Autor Cointelegraph By Elias Ahonen

Journeys: Hervé Larren on Bitcoin, Apes and the psychology of ‘blue-chip’ NFTs

During a period of hyperinflation in 2013, “my Venezuelan mother asked me to send money to Caracas, the country’s capital,” Hervé Larren recalls. However, bank transfers were not possible between the two countries. 

Busy with work in New York, he told a friend that he planned to fly to Caracas — carrying cash for his mother — and return the same day. “Why don’t you just send Bitcoin?” his friend asked, which quickly led to a change of plans as Larren made his first Bitcoin transfer.

“My first crypto transaction, in 2013, was to wire Bitcoin from the U.S. to Venezuela. Due to the economic collapse, there was no functioning banking system between these two countries.”

Switching from a career with luxury goods company LVMH Moët Hennessy Louis Vuitton, Larren co-founded a large-scale crypto mining operation and worked with Grayscale to bring crypto assets to old-school investors. He later became a key adviser to ApeCoin and the first person to bid a million dollars for a nonfungible token.

From old to new

“We were reporting to Nicolas Sarkozy, and he was coming to our meetings,” Larren recalls of his time as the head of a high school student council in Neuilly-sur-Seine, the wealthiest old-money suburb of Paris, where he grew up. 

Sarkozy served as the local mayor for 20 years before becoming the president of France. Larren’s mother — from Venezuela — was a TV host and the first Latina model signed by the L’Oreal cosmetics brand. His French father imported wine to Canada,  where a third of the population is French-speaking.

In the late 90s, Larren began undergraduate business studies at Montreal’s Concordia University. In 2019, Concordia labeled him “The Blockchain Maven” as part of a “50 Under 50” alumni distinction. Upon graduation, he got a job at Moët Hennessy’s New York office, where he worked on brand development of the firm’s Hennessy cognac brand in the United States.

Larren worked on his MBA at Columbia University part time while at LVMH, graduating in 2010 and entering the venture capital world with Peak Ventures, which “was involved in tech companies including Twitter.” It was Larren’s first experience in the technology sector, which he describes as very different from the old-world, intergenerational luxury goods industry.

Larren quickly moved to accept Bitcoin at an e-commerce business he was involved with, a company that helped charities raise money by partnering with celebrities. In 2015, he formed crypto mining firm Global Crypto Ventures, which grew into an operation of nearly 3,000 machines composed primarily of Bitmain Antminer S9 miners in Las Vegas and Texas, where “the cost of infrastructure and electricity was cheaper.” 

Larren at his mining facility. (Hervé Larren)

Grayscale Digital Large Cap Fund 

While speaking at the 2017 World Technology Forum in New York, Larren met Digital Currency Group CEO Barry Silbert, who was talking right after him about the Grayscale Bitcoin Trust, through which retail investors could get exposure to Bitcoin through their brokerage. He was also working on a new investment vehicle called Grayscale Digital Large Cap Fund (GDLC), which represented a weighted portfolio of cryptocurrencies, including Ether, MATIC, ADA and SOL, in addition to Bitcoin. 

As a publicly traded investment instrument, it would require approval by the Securities and Exchange Commission. One relevant matter would be to ensure that the fund could buy its digital assets from a trusted source, preferably from within the United States. Larren’s mining firm was an ideal source, and having a ready buyer for mining proceeds made business smoother.

This opportunity represented Larren’s first foray into crypto beyond Bitcoin, and it “attracted me to a new space.”

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Bitcoin 2023 in Miami comes to grips with ‘shitcoins on Bitcoin’

Among the more memorable displays at Bitcoin 2023 is a real-life toilet with the logos of various non-Bitcoin cryptocurrencies. It’s an ad for a booth selling “buttwipes” that are “moistened with the tears of no-coiners.” The marketing message is clear: Bitcoin is the real thing — everything else is a shitcoin that belongs in the toilet. 

