Latin American Countries Now Have a Guide to Paying Taxes on Cryptocurrencies

Willmen Blanco
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Latin American Countries Now Have a Guide to Paying Taxes on Cryptocurrencies

The guide establishes the conditions that people in Chile, Colombia, Peru, and Argentina must comply with. In Argentina, cryptocurrency tax laws are still under development.

The Latin American exchange Buda.com recently published on its blog a guide on the tax landscape of Bitcoin (BTC) and other cryptocurrencies in some Latin American countries.

The Buda team produced a guide for which they selected Chile, Colombia, Peru, and Argentina as countries where users must pay taxes on their cryptocurrencies. The guide specifies the cases for which a person must pay taxes on cryptocurrencies in each country. Besides, it explains the steps that they must follow if they have to pay this type of tax.

Buda noted that the guide is general and only for informational purposes. Their intention is not to offer any type of legal advice in these cases. They insist that to make the payment of this type of tax, users should seek professional advice and adapt to the particularities of the country where they reside.

According to the guide, Chile considers that cryptocurrencies are digital or virtual assets, as stated by Ordinance No. 963, published on May 14th, 2018. In this country, users must pay taxes when selling cryptocurrencies for Chilean pesos (CLP), paying for services, buying one cryptocurrency with another cryptocurrency, and receiving payment in cryptocurrencies.

Chileans have been subjected to this tax regime since April 2019. The country’s regulations contemplate various aspects of tax returns, but they do not take cryptocurrencies into account for the payment of value-added tax (VAT).

Colombia considers that cryptocurrencies are digital assets, according to the Directorate of National Taxes and Customs. In this country, people must pay taxes when exchanging a cryptocurrency for the local fiat currency, as well as when making a profit with them in a certain period. Other taxable activities include paying for goods and services, buying cryptocurrencies with another cryptocurrency, receiving mined cryptocurrencies, and receiving payments in cryptocurrencies.

Governments Aim to Collect Taxes on Cryptocurrencies

In February 2018, Juan José Echavarría, General Manager of the Central Bank of Colombia, stated that the owners of cryptocurrencies must pay taxes even though these assets are not legal in the Colombian economy.

Peru declared cryptocurrencies as real property, according to paragraph 10 of Article 886 in the Peruvian Civil Code. Users will have to pay taxes when buying cryptocurrencies with another cryptocurrency, receiving mined cryptocurrencies, or receiving payments in cryptocurrencies. Peru is one of the countries that have adopted the use of blockchain platforms.

Finally, the Buda’s guide states that Argentina has a law providing for the payment of taxes for cryptocurrency holders. However, the conditions that a person must meet to declare taxes for the use of their cryptocurrencies are still under development.

Even though the Argentine government does not intend to regulate taxes on cryptocurrencies, the country’s Bitcoin community gave its opinion on the matter. The NGO Bitcoin Argentina, which represents the community, criticized the State’s proposal of regulation and taxes for cryptocurrencies, giving reasons and recommendations for the treatment of taxes on cryptocurrencies.

By Willmen Blanco

Bitcoin-Pegged Token Was Included as Collateral by MakerDAO

Alexander Salazar
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Bitcoin-Pegged Token Was Included as Collateral by MakerDAO

The community decided to add WBTC to bring greater liquidity to the protocol. Although it is shown as an option to bring Bitcoin to the Ethereum network, it is not really like that.

In recent days, the MakerDAO community approved the inclusion of WBTC, an ERC-20 token, as the fourth collateral asset on its platform. This decision will allow the protocol users to generate DAI with a Bitcoin-pegged crypto asset on the Ethereum network.

Through an announcement on its official blog, MakerDAO reported that choosing WBTC will bring greater liquidity to decentralized finance (DeFi) ecosystems and decentralized exchanges (DEX).

With the addition of WBTC, Bitcoin holders can now convert their BTC to WBTC, that is, bring Bitcoin to the Ethereum blockchain and then use it to generate DAI. The flexibility of the Maker protocol means that almost any type of tokenizable asset can be added as a guarantee in the system. The condition is that it has the appropriate risk parameters and the Maker governance approves it.

