Crypto for Advisors: Bitcoin Myth Busting

Welcome
to
the
last
Crypto
for
Advisors
newsletter
for
2023.
Thank
you
to
all
the
contributors
who
have
shared
their
knowledge
and
guidance
for
advisors
this
year.

We
end
the
year
with

Kunal
Bhasin,
co-leader
of

KPMG
Canada’s
crypto
asset
and
blockchain
practice,
debunking
many
of
the
bitcoin
myths.

I
wish
everyone
a
happy
new
year.
All
signs
are
pointing
to
an
exciting
2024
in
the
crypto
space.

Happy
reading.

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Crypto
for
Advisors,
CoinDesk’s
weekly
newsletter
that
unpacks
digital
assets
for
financial
advisors.


Subscribe
here

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it
every
Thursday.

As
we
embarked
on
2023,
the
crypto
world
was
still
grappling
with
the
fallout
from
the
FTX
debacle
and
Terra
LUNA’s
collapse
in
2022.
These
events
catalyzed
a
contagion
in
the
industry,
leading
to
a
significant
loss
of
trust,
liquidity
issues
and
market
instability.
Despite
these
challenges,
Bitcoin
price
demonstrated
remarkable
resilience
up
~150%
YTD
by
the
final
week
of
2023
per
CoinDesk
charts
–
Bitcoin
YTD
growth
as
of
Dec
26,
2023.
This
growth
underscores
the
robustness
and
potential
of
digital
assets,
even
in
the
face
of
adversity.

However,
despite
this
growth
and
resilience,
several
myths
continue
to
plague
the
digital
asset
ecosystem.
These
misconceptions
are
often
fueled
by
a
lack
of
understanding,
biased
perceptions,
and
persistent
stereotypes.
As
we
see
increased
interest
from
investors
and
the
looming
possibility
of
a
spot
bitcoin
ETF
in
the
U.S.,
it’s
imperative
for
financial
advisors
to
provide
educated
and
unbiased
responses
to
these
myths.
While
I
cannot
cover
all
the
myths
in
this
article,
I
will
address
the
most
prominent
one
for
bitcoin
i.e.

bitcoin
is
mainly
used
for
illegal
activities
and
money
laundering.

In
bitcoin’s
early
days,
a
small
but
visionary
group
of
individuals
and
organizations
recognized
its
potential
and
the
revolutionary
technology
underpinning
it.
As
bitcoin
gained
broader
adoption
and
its
value
increased,
it
inevitably
caught
the
attention
of
criminals,
leading
to
its
use
in
illicit
activities,
including
the
infamous
darknet
marketplace
Silk
Road,
which

accounted
for
nearly
20%
of
total
bitcoin
economic
activity
at
its
peak
in
2013.
Additionally,
bitcoin
became
the
preferred
currency
for
ransomware
attacks.
These
developments
contributed
to
bitcoin’s
reputation
as
a
“criminal
currency,”
a
perception
that
still
persists
to
this
day.

At
a
high
level,
combating
financial
crime
and
money
laundering
relies
on
three
key
pillars
–
technology
infrastructure,
regulation
and
law
enforcement.
Bad
actors
are
always
looking
for
new
ways
when
one
or
more
of
these
pillars
is
missing
or
not
evolved
yet.

Acknowledging
the
above,
it
is
important
to
note
that
bitcoin’s
early
adoption
among
illicit
users
was
not
due
to
its
alleged
untraceable
and
anonymous
nature
of
bitcoin
technology
but
rather
the
lack
of
sophisticated
crypto
intelligence
and
analysis
infrastructure,
as
well
as
lack
of
applicable
regulations
at
the
time.
Contrary
to
popular
belief,
bitcoin
is
pseudonymous,
not
anonymous.