But only a few steps away is another booth selling trading solutions for BRC-20 tokens, which some have labeled shitcoins for Bitcoin. Across the walkway are more booths slinging NFT minting software — also on Bitcoin. The conference even hosts a Bitcoin NFT art gallery. 

As Miami hosts the largest Bitcoin conference for the third year in a row in May, the air feels markedly different. Though there are only 15,000 attendees compared to last year’s 35,000, the atmosphere has an energy and freshness that’s a world away from the gloom and bear-market blues that one might expect after the massive drops from the 2021 highs.

Bitcoin is the real thing — everything else belongs in the toilet (Elias Ahonen)

What’s changed this year is the ordinal renaissance, brought on by the recent reality of not only NFTs but tokens being issued on the Bitcoin blockchain. There are certainly haters — with some calling for a fork to undo the Taproot updates that made “spam” possible on the chain. 

But despite the Bitcoin community’s traditional hatred for NFTs, tokens and DeFi, however, things are surprisingly quiet. Despite the blowback online, almost no one Magazine encounters at Bitcoin 2023 has anything particularly bad to say about Ordinals — and some did not even realize they are related to Bitcoin. 

Among old-school Bitcoiners — in circles where the cryptocurrency that starts with “E” can barely be mentioned without drawing comments of derision regarding “monkey pictures” and scam coins — the Ordinal NFT phenomenon is decisively met with a quiet acceptance or shrug. Most old-timers aren’t interested but appear to accept that this is what the “young people” want today — that Bitcoin needs to change with the times. 

Are Bitcoiners quietly accepting a new era where the network takes on a radically new role in the Web3 ecosystem, or is this the calm before the Bitcoin purist storm? 

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$3.4B of Bitcoin in a popcorn tin: The Silk Road hacker’s story

Where would you hide $3.4 billion worth of Bitcoin? For James Zhong, the ideal spot was to store it on a computer — with its circuitry exposed — placed in a used Cheetos popcorn tin hidden in a bathroom closet under a pile of blankets.

Zhong, now 32, was sentenced to a year in federal prison last month for a hack that took place almost 11 years ago. His victim? Ross Ulbricht, the proprietor of the Silk Road dark web drug marketplace where Bitcoin found its first significant use case, as an underground currency. Today, Ulbricht is himself serving two life sentences plus 40 years for his part in operating the illegal marketplace, but darknet markets continue to flourish.

Somewhat ironically, billionaire Zhong was caught due to a transfer of just $1,000 worth of BTC to an address he’d used previously.

Prosecutors stated that Zhong spent lavishly on luxuries. (Zhong’s social media)

Lifestyle of a crypto billionaire

How much is $3.4 billion? One could build another Burj Khalifa — the world’s tallest tower, located in Dubai ($1.5 billion) — and make the winning bid on Leonardo da Vinci’s “Salvator Mundi” — the most expensive painting ever sold ($450 million) — and still have over a billion left over to purchase a sports team, yacht and fleet of private jets. It’s almost beyond comprehension.

The computer containing most of Zhong’s Bitcoin, found in a popcorn tin. (United States Department of Justice)

But Zhong lived in the American city of Gainesville, Georgia, where around $1 million is enough to purchase the luxurious four-bedroom lakefront property he called home. According to some sources, gaining attention from women was among the key motivations of Zhong — who is autistic and was reportedly bullied in school. Court documents hint at his lavish lifestyle:

“Indeed, in the 51 months before law enforcement’s overt search of Zhong’s residences, Zhong dissipated approximately $16 million of crime proceeds, spending lavishly on real estate investments, luxury products, travel, hotels, nightclubs, and other expenses.”

If his online posts are anything to go by, Zhong can also be said to have been something of a party animal, using cocaine on weekends and bragging about being drunk while keeping an eye on the markets. Perhaps this comes with the territory of stealing billions from a drug kingpin.

Zhong memed about his party habits on the Bitcointalk forum.

