It’s no doubt that in the last year cryptocurrency prices have been on a volatile ride. Even the most stable of cryptocurrencies, Bitcoin, which managed to fall in value by as much $2000 in one day in November last year has now gained more than 15% in the last week. Nevertheless, the popularity of cryptocurrencies continues to rise and with it comes the question of whether trustees of a Self-Managed Super Fund (SMSF) can and should invest in them.

Read more: Thinking of Investing in cryptocurrencies via your Self-Managed Super Fund?

Author: Corey McLaughlin

Although they’ve been around since 2008, cryptocurrencies continue to draw fascination from every corner of the globe, making their way into TV news reports, investor meetings and even cocktail party conversations. But what are they? How do they work? And do they represent the future of a digital, cashless society?

This innovative asset class presents many opportunities and, along with it, significant risks. One thing is for certain: some embrace cryptocurrencies, some do not and some still don’t understand the idea enough to choose a side. Below are a few basic questions and answers to help remove some of the mystery surrounding these “new” currencies.

Read more: Understanding Cryptocurrencies and Their Place in Our World

With the boom of virtual currencies over that past few years, practitioners are seeing an increase in the number of questions relating to the taxation of these investments. One very common question asked by current and potential virtual currency fund managers: Can my investors and I contribute appreciated virtual currency assets into my pooled investment partnership/hedge fund tax deferred?

While virtual currencies are thought of by many as cash or currency, they are in fact viewed by the Internal Revenue Service more similarly to securities (specifically property) and are therefore generally subject to capital gain/loss tax treatment. In 2014, the IRS issued Notice 2014-21, which addressed the tax treatment of Bitcoin and other virtual currency transactions. In the notice, the IRS concluded that Bitcoin and other virtual currencies are to be treated as property for tax purposes, and as such, general tax principles associated with the sale or exchange of property apply to all virtual currencies. It is also specifically noted that virtual currency is not defined as “foreign currency” for tax purposes.

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In the fourth quarter of 2017, financial services and technology news was dominated by the topic of cryptocurrency, with considerable attention given to Bitcoin. Large international investors, hedge funds, and small individual investors alike all watched as the value of Bitcoin skyrocketed, reaching nearly $20,000 in mid-December. The rapid increase in value was so dramatic that many individuals decided to either invest in or build their own cryptocurrency mining platforms in an attempt to cash in on the digital gold rush.

However, cybercriminals also started to pay more attention to cryptocurrencies and began looking for more sophisticated ways to profit from the increase in those currencies’ values. In fact, in 2017 there was a dramatic increase in ransomware activity, with criminals demanding payment in cryptocurrency.

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Author: Michelle Chopper

If you are in the cryptocurrency space, many of you are either launching a new fund or preparing for the calendar year-end audit cycle now in full swing. We know you’re busy, yet we need to interrupt you for just a moment and draw your attention to one specific issue of immediate urgency to help ensure your crypto fund can be audited effectively: Making sure your investments and transactions are properly documented so they can be independently verified.

Why is this important? Let’s take a step back first. The fundamental purpose of a financial statement audit is to provide investors with independent verification that the financial statements report fairly the value and financial results of their investment. Auditing financial statements is a systematic process of objectively obtaining and evaluating evidence regarding that value and those results. Cryptocurrency funds have a variety of unique audit considerations due to the new and emerging technology surrounding digital assets. However, the objectives of a crypto fund audit are the same as any investment fund.

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