With

fiat
currency,
three
pillars
have
evolved
over
decades
with
the
broad
adoption
of
the
internet
and
continue
to
evolve
to
this
day
with
enhanced
compliance
requirements
to
capture
the
evolving
threats
landscape.
However,
having
these
three
pillars
in
place
doesn’t
guarantee
the
prevention
and
detection
of
all
illicit
activities.
In
fact,
according
to
a
2022
report
by
the

U.S.
Department
of
Treasury,
key
weaknesses
within
the
U.S.
Anti-Money
Laundering
and
Combating
the
Financing
of
Terrorism
(AML/CTF)
regulatory
regime
include
a
lack
of
timely
access
to
beneficial
ownership
information
of
legal
entities
and
lack
of
transparency
in
non-financed
real
estate
transactions,
and
use
of
virtual
assets
for
money
laundering
remains
far
below
that
of
fiat
currency
and
more
traditional
methods.
Expecting
an
emerging
technology
and
users
to
have
all
pillars
figured
out
from
inception
isn’t
reasonable.
Now
let’s
break
these
pillars
down
for
bitcoin
as
it
stands
today:

Technology
Infrastructure

Since
2014,
there
has
been
a
significant
effort
to
develop
and
implement
infrastructure
to
prevent,
detect
and
investigate
bitcoin
and
other
crypto
transactions.
Today,
there
are
numerous
tools
available
for
financial
institutions,
regulators,
law
enforcement
and
virtual
asset
service
providers
(VASPs)
that
enable
advanced
techniques
and
tools
to
track
and
analyze
bitcoin
and
crypto
transactions,
leading
to
the
identification
and
apprehension
of
criminals
in
various
cases.
The
level
of
traceability
in
bitcoin
is
actually
higher
than
in
many
other
financial
systems,
especially
cash
where
transactions
can
be
much
more
opaque.

While
there
are
improvements
underway
to
enable
advanced
techniques
for
crypto
activities
outside
of
bitcoin,
such
as
privacy
coins,
stablecoins
and
DeFi,
these
are
already
quite
mature
for
transaction
monitoring
and
reporting
crypto
institutions.

Regulations

The
view
that
bitcoin
and
other
crypto
assets
are
unregulated
is
a
major
misconception.
It’s
a
known
fact
that
regulations
follow
innovation,
as
regulators
need
to
undergo
a
comprehensive
administrative
process
to
understand
the
impact
and
regulate
accordingly.
In
fact,
the
U.S.
was
one
of
the
first
countries
to
subject
crypto
exchanges
to
registration,
reporting
and
recordkeeping
requirements
for
AML/CTF
purposes
when

FinCEN
classified
these
as
Money
Services
Businesses
(MSB)
in
2013.
Many
other
countries,
including
Japan
and
South
Korea,
followed
suit
during
the
Initial
Coin
Offering
(ICO)
boom
in
2017/
2018.
In
2019,
Financial
Action
Task
Force
(FATF)
issued
comprehensive
guidance
that
outlines
the
need
for
countries
and
VASPs,
and
other
entities
involved
in
crypto
asset
activities,
to
understand
the
AML/CTF
risks
associated
with
their
activities
and
take
appropriate
mitigating
measures
to
address
them.
These
have
been
periodically
updated
since
then.

As
of
today,
83%
of
G20
nations
and
major
financial
centers

have
enacted
or
are
developing
national
crypto
laws.
An
important
distinction
to
note
in
the
bitcoin
world
is
that
while
there’s
a
reactive
component
to
regulation,
there’s
also
a
significant
proactive
effort
to
understand
and
regulate
this
rapidly
evolving
technology.

Law
Enforcement

Between
2013
and
2023,
approximately
$8.496
billion
in
crypto
and
fiat
have
been
seized
as
a
result
of
law
enforcement
actions,
as
well
as
numerous
bad
actors
that
enabled
have
been
charged
per
the

Chainalysis
Myth-Busting
Report
(2023).
We’ve
also
seen
a
number
of
enforcement
actions
globally
for
non-compliance
of
AML/CTF
regulations
–
most
recently
with
the
Binance
settlement
worth
over
$4
billion.
Global
collaboration
across
law
enforcement
agencies
and
public-private
partnerships
is
enabling
identification
and
investigation
of
financial
crime
in
a
much
more
efficient
way
given
the
underlying
technology
and
unique
characteristics
of
bitcoin.