All this was presumably financed with the roughly 2,900 BTC that the government did not recover from his theft. Zhong stole 50,000 BTC and converted his free Bitcoin Cash into another 3,500 BTC. However, only 50,591 BTC was seized.

Silk Road

Where did all this begin? Possibly with a Bitcointalk user named Teppy, who in June 2010 made a post titled “A Heroin Store” outlining “a thought experiment about how a heroin store might operate, accepting Bitcoins, and ending drug prohibition in the process.” The post connected Bitcoin to libertarianism and suggested that this would enable the new currency to become “truly disruptive.”It was a cutting-edge concept. “Pizza Day,” which saw Bitcoin exchanged for real-world goods for the first time — a pair of pizzas for 10,000 BTC — had happened just three weeks prior.

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$3.4B of Bitcoin in a popcorn tin: The Silk Road hacker’s story

Where would you hide $3.4 billion worth of Bitcoin? For James Zhong, the ideal spot was to store it on a computer — with its circuitry exposed — placed in a used Cheetos popcorn tin hidden in a bathroom closet under a pile of blankets.

Zhong, now 32, was sentenced to a year in federal prison last month for a hack that took place almost 11 years ago. His victim? Ross Ulbricht, the proprietor of the Silk Road dark web drug marketplace where Bitcoin found its first significant use case, as an underground currency. Today, Ulbricht is himself serving two life sentences plus 40 years for his part in operating the illegal marketplace, but darknet markets continue to flourish.

Somewhat ironically, billionaire Zhong was caught due to a transfer of just $1,000 worth of BTC to an address he’d used previously.

Prosecutors stated that Zhong spent lavishly on luxuries. (Zhong’s social media)

Lifestyle of a crypto billionaire

How much is $3.4 billion? One could build another Burj Khalifa — the world’s tallest tower, located in Dubai ($1.5 billion) — and make the winning bid on Leonardo da Vinci’s “Salvator Mundi” — the most expensive painting ever sold ($450 million) — and still have over a billion left over to purchase a sports team, yacht and fleet of private jets. It’s almost beyond comprehension.

The computer containing most of Zhong’s Bitcoin, found in a popcorn tin. (United States Department of Justice)

But Zhong lived in the American city of Gainesville, Georgia, where around $1 million is enough to purchase the luxurious four-bedroom lakefront property he called home. According to some sources, gaining attention from women was among the key motivations of Zhong — who is autistic and was reportedly bullied in school. Court documents hint at his lavish lifestyle:

“Indeed, in the 51 months before law enforcement’s overt search of Zhong’s residences, Zhong dissipated approximately $16 million of crime proceeds, spending lavishly on real estate investments, luxury products, travel, hotels, nightclubs, and other expenses.”

If his online posts are anything to go by, Zhong can also be said to have been something of a party animal, using cocaine on weekends and bragging about being drunk while keeping an eye on the markets. Perhaps this comes with the territory of stealing billions from a drug kingpin.

Zhong memed about his party habits on the Bitcointalk forum.

All this was presumably financed with the roughly 2,900 BTC that the government did not recover from his theft. Zhong stole 50,000 BTC and converted his free Bitcoin Cash into another 3,500 BTC. However, only 50,591 BTC was seized.

Silk Road

Where did all this begin? Possibly with a Bitcointalk user named Teppy, who in June 2010 made a post titled “A Heroin Store” outlining “a thought experiment about how a heroin store might operate, accepting Bitcoins, and ending drug prohibition in the process.” The post connected Bitcoin to libertarianism and suggested that this would enable the new currency to become “truly disruptive.”It was a cutting-edge concept. “Pizza Day,” which saw Bitcoin exchanged for real-world goods for the first time — a pair of pizzas for 10,000 BTC — had happened just three weeks prior.

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Best and worst countries for crypto taxes — plus crypto tax tips

Tax is a nightmare for compliance. And crypto taxes — which include a variety of innovative mechanisms and products that have no analog in traditional finance — are 10 times worse.

