Interest in cryptocurrency among consumers, businesses, and everyday investors exploded in 2017 as the price of a Bitcoin rose from less than $1,000 per unit to nearly $ 20,000 in 12 months.
Of course, today the price has stabilized to some extent, and a host of new blockchain-based currencies have been launched and continue to be developed, some with very specific transactional and investment goals.
As cryptocurrencies evolve and their numbers grow, large and small online retailers in the US and globally need to assess whether they should get on this semi-regulated digital train. And if yes, how.
At the same time, other types of organizations, from money management firms to nonprofit fundraising groups, are examining how best to incorporate the use of cryptocurrency into their operational strategies.
How can you determine if your business needs to embrace this new frontier? Perhaps the best way to start is to examine the impact of cryptocurrency on your business at the bottom line. Here’s a closer look at some key areas where digital currencies offer potential benefits and risks.
Reduced transaction fees
If your business is considering accepting cryptocurrencies (a particular currency or multiple forms) in exchange for your products or services, one of the potential benefits is that there usually won’t be any direct processing fees.
Unlike credit card transactions, where banks act as intermediaries and charge fees, cryptocurrencies are decentralized, which means transactions do not have third-party involvement.
Coins and tokens are not developed or controlled by a single authority like a currency issued by a sovereign government but work directly through blockchain technology. If you are a merchant selling online, you will likely need to pay a small lump sum for your merchant account or wallet accounts, like BitPay or CoinPayments, which allow you to accept certain cryptocurrencies.
Cryptocurrency transactions happen almost immediately, unlike credit card payments which can take days to clear. As a result, you will have access to coin payments within minutes. All of this translates into greater financial security for your business.
Better customer access
With more consumers and business customers showing interest in cryptocurrency, offering coin payment options can increase your buyer audience. Since the digital currency is non-government, it is by definition international, meaning your business could see an increase in its global customer base, especially as its use grows.
The cryptocurrency of course does not have an exchange rate or cross-border fees and therefore is theoretically the ideal medium for conducting global business.
Currently, fewer B2B organizations, including professional service companies, and more B2C companies are accepting or paying with cryptocurrency, but this trend is likely to change as the market evolves. Ultimately, by simply accepting cryptocurrency payments, you can increase your bottom line by attracting new customers.
Volatility in value
Cryptocurrencies are notoriously volatile, which makes them attractive to investors looking for high pay through high risk, but also potentially dangerous for businesses that accept them as a form of payment.
Imagine if a customer pays you in Bitcoin, then after the transaction, the value goes down – which is very common.
For many traders, the problem of volatility is alleviated by the fact that merchant wallet accounts offer immediate conversion into fiat currency. Unless a crash occurs within seconds of payment and acceptance, most businesses are protected from volatility.
For this reason, most actually choose to automatically convert payments to fiat. Companies that hold payments and income in the form of cryptocurrency are essentially taking the risk of investing in coins.
Lack of regulation
Cryptocurrency is still relatively new, and as a result, governments around the world have issued limited and different regulations. Some countries, especially the small country of Lichtenstein, have acted aggressively to adopt and promote cryptocurrency with financial incentives designed to strengthen stability and regulatory assurance for those who use and invest in the currency.
But overall, there is a general lack of regulation, including here in the United States, which can lead to uncertainty for businesses dealing in cryptocurrency, including uncertainty over types of taxes and investment limits. that may be imposed in the future.
Tax and accounting challenges
Companies that accept or invest in cryptocurrency will need to make the effort to understand the changing regulatory environment and will also need to take into account the tax and accounting tasks that will be required of them.
In 2014, the IRS issued IRS Notice 2014-21, which stated that for income tax purposes in the United States, a cryptocurrency is a property, not currency. This means the cryptocurrency can either be a commercial property, investment property, or any other property. Therefore, general US tax principles that apply to any real estate transaction should be applied to cryptocurrency exchanges.
Cryptocurrencies held for investment purposes and sold for gain are subject to short-term or long-term capital gains tax. Conversely, cryptocurrencies held by investments sold for a loss can use a capital loss.
The IRS notice, however, does not resolve all issues with reporting requirements or taxation. Some of the unresolved issues include reporting foreign accounts, cryptocurrency as a “like-for-like” exchange, and taxation of crypto forks.
To keep up with the complex and evolving regulatory environment, as well as to understand the full range of financial implications of using, accepting, or investing in cryptocurrency, you would do well to start by talking to your financial and tax advisors today.
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