Alternative cryptocurrencies and the price of ether continue to bleed this week, as traders position themselves for what could be the biggest event trade in cryptocurrency history: a change in the Bitcoin software.
On July 21, a new type of software called SegWit2x will be rolled out and, depending on which Bitcoin miners – those with the computing power to verify the legitimacy of the blockchain – accept it, Bitcoin could be in for some serious price adjustments.
Bitcoin slumped 4.5 per cent to $US2,520 a coin on Tuesday, with its fellow crypto-assets suffering a much more pronounced selloff.
Ether, which enjoyed a hefty bull run last month, has been in virtual freefall, plummeting 8 per cent on Tuesday, extending a a 22 per cent fall in the last week.
Ethereum is a blockchain network allowing the transference of smart contracts; these contracts are legitimised by the ether token. From a high of $US414, ether is currently fetching $US224 a token.
“People are getting the hell out of ether at the moment, they don’t really know how this software fork will play out,” said one trader.
SegWit2x is a software compromise between two warring factions within the cryptocurrency community.
It is an extension in the size of the blockchain – a digital ledger that has struggled to cope with the increasing number of transactions and seen processing fees soar – and also paves the way for some of the workload to be spread across other, emerging protocols.
But whether or not miners – mostly Chinese firms with multimillion-dollar server farms – will agree to run the software is what has traders on edge. These miners argue a simple increase of the blockchain size is enough to solve the transaction bottleneck, but a group of core developers – imaginatively called Core Group – insist the cap on blockchain traffic is what keeps the network safe from cyber hacks.
Additionally, Core says, if some of the data is managed on other, emerging protocols, new projects could develop and further the exploration of the cryptocurrency ecosystem.
Miners have been vocally reluctant about the plan, mostly because a move to other protocols would ultimately diminish their influence and put at risk the millions of dollars they’ve invested to support the blockchain and verify its transactions.
SegWit2x is a compromise for both parties, an increase and a slight data re-distribution, but whether it is taken up by all parties remains to be seen. Some miners may ignore the update and continue to run the original software.
Should this happen, the Core developers will run an agenda called UASF (user activated soft fork) from August 1, which will reject transactions not compliant with SegWit.
If there are large volumes of rejected transactions, then a split in the Bitcoin currency is likely to occur.
If this happens, there will be two blockchains with two bitcoins operating in parallel and the expectation is traders will rapidly reprice the value of both, a move expected to prompt extreme volatility.
How To Use a Tax Free Offshore Company To Trade Cryptocurrencies
Cryptocurrency Trading is an activity which lends itself well to an Offshore Corporate Structuring Plan.
To summarise how it would work (assuming you intend to trade your own money or borrowed money) is:
- You set up a zero tax International Business Company (“IBC”)
- The IBC opens an account with the Cryptocurrency Exchange/s
- You are appointed as the IBC’s authorised trader (ie you place the buy and sell orders on behalf of the company)
- For all intents and purposes the IBCs trading profits are generated in a nil tax environment tax free/offshore (ie provided the IBC Is structured properly)
- When you need some living/spending money the IBC pays you a wage, or consulting fees or a commission (eg a percentage of trading profits generated)
- That living/spending money can be paid to your local bank account (which means it would be assessable income wherever you are tax resident though you should also be able to claim a sizeable amount of allowable deductions eg for home office, car, equipment, insurances, travel, stationary etc etc to reduce the amount of your “taxable” income at home)
- If you don’t want the authorities to know how much money you are earning by way of wages you could use an anonymous ATM or Debit/VISA card to withdraw your wages from an Auto Tele Machine
- The majority of trading profits could be reinvested Offshore potentially tax free.
How To Fund Your Tax Free Offshore Company (“IBC”)
Depending on your individual situation there are several ways to fund an IBC:
- You could set up a dual structure (ie an Offshore Company the shares of which are held by an Offshore Private Foundation). You would set up the Foundation in such a way so that it appears to be a Charitable Foundation and then make regular donations to the Foundation (which would then transfer that money to the IBC eg as share capital).
- Set up 2 International Business Companies Offshore (ie “IBCs”). The first IBC you would enter into a speculative (eg high risk/potentially high return) general (long term) investment with. This IBC would then invest money with your trading IBC. The investment with the first IBC could be structured in such a way as to ensure that you won’t be paid a return on that investment for quite a while. If the local Revenue Authority ever asks meantime whatever happened to the money you would just tell them I’m not yet entitled to a return.
- Convert your local money into bitcoins. Transfer ownership of the bitcoins to the IBC. Have the IBC convert the bitcoins into hard currency which the IBC would then use to invest in whatever.
- Engage a lawyer to do Due Diligence on the Offshore Company or Foundation you intend to send money to. Whilst he’s making inquiries to confirm that the entity exists etc, (as you might do prior to a real estate purchase) you park the money you intend to invest in the Lawyer’s Trust/Client/Escrow Account. Once he’s completed his inquiries you instruct the Lawyer to send the funds from his Trust/Client/Escrow account to the Offshore Company or Foundation’s Bank Account
- “Gift” the money to a family member (or close friend) overseas and then have that family member transfer the money to your Offshore Company
- If you are holding funds in your own name you could set up a personal account Offshore and then transfer the money from your Onshore bank account to your Offshore Bank Account. Same could be done in the case of funds being held in a Company account onshore (ie you set up an Offshore Privacy Haven Account in the name of your local Company and have funds transferred from the Company’s Onshore account to your Company’s Offshore account. If you open the account in the right place, onshore predators will really struggle to find out where the money went once it landed offshore.
- You could set up your IBC as an Investment Company and enter into an arms’ length general investment agreement (or loan agreement) with the IBC on commercial terms. Provided the IBC is incorporated in a Privacy Haven (and in a country which does not have a TIEA with your home country) no one should ever know that you actually own the IBC.
- You could withdraw your money from the bank in cash, use that cash to buy something of great value which is easily transportable (eg jewelry, gemstones, watches, an artwork/s, collectibles etc) fly overseas with these items (ideally to the country where your Offshore Company has its bank account), sell them to a broker or privately whilst abroad and then deposit that money into your Offshore Company’s Bank Account.
- If you are an online trader (eg Forex/Commodities/Derivatives/Share Trader) you could open a Brokerage Account in your own name, transfer funds to your personal brokerage account, then open a Brokerage Account (with the same broker) in the name of your Offshore Company and move monies (as an internal transfer, ie beyond the view of “onshore” authorities) from your personal Brokerage account to the Company’s Brokerage account.
Local laws can have an impact. Hence it would be wise to seek local tax/legal advice before committing to embark on such an endeavour.