Complicating matters even further, the global industry operates across borders and jurisdictions. But there are definitely better and worse countries for the newly crypto-rich to base themselves as tax havens — even Americans who get followed around by the IRS with its hand out no matter where they are.

(The information provided is not legal or financial advice and should serve only as a starting point for further research.)

To start off, we need to define what income and capital gains are.

What is income for crypto tax?

Income tax generally covers things such as wages, dividends, interest and royalties. Within the context of digital assets, these might include income earned via mining, staking, lending, crypto-denominated salaries and even airdrops. 

In many jurisdictions, these would be taxed according to the market value on the day they were received. You can often subtract expenses (such as the cost of electricity for mining).

What are capital gains for crypto tax?

Capital gains are the profits from selling things like stock or a house. They are usually calculated on the difference between the price you bought something for and how much you sold it for. In most cases, capital gains are taxed at a much lower rate than normal income, and the sale of cryptocurrency and NFTs generally count as capital gains. 

Switzerland gets an A for effort with crypto taxes. (Pexels)

Jurisdiction matters for crypto taxes

The first issue is whether one needs to pay tax at all. In certain countries, including Bahrain, Barbados, Cayman Islands, Singapore, Switzerland and the UAE, no capital gains are generally levied on things like stock or digital asset sales. For most people, determining the country of their tax residence is as simple as answering “where do you live?”

For the lucky few in crypto whose portfolio has gone stratospheric, it’s fairly natural to want to move to a country that will tax them less. Strategically shopping for favorable jurisdictions is comparatively easy for those in the blockchain industry, as their wealth is less likely to be tied to a physical business or assets.

Sadly, American citizens are at a distinct disadvantage because, unlike most countries, the U.S. levies taxes according to citizenship in addition to residency. Even American citizens born abroad must pay U.S. taxes even if they never set foot in the United States. They do, however, have the option of being taxed as a resident of Puerto Rico, a U.S. territory that is not a state. Perhaps fittingly, its name is Spanish for Rich Port. Hervé Larren, a dual U.S. and French citizen, lives on the island. He is the CEO of Airvey.io, which advises Web3 companies, and says:

“This is the best tax residency for Americans — they can keep their U.S. citizenship while benefiting from these tax advantages.”

Puerto Rico is a crypto tax haven

Crypto-rich Americans are basing themselves in Puerto Rico for favorable tax regulations. (Pexels)

Larren explains that, due to a 2012 law called Act 60, companies moving to or establishing themselves in Puerto Rico can pay a corporate tax of 4% — far lower than on the mainland. There’s also a 0% capital gains tax.

“These incentives have been created by the government of Puerto Rico to stimulate job employment and growth on the island by focusing on promising fields like the blockchain industry particularly,” he says, explaining that the island is envisioning itself as one of the crypto capitals of the United States. 

“In order to demonstrate tax residency, U.S. citizens should set up a primary address, a driver’s license and a local voter ID in addition to physically spending six months of the year on the island,” Larren explains. 

On the other side of the world, the United Arab Emirates is another tax-friendly jurisdiction attracting crypto wealth, notes Soham Panchamiya, a lawyer at Reed Smith LLP in Dubai.

“As more countries begin to regulate and tax cryptocurrencies, investors will need to navigate complex tax laws and potentially incur higher tax liabilities,” he says. At the same time, he argues that governments should ensure that policies are not made needlessly complicated.

“The taxation of crypto globally has significant implications for both individual investors and governments alike.”

For Panchamiya, increasing regulation by governments can be taken as a sign that the industry is maturing. While the UAE draws industry players with 0% personal tax, he expects that the government is likely to benefit from the introduction of corporate tax later this year.

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Are crypto-to-crypto trades taxable?

