A lot has happened since Bitcoin launched in 2009. Cryptocurrencies have gone from being a topic that if you brought up in a conversation your friends and family would give you weird looks, to something that is now on the verge of becoming a staple of the financial world.
This is the moment that those of you who have been informed or invested in cryptocurrencies have been waiting for. Mainstream tech companies have now started to invest heavily in the future of cryptocurrencies. The latest company who’s done this is PayPal. The payment processing giant gave out a segment of its users in late 2020 the opportunity to purchase cryptocurrencies directly on their platform.
Note: As of January 2021 you can now buy Bitcoin, Ethereum, Litecoin, and Bitcoin Cash directly on the PayPal platform.
This brings up several questions. Is the world finally ready for Crypto? Should you start investing in Crypto? Do you have to pay taxes on Crypto?
The State of Crypto Entering 2021
Cryptocurrencies, led by Bitcoin, have grown tremendously in their short 12 year history. Nowadays, it’s not uncommon for financial advisors to recommend to their clients to invest in Crypto to have a well rounded investment portfolio.
This was unheard of only a couple of years ago, but since in early 2021 the whole Cryptocurrency space is valued at over $560 Billion, it’s no surprise that it’s now accepted as a legitimate financial asset. Here’s a link to a Wells Fargo report where they go in depth on their recommendations for Bitcoin and Crypto in 2021.
The biggest Cryptocurrencies in 2021
Bitcoin is definitely the most famous cryptocurrency out there today, but there many more cryptos out there. Also referred to as Altcoins, some of these cryptocurrencies have seen bigger adoption and valuation than others. Here’s a quick list of some of the main Cryptos entering 2021:
- Bitcoin: Bitcoin is the crypto that broke into the mainstream and started the conversation. At the time of writing in early January, Bitcoin passed $40,000 per token early into 2021.
- Litecoin: This Crypto was created as an alternative to Bitcoin back in 2011. It was referred to as the silver to Bitcoin’s gold. And as of today, Litecoin is still going strong. It’s not as high as Bitcoin but it’s starting to be adopted by more merchants since it’s quicker overall than Bitcoin.
- Ethereum: Ethereum was launched in 2015 and has seen a huge growth throughout 2020 and entering into 2021. The main advantage of Ether is that it can be used for other things than just transfer money. Ethereum was one of the first Cryptos to get the interest of big tech and financial companies such as Intel, Microsoft and JP Morgan Chase.
- Bitcoin Cash: This altcoin was created in 2017 as a way to improve upon the transaction fees and speed of Bitcoin. Today, it is the fifth largest cryptocurrency and believed to be one of the Cryptos with the highest possibility of widespread adoption.
- XRP: This crypto was created by Ripple, a payment network company that aims to make international transactions faster and more cost effective. XRP was launched in 2012 and despite some recent problems, is still growing in valuation. One aspect that distinguishes XRP from other cryptos is that it has always worked together with financial institutions since its inception.
Mainstream Tech Companies Have Started Their Interest in Crypto
As you can see from the previous section of this article, mainstream companies aren’t new to the world of cryptocurrencies and blockchain. In the case of Ripple and Ethereum, they started investing in them since they were launched. However what has changed for 2021 is that they have switched from having an interest in crypto, to featuring and allowing crypto to be a part of their core services.
This is why the inclusion of crypto into PayPal is such a big deal. This is perhaps the biggest rollout to the public by such a big company. Microsoft invested and supported Ethereum, but up to now, haven’t really featured Ether as a core part of any of Microsoft’s products.
How is PayPal working with cryptocurrencies?
PayPal started by giving the opportunity to a small segment of their users to buy, hold and sell crypto. This means that they are omitting one of the main strengths of crypto, transferring money from one user to another.
As you can see, the initial rollout is limited in functionality. Another big objection from critics is that you can only use your coins on PayPal's platform. You can’t transfer it to your own wallet for your own safekeeping. So it’s functionality is different from other platforms, like Coinbase or Gemini.
Recent statements from PayPal's CEO confirm their intention to work towards allowing their users to use their crypto for purchases through their network of 26 million merchants. This would be a game changer of sorts, since it would make the conversion between crypto and fiat currency seamless. The way it would work is that you use the crypto you’re holding on your account and the merchant receives fiat currency automatically.
Is PayPal the only mainstream company embracing crypto?
Robinhood, the investing app, has also started providing it's users the opportunity to start investing in crypto. They launched this feature back in 2019 and has quickly increased in popularity. Although a significantly smaller company than PayPal, Robinhood still has over 13 million users which serves as a clear indication of the perception of crypto as a financial instrument.
Is This the First Step into Mass Adoption?
The answer is still unclear. What we can conclude however is that big tech companies are investing in the long term of cryptocurrency, beyond whether it’s bitcoin, Ethereum or some other crypto, the consensus seems to be that crypto as a form of money is here to stay, even if the individual currencies may not.
Crypto is still highly volatile and much of the infrastructure for widespread adoption is still missing, but big steps are definitely being made towards facilitating the use of crypto to a wider audience.
The big issue with mass adoption — Taxes
Enterprise adoption of crypto or not, these assets are more popular than ever. Large marketplaces, like Coinbase and Robinhood, make it easy to purchase a variety of coins and tokens.
Have you recently sold, given or purchased goods/services with Bitcoin, Ethereum or other crypto? If so, there are tax implications. Don’t get caught up in the myths, you will likely need to include your crypto gains/losses in your filing this year.
Crypto is clearly on the mind of the technology and financial sector. It’s grown so big that it’s impossible to ignore. And as progress is made with regulation around the crypto and financial sector, it is expected that we will continue to see new ways in which mainstream companies continue to develop the adoption of crypto.
One of the biggest challenges that crypto faces is that the tax laws for crypto are still murky. Many adopters of crypto still face the challenge of having to figure out how to write up the taxes that correspond to their cryptocurrency investment.
Founder CPA specializes in the taxes that apply to investing, holding, and selling cryptocurrency. So if you are still trying to figure out how to best report your crypto investment, schedule a free consultation so that we can start helping you make the most out your investment.