At this point, it is important to make clear that the community’s decision is not taking Bitcoin to the Ethereum network. The objective of the announcement would be related to an advertising strategy to promote the use of DAI, rather than to a new integration through a token that only serves as a price marker.

In this way, the stated intention to bring more liquidity to the protocol is an indirectly admitted intention to sell the final product, as is the case of the stablecoin DAI. All this occurs a few days before the next Bitcoin halving, a significant event within the cryptocurrency community that is receiving attention from international media.

Saying that Bitcoin is coming to Ethereum through an ERC-20 token to buy DAI is somehow misleading. MakerDAO’s blog is selling the idea that enthusiasts can now generate DAI with Bitcoin. However, this is not completely true and could cause more confusion. These factors could have the opposite effect rather than encourage greater adoption.

Promoter Companies

Cryptocurrency custody company BitGo and decentralized exchanges Kyber Network and Republic Protocol are behind the ERC-20 token WBTC, a fact that users also questioned.

On social networks, there were discussions about the possibility that the generation of DAI would become centralized, which would go against the nature of the protocol. In that sense, user @DegenSpartan posted a comment in his Twitter account:

From now on, around 10% of $DAI comes from $USDC as a collateral asset. Under current parameters, 21% of DAI may be backed by assets that depend on individual entities, such as Circle (USDC) or BitGo (WBTC). What happens when it is 30%, 50%, or 90%? At what point does DAI go from being decentralized to being centralized?

MakerDAO’s decision comes less than two months after the community approved the inclusion of the stablecoin USDC as collateral support in the platform’s operations. Consequently, four collateral assets are now included in the protocol, also taking into account the cryptocurrencies ETH and BAT.

By Alexander Salazar

Study Shows that Whales Are Not Only Accumulating Bitcoin but Also Ether

Alexander Salazar
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Study Shows that Whales Are Not Only Accumulating Bitcoin but Also Ether

Recent research indicates that top Ethereum whales are heavily accumulating ETH. They are waiting for updates that could boost the price of the cryptocurrency.

It is a few days before the Bitcoin halving event, which will reduce the number of new coins issued. However, the whales of the cryptocurrency community are not just accumulating Bitcoin (BTC) waiting for the halving to cause a further increase in price. According to recently revealed data, major investors are also accumulating Ether (ETH).

Adam Cochran, Executive at DuckDuckGo, a privacy-focused search engine, said that he manually audited about 10,000 Ethereum addresses. The objective was to examine ETH whales’ activity, profitability, liquidity, and market manipulation.

Current ETH whales have increased their positions by more than USD 550 million, or 4%, in the past six months. This contrasts with the estimated USD 600 million in new capital inflow that Bitcoin had over the past year, according to Cochran.

The executive of DuckDuckGo noted that it is not just the existing whales that are accumulating. He said that there are a significant number of new wallets among the top ten, which conducted their first transaction on fiat-ramp exchanges, such as Gemini, Kraken, and Coinbase, which serve large-scale customers.

These new addresses usually buy between USD 100,000 and 250,000 worth of Ether.  They represent about 6% of the richest 10,000 addresses, about USD 100 million in new ETH purchases in the past six months, as he said.

Both new and existing whales bought more than USD 650 million worth of Ether last semester, more than the total flow of Bitcoin funds in the year 2019.

The data indicate that big investors do not seem interested in selling their holdings of ETH, either.

Right now, there are only 19.5 million Ethers listed on exchanges for sale. Even if 33.6 million ETHs are deposited on exchanges, this represents only 58% of the deposits. Therefore, whales are accumulating rather than selling. This figure has historically been above 75% whenever the price of ETH has risen by more than 25%. It is the first time in history that ETH has increased by more than 50% and the figure has dropped below 80%.

Data from cryptocurrency analysis company Glassnode confirms the Cochran survey and indicate that ETH investors are showing strong HODLING behavior. In the case of ETH, the data show that 77.7% of the tokens in circulation did not move in six months. In one year, 57.6% of ETH did not change hands, and 31.6% remained immobile for two full years.