Outside of the few no-tax jurisdictions, “crypto-to-crypto trades are mostly taxable, but some countries do not tax them,” explains Filip Kraljičković, an expert on cryptocurrency taxation. He worked as a lawyer and manager of corporate taxation at KPMG in Croatia before joining crypto tax automation firm Taxtris as a tax and legal manager. 

Countries that do not tax crypto-to-crypto include France, Austria, Croatia, Poland and, as of 2023, Italy, he says. In such jurisdictions, no taxes are levied as long as crypto assets stay “in the metaverse” and do not get exchanged for fiat. 

According to Kraljičković, this type of treatment is gaining favor, and there are direct efforts to implement it EU-wide “because taxing crypto-to-crypto swaps produces cash flow problems” for people in the industry. Notably, most major jurisdictions like the U.S. and the U.K. currently consider trading Bitcoin for Ether a taxable event. Even something as innocuous as “wrapping” ETH into wETH can be interpreted as a trade, as the Australia Tax Office has spelled out (sparking considerable debate):

“When you wrap the ETH you have created a different asset for Capital Gains Tax (CGT) purposes. This means that converting ETH to WETH triggers a CGT event and you have to work out capital gains tax when you convert.”

In many jurisdictions, there is also a difference in tax treatments between short-term and long-term capital gains. In the United States, long-term capital gains get a discount, but selling before 365 days taxes the gains at the same percentage as regular income, which means that the effective tax rate can double. Canada does not differentiate between long- and short-term capital gains, taxing them all at half the rate of income tax.

1/ This is a gray area at the moment and we are waiting on more guidance.Per the current guidance, ETH to WETH is most likely a taxable event. Same with moving BTC to a wrapped version.— TokenTax (@TokenTax) November 1, 2020

Crypto tax capital gains rules in Europe

“Germany and Croatia also differentiate between short- and long-term gains — after 12 and 24 months, respectively, the rate is 0%,” Kraljičković explains, adding that, because Croatia does not tax crypto-to-crypto swaps, it is possible to pay no tax even without holding the original asset for a year. It’s also notable that Germany allows up to 600 euros of tax-free short-term gains per year.

“In Croatia, if you are happy with your gain in Bitcoin, you can just transfer your position to stablecoins and wait one to two years to realize your tax gains tax-free.”

“I’m not paid for advertising Croatia, but it’s a favorable place for crypto traders,” Kraljičkovićs says. Even when not using the crypto-to-crypto two-year method, taxes on crypto capital gains are about 10% depending on the city one lives in, he explains.

Some jurisdictions are of course less favorable. In addition to taxing crypto gains at 30%, India has “also imposed a 1% tax deduction at source (TDS) on each trade, claiming it would help them track the movement of funds,” with exchanges saying that such moves are likely to severely affect business. 

A similar 0.11%–0.22% VAT on all crypto transactions has been imposed by Indonesia, which Kraljičković describes as a method for the government to track all crypto transactions by imposing a reporting requirement via the otherwise small tax.

Adding to this, India treats cryptocurrency in a way comparable to lottery tickets and other gambling, whereby losses cannot be deducted from gains. “Basically, everybody trading crypto in India fled from local crypto exchanges and started using decentralized apps,” Kraljičković observes. 

According to Kraljičković, Estonia is the only European country currently restricting the deduction of losses. “You’re only taxed against your gains, but any losses that you realize are not tax deductible, which is kind of weird from an accounting perspective — but that’s their position.” Marko Jukic, CEO of automated tax reporting software provider Taxtris, mentions that there is currently an active lobbying effort to change this.

Another pitfall that investors should be wary of is the risk of being classed as a professional trader, as opposed to a casual trader or hobbyist. Many governments make this differentiation, but the line can be very blurry and is largely up to tax authority interpretation. 

“There are certain factors to take in like the number of transactions, size of transactions, regularity. All these factors can influence the determination of the government,” Kraljičković explains. Those who go pro, even against their will, might have to report all their trading gains as income tax, which carries a much higher rate and otherwise be far more stringent in their accounting. “You will have to behave as a company or as a craftsman depending on jurisdiction.”

