Last Updated on Dec 15, 2021 at 09:32
Some would argue that the cryptosystem is so detached from the mainstream financial system that it would negate economic relevance. Perhaps
By Shantun Parmar
Last Updated on Dec 15, 2021 at 09:32
Some would argue that the cryptosystem is so detached from the mainstream financial system that it would negate economic relevance. Perhaps that would be true several years ago, but not in this modern age when the crypto world has become integrated with local commercial activities. Learn how cryptocurrency trading has become more relevant through the years.
Did You Know That?
Since it is unregulated, you may assume that the crypto ecosystem has its own bubble completely detached from the local economy. It is free from government intervention, so you can expect an autonomous system running on its own set of rules. Fair enough, it has managed to impose some self-regulatory measures to be able to promote the safety and security of crypto transactions. These are meant to keep the system free from threats involving cyber-attacks.
However, it was not intended to be entirely detached from the local economy. You might have heard about the story of Bitcoin before. It appears that the first cryptocurrency was developed as an alternative medium of exchange for those who cannot afford to open a bank account. Although banks would keep their doors wide open to new clients, some are still unable to qualify considering the documentary requirements and minimum maintaining balance. This is the reason why the founder of the first cryptocurrency came up with the crypto market.
It is noteworthy that the first crypto transaction involves the purchase of pizza. In case you are curious, the crypto coin was used to buy some classic Pepperoni pizza from Papa John’s. The interesting story was revealed by a developer in a gathering. The cryptocurrency was not really used to pay for a pizza at the famous restaurant. Instead, it was used as compensation to the person who took the bet of ordering some pizza for someone willing to transfer $60 worth of Bitcoin. At least now we know that cryptocurrency somehow contributed to local economic growth.
Moving On with the Transition
While the first cryptocurrency was intended to be a medium of exchange, it was not meant to stay that way. The price behaviour became so fluid that the crypto coin has turned into a profitable investment unit. From a crypto coin valued at less than a dollar, particularly $0.0008, it is now worth $3 million. It was a huge leap from more than a decade ago. No wonder many early investors became millionaires or even billionaires along the way.
The thing about the transition is that money would be withdrawn from the system. When you use your cash to buy some coins, you would have less cash spent on your day to day activities. And this might be true for a long time, depending on the holdover period. Imagine you might not be able to touch your coins for several months or even several years. Initially, you would infer that the coins tucked away from the financial market would lessen economic activities.
Be that as it may, it is not what it seems. Remember that when you purchase those coins, say through a crypto trading platform such as Bitcoin Superstar, you would be paying some cash from your bank account. Now the case will be credited to the account of the crypto exchange. The amount of cash, regardless of value, is expected to be disposed of by the trading enterprise to some financially viable economic activities. There is virtually no amount of money that would remain stagnant. These crypto exchange operators are not likely to keep the cash devoid of earnings.
There Would Always Be Taxes
So you might think that the government will have nothing to do with the crypto market considering its unregulated nature. Well, you are wrong. The state will not let those investors get away with their realised income without giving back to the national coffers, at least in the form of taxes. You are still expected to pay your dues from your gains. That means you still have to pay your dues from earning some coins in your crypto wallet.
What are those crypto gains? The basis for your taxes would be the gains realised from buying and selling your coins. Technically, this would refer to your income from trading cryptocurrencies. The difference between the buying and the selling prices would be the amount of gain, which is also your passive income. This would be the basis in computing your taxes due.
Remember that your crypto coins are still considered assets. They are intangible assets that are capable of generating income. It is for this reason that you will have to pay taxes when you trade your Ether coin or your Dogecoin. Any income derived from the transaction would be subject to taxes. Nonetheless, you can always use any loss to your advantage in case you incur any. Most states would allow losses as a deduction from the income tax due. It would not hurt to use this as a consolation in case you were not able to realise anything from your latest crypto trading activity.
Integration in the Formal Economy
As more and more people have been drawn into the crypto market, the relevance of cryptocurrencies in daily transactions has become more and more evident. Individual investors can make use of their crypto coins to engage in personal transactions. For instance, one may loan some crypto coins to another who would later pay in cash. The coins may also be used in barter transactions involving some tangible items.
Corporate crypto investors have also made it easier for their customers to pay using their crypto coins. You may want to recall that Tesla once allowed payment for purchases of its products through Bitcoin. Some local stores are also accepting payment through cryptocurrencies, such as Starbucks. Yes, you can buy your daily cup of coffee using your crypto wallet. There is no need to use your cash on hand, which you might have reserved for your cab.
With major banks now offering crypto services, there is a good chance that the crypto market will be embraced even by those who were initially sceptical. This would make the crypto world accessible to traditional financial investors. Banking institutions will find ways to make crypto investing activity easier for their clients.
This is not financial advice. This time you will have an idea of how the crypt market has become relevant to the local economy. The transition did take several years. Still, everything paid off well.
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