Another survey, conducted by a Reddit user, revealed that Grayscale, one of the best-known companies in the cryptocurrency sector, bought around 50% of all Ether mined in the year 2020. According to the poll, Grayscale has bought 756,539 ETH since the beginning of this year. This represents 48.4% of all the crypto coins mined since early 2020. A total of 1,563,245 ETH were mined during this time.

By Alexander Salazar

There Is Control in Issuance of Bitcoin But Not in that of Fiat Currencies

Alexander Salazar
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There Is Control in Issuance of Bitcoin But Not in that of Fiat Currencies

Bitcoin has a maximum issuance and it is possible to regulate the distribution of coins on the network. The central system issues unsupported money, and thus devalues the work of those that receive the least.

To mitigate the economic crisis created amid the Covid-19 epidemic, the world’s governments have chosen to issue huge amounts of money. In this way, they artificially increase their reserve funds in fiat currencies unsupported since the Bretton Woods agreement was broken in 1971.

Satoshi Nakamoto, the entity behind Bitcoin, contemplated monetary inflation and compensation mechanisms in this protocol, which would contribute to bringing balance to the crypto economy.

In 2008, Satoshi explained that the price of the cryptocurrency will remain stable, provided that the total supply of coins increases in the same measure as the number of users. He added that there has to be a way to distribute the coins and that the best formula seems to be issuing them at a constant rate.

Bitcoin bases the distribution of money on transaction fees that the user pays and on the block reward. The latter consists of new coins, issued when a block is successfully mined.

Satoshi also explains that this reward mechanism provides the incentive for a node to run a proof of work (PoW) consensus algorithm on a block. Once the node claims the reward, it will circulate among other ecosystem participants.

This constant, but not magnified, issuance of coins is not an unwarranted injection of new money. That would undoubtedly undermine the economy, generating inflation anomalies, as has happened with the fiat system for 50 years. Satoshi explained that the protocol itself would regulate this issuance; thus, he would set the network’s difficulty proportionally to the increase in hash rate. In this way, increasingly powerful mining equipment is prevented from accelerating block production, thus receiving more rewards.

It is a few days before the next halving, or reduction of the mining reward to 6.5 BTC per block. Many people’s expectations in this regard are bullish, whilst others argue that there could be a period of decline. However, many members of the community are increasingly excited, since Bitcoin adoption is growing and the halving has never interfered with it.

Under this expectation of growth and adoption, the halving reduces the issuance and distribution of coins. Therefore, a strict application of the law of supply and demand, given that the coins are increasingly scarce, makes their price in US dollars or any other fiat currency higher. This is not a definitive or invariable constant, but the price of BTC until now increased in the measure of the reduction of its total issuance.

The history of Bitcoin’s crucial economic factors and events can be compared with the behavior of the fiat economy since the dissolution of the Bretton Woods agreement. This allows seeing how the prevailing financial system has increased the issuance and distribution of money in effective units. However, its quality and integrity as storage of value have not been taken into account and has caused it to depreciate.

By Alexander Salazar

Mexican Peso Loses 21.5% in 2020 whilst Bitcoin Appreciates by almost 20%

Alexander Salazar
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Mexican Peso Loses 21.5% in 2020 whilst Bitcoin Appreciates by almost 20%

The Latin American fiat currency shows a significant drop compared to the US dollar. Bitcoin shows better performance amid the coronavirus pandemic and a global economic drop.

Mexico’s national fiat currency, the peso (MXN), has depreciated by 21.5% until now in 2020, compared to the US dollar (USD). The loss occurs amid a fall in the Gross Domestic Product (GDP) and an economy that has begun to feel the effects of the coronavirus pandemic and low oil prices.

Last Thursday, April 30th, the Mexican peso showed a price of 24.11 units per US dollar, whilst this figure was around MXN 18.90 pesos per US dollar on January 1st. These all-time lows are putting pressure on the peso, and other Latin American currencies, since investors have taken refuge in the US fiat currency.

The same as in Mexico, where there is a depreciation of the national fiat currency, it is possible to observe this situation in other Latin American countries. In the first four months of the year, the Brazilian real (BRL) dropped by 26.5%, the Colombian peso (COP) lost 17.1% of its value, the Argentine peso (ARS) fell by 10.1% and the Chilean peso (CLP) decreased by 9.74 %.

