this income, resulting in scrutiny from tax authorities. In the US, the IRS served a John Doe summons to Coinbase, asking it to hand over details of US customer transactions. The IRS had sought details of customer transactions between 2013 to 2015, much before the current bull rally.

In Pakistan, the volume of Bitcoin transactions has recently increased, leading to the intelligence department of the FBR launching an investigation. The objectives of the FBR are two-fold – detect cases of tax evasion as well as money laundering. According to tax officials, major traders of Bitcoin have not reported their business profits to tax authorities and hence a summons has been issued.

Cracking down

The State Bank of Pakistan does not recognize cryptocurrencies, including Bitcoin. Cryptocurrencies are traded as commodities and the government has not shown any indication that it would either regulate or impede cryptocurrency transactions. The focus of the current government action seems to be restricted to cracking down on cases of money laundering and tax evasion. The government will find it tough to restrict its people from purchasing a deflationary currency when the average rate of inflation in Pakistan during the last 60 years is 7.8 percent.