Cryptocurrency, Private Placement Life Insurance and Expanded Worldwide Planning
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Welcome. Since you have invested in crypto coins and/or tokens you are familiar with the blockchain concept. You are at the forefront of a worldwide, game changing movement, which lately has morphed into NFTs and the metaverse. Throughout the world governments are struggling to define crypto assets. Different governments throughout the world define crypto assets in terms of traditional assets like money, property, a commodity, or an unregulated asset class.
Recently the United States has subjected crypto assets to what some have called the draconian reporting requirements for cash transactions with severe penalties for violations. In our written article, we have excerpts from an article by Simon Chandler of Cointelegraph which details how governments worldwide are working with the classification of crypto assets.
In the first two videos in our crypto asset series, we introduced you to our firm, EWP Financial. This video focuses on three important questions that our most sophisticated investors ask us.
These three questions pertain to any asset class, and they are very pertinent to crypto assets. It is our hope that the answers to these questions will give you the assurance you need to place your own holdings into this simple, straightforward, and very powerful asset structure, an EWP Asset Structure.
Excerpts from Cointelegraph Article
Money or Assets? How World Governments Define Cryptocurrencies
The world’s governments want to see cryptocurrencies as everything but what they really are.
By Simon Chandler
Cryptocurrencies — what are they? Money? Commodities? Securities? Utility tokens? Or something else? Few national governments seem to be in any kind of agreement on this question, and for now, at least, their divisions have given such currencies as Bitcoin and Ethereum a floating, indeterminate status on the global stage.
As a result, cryptocurrencies lack a single, definite existence, with some nations treating them as money (e.g., Japan, Germany) and others treating them as an unregulated, speculative asset (e.g., Mexico, Denmark), making them the financial equivalent of Schrödinger’s cat. However, as this review of classifications of crypto throughout the world will show, cryptocurrencies are all these things and more, which is why they deserve to be classified by future legislation according their own, unique qualities.
As an indication of how difficult it may be for world governments to ever reach a global consensus on the status of cryptocurrencies, it’s worth pointing out that there’s currently little consensus within nations — let alone among them. This is nowhere more evident than in the United States, where five separate agencies have all had their own competing classifications of cryptocurrencies.
First up is the Securities and Exchange Commission (SEC), which — up until June — defined cryptocurrencies in general as securities, meaning assets in which someone invests in the expectation of receiving a return. In March, for example, it issued a public statement indicating that it would regulate anything being traded via an exchange platform as a security.
“A number of these platforms provide a mechanism for trading assets that meet the definition of a ‘security’ under the federal securities laws. If a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration.”
Bitcoin declined by 10 percent following this announcement, yet the statements of other American authorities and agencies differ with the SEC’s assertion that cryptocurrencies are securities. Because, also in March, a New York federal judge ruled that the Commodities and Futures Trading Commission (CFTC) can regulate BTC and other currencies as commodities, putting them on the same level as gold, oil and coffee.
“For federal tax purposes, virtual currency is treated as property.”
Observers would be forgiven for supposing that three separate definitions were enough, yet two additional agencies treat cryptocurrencies as money. The U.S. Office of Foreign Assets Control (OFAC) is the bureau of the U.S. Treasury Department responsible for enforcing economic sanctions, which can include sanctions against certain cryptocurrencies (e.g., the Petro). In April, it announced that it would be treating “virtual currencies” in the same way as fiat currency, making any individual who handled a cryptocurrency covered by an economic sanction liable for prosecution.
Like the U.S., Canada doesn’t regard cryptocurrencies as legal tender. However, its approach to virtual currencies is slightly more unified, with the Canada Revenue Agency (CRA) currently defining them as commodities — a definition which would appear to apply in general throughout most government agencies.
In Mexico, the emphasis is also on cryptocurrencies as commodities. On March 1, the government passed the Law to Regulate Financial Technology Companies, which includes a section on “virtual assets,” — aka cryptocurrencies.
Travelling farther south, the picture is mixed. In Venezuela, the government (in)famously announced the oil-backed Petro in December, and in April, it decreed that the cryptocurrency must become legal tender for all financial transactions involving government ministries.
While classifications of one kind or another generally apply in the above American nations, cryptocurrencies suffer from a partial non-existence in others. In Brazil, the Securities and Exchange Commission (CVM) declared in January that cryptocurrencies cannot legally be classed as financial assets, despite the fact that the Brazilian Revenue Office had previously stipulated in 2017 that they’re to be regarded as such for tax purposes. In Chile, cryptocurrencies are neither securities nor money, although the central bank has recently begun considering specific regulation.