According to analysts, Mexico’s economy, the second largest in Latin America, could fall by as much as 10% in 2020. In the first quarter, it recorded a setback of 1.6%, the biggest drop for three months in 11 years, according to the Reuters agency.

Bitcoin Gains Ground

Whilst the Mexican peso is facing a complicated situation, Bitcoin has appreciated by 19.7% until now in 2020. The main cryptocurrency was trading at USD 7,193 per BTC. However, last Saturday, May 2nd, its price was USD 8,960 per unit, with an advance of USD 1,767, according to data from CoinMarketCap.

Bitcoin’s growth comes amid the same global landscape due to the spread of the COVID-19 disease, economic recessions, low commodity prices, and widespread quarantines. In other words, what is affecting the economies and their national fiat currencies is also having an impact on Bitcoin in its first major crisis, but with more favorable results.

What happened with Bitcoin has escalated to such a point that it already exceeds gold as the best performing asset so far in 2020. The best valuation of Bitcoin might be related to the next halving, which will occur in a few days and will reduce by half the issuance of the cryptocurrency.

Unlike national fiat currencies, which central banks or national governments can discretely issue to control their economies, Bitcoin has a finite issuance of 21 million units. Currently, this emission is 12.5 BTC per block mined (approximately every 10 minutes) as an incentive for network miners. After the halving, the issuance will have a reduction of 50% to 6.25 BTC.

The Bitcoin boom shows that, in situations of recession or health crisis, it can be an alternative to safeguard value. That happens despite the volatility that the cryptocurrency market and traditional stock, commodity, and foreign exchange markets experience.

By Alexander Salazar

Bitcoin Reaches Its Highest Congestion Level in 2020

Alexander Salazar
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Bitcoin Reaches Its Highest Congestion Level in 2020

The average Bitcoin transaction fee rose to USD 3.40. It could take those transactions with very low fees several days to be confirmed.

In recent days, the Bitcoin network has shown an unusual state of congestion. This situation has increased the average payment fee to levels not seen for a whole year. Users of the main cryptocurrency in the market do not usually welcome these kinds of things.

International Workers’ Day has kept the Bitcoin mining network busy, due to the large number of pending transactions to be confirmed. In other words, the average Bitcoin transaction fee rose to USD 3.40. The community had not experienced these levels of average fees for a whole year.

All this means that, during the congestion, users should probably increase the number of satoshis that they paid per transaction. Anyway, Bitcoin miners, who are responsible for the confirmations on the network, may initially choose those transactions that pay the most.

According to data from Bitcoin.com, there were up to 80,000 on-hold transactions on April 30th. Even though this figure has decreased by half, it is still high.

It is important to remember that the Bitcoin network has a memory to store those transactions that have not been confirmed.

In a few words, the Bitcoin mempool reached 77.9 MB on April 30th, while it remained at 66 MB on average. The last time that the mempool reached that state of congestion was December 2019.

The problem with having a large number of on-hold transactions is the time that it would take to empty the memory. Since miners can only eliminate1 MB on an average per block from the mempool added to the network, the rest will have to wait longer.

Some websites recommend estimated times ranging from 25 to 600 minutes for confirmations with low fees. If users’ commissions are very low, they should not think about it right now.

Some Reasons for Bitcoin Congestion

This could be a symptom of what is happening in the ecosystem. Some people are talking about a rebound in Bitcoin purchases before the halving. Many people think that the reduction of miners’ rewards by half will have a positive impact on the price of Bitcoin.

Another possible cause could be the COVID-19 pandemic and lockdown. In the last few days, there have been news reports about the growing use of Bitcoin as a trading currency in purchases through the network. Sometimes, it happens due to the mere fact that many people might be spending some of their savings.

There have been discussions on the possibility that many investors had disposed of their Bitcoin funds in Bitcoin when fear gripped the markets last March. A rebound in price usually has the opposite effect, since many people buy Bitcoin when they think that its price will increase. That situation could have taken place in December 2019 or December 2017, when the price of the main cryptocurrency reached levels never seen before.

By Alexander Salazar

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