Overall,
the
key
takeaway
is
that
with
every
technological
advancement,
there’s
a
period
of
adaptation
where
benefits
are
harnessed,
and
risks
are
mitigated
through
new
regulations,
enhanced
technology
infrastructure
and
law
enforcement
actions.
In
the
case
of
bitcoin,
it’s
happening
at
an
unprecedented
pace
and
the
illicit
actors
are
realizing
that
bitcoin
is
not
a
good
instrument
for
money
laundering
given
the
current
stature
of
the
three
pillars
discussed
above.

–


Kunal
Bhasin,
Partner
&
Co-Leader,
Cryptoassets
&
Blockchain
CoE,
KPMG

Q.
What
tax
related
items
should
investors
be
cognizant
of?

Investors
should
pay
attention
to
whether
or
not
they
have
realized
or
unrealized
gains
or
losses
in
their
crypto
trading
accounts.
Each
carries
unique
implications
that
could
greatly
impact
the
next
tax
year.

Realized
gains
–
If
you
have
realized
gains
from
selling
digital
assets
this
year
make
sure
you
segregate
enough
money
to
pay
your
capital
gains
taxes
next
April.
Tax
brackets
will
vary
depending
on
the
individual.
Be
careful
when
reinvesting
proceeds
from
trades
that
made
you
a
lot
of
money.
You
will
owe
taxes
and
if
your
new
investments
lose
a
lot
of
their
principal
you
won’t
be
able
to
cover
your
future
tax
bill.

Unrealized
gains
–
Keep
in
mind
that
crypto
is
volatile,
and
with
the
end
of
the
calendar
year
so
close
it
may
be
beneficial
for
you
to
hold
off
selling
your
winners
until
2024
depending
on
your
situation.
That
is
because
any
gains
made
in
2023
have
cap
gains
taxes
due
in
April
2024.
If
you
wait
just
one
week
and
sell,
the
taxes
won’t
need
to
be
paid
until
April
2025.
That
means
you
are
free
to
reinvest
and
earn
a
return
for
an
additional
year.
The
opportunity
to
compound
interest
in
this
space
could
be
extremely
beneficial
if
you
wait
until
the
new
year.

Realized
losses
–
Realized
crypto
losses
can
be
offset
against
other
capital
gains.
Keep
in
mind
that
your
losses
can
be
carried
forward
indefinitely
for
future
years
and
while
the
losses
primarily
offset
capital
gains
they
can
be
used
to
offset
ordinary
income
from
your
work
(up
to
$3000
per
year)

Unrealized
losses
–
Unrealized
losses
are
currently
a
unique
benefit
to
crypto
investors.
For
stocks,
bonds,
ETFs,
and
mutual
funds
investors
are
bound
to
what
is
known
as
the
wash-sale
rule.
This
means
that
if
you
sell
one
of
these
securities
at
a
loss
you
must
wait
30
days
before
you
can
repurchase
it.
This
rule
does
not
apply
to
cryptocurrencies
yet.
If
you
have
a
digital
asset
with
an
unrealized
loss,
it
is
an
option
to
sell
and
rebuy
immediately.
Having
that
capital
loss
to
carry
forward
(called
tax
loss
harvesting)
can
be
extremely
beneficial
even
if
you
can’t
offset
it
against
a
gain
this
year.
Note
that
with
exchange
fees,
slippage,
and
general
market
volatility
you
won’t
guarantee
you’ll
have
the
same
number
of
units
when
you
re-buy.
Until
this
rule
is
applied
to
cryptocurrency
it
is
a
benefit
that
only
direct
holders
will
have.
Spot
bitcoin
ETF
holders
will
be
bound
to
wash-sale
rules
as
they
will
hold
a
security,
not
a
digital
asset.

–


Bryan
Courchesne,
CEO,


DAIM

Bitcoin
is
among
the
top
15
global
currencies.

2024
bitcoin
price
predictions
are
coming
in
and
they
are
all
over
the
map.

SEC

reportedly
held
a
‘rare’
conference
call
with
several
bitcoin
spot
ETF
applicants.