Three Key Points for Digital Asset Investors
Did you know that even ‘crypto millionaires’ need to maintain high liquidity in government-backed currencies? Or that digital assets worth millions are lost each year after the owner’s death? These are just some of the many things that one must consider when investing in the digital assets space.
For investors, keeping up with the fast pace of the crypto world can be difficult and thus, there are three main points to consider from a wealth planning perspective – whether you’re starting to consider investing in digital assets, or if they are already a part of your portfolio.
1. Taxation
While for a long time it was not clear how digital assets needed to be reported and taxed, now a lot of countries are releasing different approaches for how to tax digital assets. There are two main options: either a jurisdiction is integrating digital assets in its existing taxation law, or they are creating a new law for digital assets. Be it as private investor, as a business or even mining and staking activities, navigating different tax regimes can be confusing to say the least. Another interesting aspect is the taxation impact on the location of the digital assets. If the digital asset is stored in a country abroad it can have a different tax impact compared to digital assets stored on a hardware wallet at home.
2. Succession Planning
Digital assets worth millions are lost every year due to a lack of succession planning. No one lives forever – so it is vital that you think about who currently has access to your crypto wallet and how can you ensure that the right people can access these funds in the event of your death. Planning in advance is important. If the digital assets are stored in a self-custody solution, it is important to pass on information on how to access the funds and where the right people can find the necessary access details. If your digital assets are stored in a third-party custody wallet, the custody provider has access to the funds, and it can be securely passed on by law or by including it in a will.
Either way, it is important to think about the future and how to protect your digital assets from being lost in the digital world.
3. Financial Planning
Financial planning is not something you can forget about when investing in digital assets. In line with traditional financial planning principles, there are several aspects to be considered, specifically liquidity management. Taxes, as for example income taxes from digital assets-related activities such as staking, mining or lending, are often due in fiat currencies. Even the very fortunate ‘crypto millionaires’ in the digital space must remember that taxes on their wealth still need to be supported by sufficient fiat liquidity.
At Julius Baer, we look at how we can best connect the traditional finance industry, which is strictly regulated, with the new innovative world, in which regulations are constantly emerging.
However, analysis of rules only goes so far. Every investor is, simply put, as unique as a digital asset token, and every situation requires careful consideration and the right support and knowledge.
As the role of digital assets evolves and becomes a larger part of our lives, education and general knowledge regarding challenges and opportunities of this fascinating new world will hopefully become commonplace. After all, how we invest today is how we live tomorrow.
About the Author
Authored by Julius Baer
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