Cryptocurrencies and their effect on the small investor

TECHNOLOGICAL EVOLUTION

Technologies advance and their practical applications are implemented in a multitude of fields and economic sectors.

Consumption habits change, new products and services are generated, new markets are detected and new applications are developed that, in turn, feed back these new avant-garde ideas. For this reason, traditional business models evolve thanks to the use of these new technologies.

This is a corollary of a globalized and dynamic world, where the business models prevailing decades ago are constantly altered, because science and the business world increasingly go hand in hand, that is why it is so important to invest in R&D + I (research, development and innovation)

As examples of these disquisitions, we can talk about the fifth range of food products, the digital conversion of retail banking, the development of space tourism trips, automated vehicle driving and the reconversion of the thousands of jobs that are pending a thread for the implementation of robotics….

WHAT ARE THEY REALLY?

In this article we are going to deal with the incipient topic of cryptocurrencies, that is, digital assets that do not have any physical support such as legal tender currencies do.

First of all I would like to clarify that this one who subscribes is a layman in everything related to the already very famous cryptocurrencies, but that he inevitably knows that he must be up to date on these investment instruments due to their fiscal and tax implications.

Who has not heard of the “high returns-volatilities” that Bitcoin and other cryptocurrencies provide?

To be brief, we are faced with a means of payment not officially recognized, in digital format, whose existence consists of a code generated and encrypted, through software, which is registered in a single registry and "invulnerable" to any hacking, called blockchain and that allows the realization of economic transactions between agents, as if it were an official currency.

The fundamental principle underlying this asset is to allow payment and collection in a currency accepted by the parties and that avoids the costs associated with intermediaries by using new technological channels for them with the maximum possible security.

WHAT ARE YOUR ADVANTAGES?

Among its advantages are that it allows the execution of immediate transactions, in anonymity, without commission from bank intermediaries, or commissions for currency exchange.

Legally, it is an unconfiscable asset by public or private creditors, which facilitates the evasion of fraudsters (this aspect will foreseeably be taken into account by the regulators)

It has developed so much that there are currently derivative instruments, such as CFDs (contract for difference or contracts for differences) or “tokens” on this type of assets.

DISADVANTAGES

They also have numerous disadvantages: as it is an unregulated means of payment, it is not an official means of payment, which entails a large component of uncertainty.

Short speculation is a fundamental element in the variation of its value.

Its price is established by the interaction of the supply and aggregate demand of the participating agents, in a market that, the authorities say, may be manipulated, since there are no market mechanisms to prevent such manipulation, nor is there any official public information. that supports that price formation, as is the case in the stock markets.

They carry a high market risk, since, being a novel market (early 2009) technological and without regulation, its future is uncertain, investors do not foresee how it could affect its future behavior, given the establishment of regulatory measures. In Europe, there is a draft Regulation called MICA that will establish a regulatory framework for these encrypted currencies.

Your operational risk, since this type of coin requires having a password and an electronic purse. The loss of the password, for example, makes it impossible to access the funds and therefore leads to their automatic loss since they cannot be accessed again without that password.
This loss also occurs, if we send the money to an incorrect wallet address or send the money through a wrong network, because this system records the transaction and does not allow its cancellation.

Nor is it backed by any public or private entity, be it a State, Central Bank or underlying asset such as gold. In fact, there are numerous recommendations from public regulatory entities that recommend not investing in this type of assets given their fickle and unstable nature (read the CNMV report).

AND IN THE REAL ESTATE MARKET?

Well, this type of payment "currency" has also landed in the real estate world, as an investment alternative.

Let's think that as long as two parties freely agree to carry out the transaction through cryptocurrency, there will be no problem.

Some may be interested in it for reasons of changing the investment strategy (that is, a buyer who has a capital invested in this currency and who after a while wants to change to a less volatile asset) or simply to increase their put options (a seller that he has no urgency to undo positions, that he accepts the cryptocurrency in exchange for a premium; also for diversifying his portfolio of assets or saving the cost of converting into the currency).

Once the operation in this currency has been accepted, a countervalue of the cryptocurrency must be established with reference to the euro on a certain date (we assume that we are in Spain) and be recorded in the notarial deed for the purposes of paying taxes. corresponding and notarial fees. Likewise, the seller must present the corresponding self-assessments for the Capital Gain.

In our next article we will explain in more detail all the operations in the purchase of a home with this type of currency and the tax treatment.

CONCLUSION

In my opinion, we are facing a technological revolution produced by the private sector, which "usurps" the monopoly of the monetary policy of the States, Central Banks and Private Banks and for this reason, they are very reluctant to accept their existence, so they are expected to impose all possible legal obstacles.

On the other hand, in order to "theoretically" ensure the protection of the investor, it is true that there must be an entity or entities that arbitrate, regulate and control these markets and that provide truthful information in the formation of prices and security to agents, which would facilitate the consolidation of these currencies.

Currently there are many companies that accept payment through them, so I understand that their use will be normalized and their number of users will increase exponentially; like everything in life, it is a matter of time ... evolution is unstoppable.