No matter where you are, crypto taxes are still a pain to work out. (Pexels)

How are capital gains calculated?

There is not one single answer. When it comes to calculating taxable gains, the critical step is to calculate the cost basis, which is the amount local tax law considers an asset to have been bought for. There is a good deal of variance between the accounting methods used by different countries. Some countries even let you choose the method as long as you are consistent.

First-in, first-out, or FIFO, is among the most common methods and means that gains are calculated by assuming that the earliest acquired units of an asset are sold first. This means that a person who bought 1 BTC for $10, one for $100, $1,000 and $10,000 over a five-year period and sold one of them in 2022 for $20,000 would be taxed as if they sold the first Bitcoin purchased for $10, resulting in a taxable gain of $19,990.

Average cost is another method, which would calculate the average cost of the assets as the purchase price. Per the previous example, where someone purchased a total of 5 BTC for $11,110, the average price per Bitcoin would be $2,222, meaning that the taxable gain from selling a fifth of holdings in 2022 would be slightly lower at $17,778.

Last-in, first-out (LIFO) sounds nearly the same as FIFO but is effectively the opposite, resulting in a vastly more favorable outcome for our trader, whose taxable gain would now be only $10,000 since the profits are calculated from the most recent purchase opposed to the earliest one.

The tax agencies of many jurisdictions, including those of the U.S., U.K., Australia and Japan have issued guidance explaining that taxpayers can choose one of these methods, with certain limitations and usually provided that they then stick to that method. However, Canada requires the use of cost averaging because the Canadian Revenue Agency (CRA) views cryptocurrencies as commodities and taxes them as such.

Though most readers’ capital gains will fall under one of these accounting systems, there are outliers, such as the “French method,” which is close to the average cost calculation. “Poland and Hungary have their own methods based on cash flow and revenue expense, but European countries otherwise tend to follow the standard methods,” Kraljičković notes.

Whether you use FIFO or LIFO, capital gains are typically calculated by adding up all the year’s losses and gains followed by subtracting the total losses from the gains. As such, it is possible to find that the net gains are negative, in which case no taxes would apply and losses could possibly be counted against gains in the following year, again depending on the jurisdiction. An exception to the above can be found in India and Estonia, which Kraljičković says do not allow losses to be deducted from crypto tax calculations.

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Crypto tax loss harvesting

“If the market goes down, you can sell assets to create a loss to offset gains,” Kraljičković remarks.

This is called tax loss harvesting and can sometimes result in even a large net gain becoming tax-neutral through the reduction of capital gains liability. It can be employed strategically at the end of the tax year because taxes are usually calculated on an annual basis. Immediately in the new tax year, both the gaining and losing assets can be rebought.

“In the U.S., tax loss harvesting is banned for securities but not for crypto, so people in crypto usually sell off their loss positions before the tax year ends.”

This, however, is illegal in the U.K. and Ireland, Kraljičković notes. “They will spot the loss and rebuy happening within 30 days and disallow the losses,” he says, adding that similar restrictions will likely arrive across the European Union. “It’s a matter of time before countries figure that out and apply that anti-abuse rule,” he predicts. In fact, President Joe Biden has proposed making the practice illegal this year. 

Some notes from my recent presentation “Tax Questions for the Metaverse” at Tomorrow Conference in Dubai last month.What do you think are the biggest challenges as we move to Web3? pic.twitter.com/1xcYPINZRC— Elias Ahonen.eth (@eahonen) March 12, 2023

Can NFTs be tax-loss harvested? 

“There is no accounting method for NFTs because they are nonfungible, so you can always easily identify profit — for fungible assets like Bitcoin, you don’t know which Bitcoin you sold, which is why the FIFO method exists,” Kraljičković reasons. 

That said, he describes NFTs as “a complicated conversation” — Europe, for example, does not have much of the guidance or terminology sorted out. “More or less, they are treated like cryptocurrencies,” Kraljičković says, implying it is largely a default position in the absence of clarity.

When it comes to NFTs, it’s also worth noting that some countries such as Spain, Poland and Belgium treat at least their initial sales in the same way as the provision of virtual services, like a Netflix service, Kraljičković expands. In these cases, Value-Added Tax (VAT) applies.

Wealth taxes

“There is a third type of tax in addition to income and capital gains, and that’s the wealth tax — you’re paying taxes based on your portfolio value on a specific date,” Kraljičković adds. For example, Spain, Switzerland, the Netherlands, Norway and Argentina collect wealth taxes that are based on the net wealth of taxpayers each tax year. 

Norway, for example, charges a flat 0.85% of wealth above an approximate $160,000 threshold, meaning that someone with net assets worth $1 million at tax time would be expected to pay over $7,000. These rates go as high as 3.5% in Argentina and as low as 0.1% in some areas of Switzerland, sometimes starting at a much higher threshold than Norway’s. “It’s coming to Italy next year.”

While the valuation of fungible cryptocurrencies is relatively straightforward, valuing NFTs for wealth taxes is a different story. In traditional markets, if no liquid market is present such as for property, software or intellectual property, financial experts can be hired to estimate value based on evidence like supporting documentation and expert witnesses. 

At this point, however, Kraljičković notes that NFT valuations are a conversation between the tax authority and the individual. “NFTs are very minor sources of tax revenue now. Tax authorities are looking to spend their time where they can harvest the most,” he observes.

Author Elias Ahonen gets worked up on the subject of crypto taxes. (Elias Ahonen)

Evaluating jurisdictions for crypto taxes

If you made money with crypto, then proactive planning regarding crypto taxation liabilities is likely to pay a worthwhile return no matter where you live. Some of these strategies like tax-loss harvesting or taking advantage of long-term capital gains may fall into the “try this at home” category, whereas more advanced methods like jurisdictional arbitrage may require one to venture from the home port and set up camp in a faraway land when it comes to personal tax residency. For those with serious capital, the setting up of an off-shore entity in a friendly jurisdiction may also be an option, albeit with many caveats.

In regard to personal taxation, it is rather objective to say that some countries are more advantageous than others from the perspective of a cryptocurrency investor. 

The likes of the United Arab Emirates, Singapore, Switzerland and various Caribbean islands, including Puerto Rico, naturally get an A grade due to the near lack of tax liability. On the downside, these A-grade tax havens often come with considerable living costs.

Countries like Croatia, France, Austria, Poland, Italy and perhaps Germany rate highly, in the B range, due to the lack of taxation on crypto-to-crypto transactions or other workable solutions like discounts on long-term capital gains.

The U.S., U.K., Canada, Australia and much of Europe fall into the C category due to disadvantageous rules, variably including the taxation of crypto-to-crypto trades and swaps as well as restrictions on tax-loss harvesting.

India and, surprisingly, Estonia can be placed into the D category primarily due to the ineligibility of deducting investment losses from gains, thus making compliant trading particularly impractical. The F grade naturally goes to those countries that disallow the trading of crypto altogether, which we might interpret to mean a tax rate of 100%.

All of these ratings can of course change as new laws and practices are introduced. While higher and less permissive taxation may increase government income, they may similarly drive both brain drain and capital flight whereas the introduction of policies friendly to the digital asset industry can be expected to promote its growth within national borders. These are complex and politically charged issues for countries to consider.

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Elias Ahonen
Elias Ahonen is a Finnish-Canadian author based in Dubai who has worked around the world operating a small blockchain consultancy after buying his first Bitcoins in 2013. His book ‘Blockland’ (link below) tells the story of the industry. He holds an MA in International & Comparative Law whose thesis deals with NFT & metaverse regulation.

Follow the author @eahonen

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