While South America often takes a restrictive stance toward cryptocurrencies, some nations within the continent are slightly more accepting. In Argentina, cryptocurrencies aren’t legal tender and they don’t have any regulation specifically applied to them. That said, they are treated as goods under the terms of the nation’s Civil Code, while a December update to tax regulation classifies them as income derived from shares and securities.
What such variations indicate is that, when it comes to the classification of cryptocurrencies, the economic and political situations of the nations concerned make a difference. The inherent abstractness of cryptocurrencies makes them adaptable in terms of their function, so their particular classification and usage all depends on the political and economic conditions prevailing in a particular nation, and what that nation wants to use them for. This is why, in countries where the national currency and economy are relatively weak — or where freedoms are restricted — cryptocurrencies tend to be denied legal status.
This tendency becomes more apparent when the status of cryptocurrencies in Latin America is compared with their status in Europe. In Germany, the continent’s biggest economy, Bitcoin has been recognized as “private money” since April 2014.
In the U.K., cryptocurrencies have generally been left undisturbed by regulation, and what’s interesting to note is that the government has recognized that comparing them to pre-existing currencies, commodities, securities or any other financial instrument would be inaccurate. In 2014, its HM Revenue & Customs department wrote:
“Cryptocurrencies have a unique identity and cannot therefore be directly compared to any other form of investment activity or payment mechanism.”
Across the English Channel, France has also held off applying any specific regulation to cryptocurrencies, although it has been making concerted efforts with Germany to propose laws that would be international in scope.
“We do not consider cryptos as money.”
In contrast, a Dutch court ruled in March that Bitcoin can be considered a “transferable value,” making it equivalent to property. This bears some resemblance to a definition being worked on by the Italian Ministry of Economy and Finance in a draft decree, which describes cryptocurrencies as a “digital representation of value […] used as a tool of exchange for purchasing goods or services.”
Beyond the EU, Switzerland is perhaps the most significant European nation when it comes to crypto, not least because it has aggressively positioned itself as a desirable place for crypto traders and businesses. In 2014, its federal government published a report in which cryptocurrencies were defined as assets, rather than as currencies or a means of payment. But since then, the landlocked nation has introduced several “regulatory simplifications” in order to attract fintech companies, and it’s in this climate that new approaches to cryptocurrencies have emerged. In November 2017, the regional district of Zug began accepting Ethereum and Bitcoin as payment for administration costs and municipal services, effectively recognizing both as money. It was soon followed by the city of Chiasso (in Ticino), which announced in February that it would start accepting Bitcoin as payment for tax on amounts up to 250 Swiss francs.
Such examples from Europe offer two major takeaways. The first is that EU (and non-EU) nations — much like the U.S. and Canada — are holding back on specific crypto-focused regulation, thereby giving cryptocurrencies the space and time to solidify into definite, stable forms. As such, nations are reluctant to attribute any single ‘definition’ or ‘status’ to digital currencies. Correspondingly, the current application of numerous different categorizations is merely the result of attempts to apply any relevant pre-existing laws that, in lieu of specific legislation, might curb abuses of crypto. These categorizations are stop-gaps and shouldn’t generally be taken for what certain nations or governments ‘really think’ about crypto.
But secondly, even though many European states are gearing toward the announcement of bespoke cryptocurrency legislation, it would seem unlikely that many will advance so far as to actually recognize Bitcoin, Ethereum or any other major coin as legal tender. With the notable exceptions of Switzerland and Germany, the majority of European states deny that cryptocurrencies are money and given how jealously governments and central banks tend to guard their financial powers, it’s unlikely they’ll shift from this stance anytime soon.
“In terms of nature, Bitcoin is a specific virtual commodity that does not have the legal status equivalent to currency and cannot and should not be used as currency in the market.”
Nonetheless, the same notice also acknowledged that “[Bitcoin] transactions act as a way of buying and selling goods on the internet,” and given that it made no attempt to prohibit or discourage such activity, it’s arguable that the announcement acted as a tacit recognition of cryptocurrencies as a means of payment (i.e., as money).
Unfortunately, the Chinese government’s position has hardened considerably since 2013. It banned ICOs in September 2017, while it also prohibited crypto exchanges that same month and later blocked foreign exchanges, citing “financial risks” as its motivation for both acts. In other words, it effectively denied that cryptocurrencies are legitimate securities, assets or commodities in China, just as it had denied their status as currency four years previously. And given that it has also been taking steps to make mining more difficult this year, the current political and regulatory climate in China is now denying cryptocurrency any kind of official status.
Things aren’t so gloomy for crypto elsewhere in Asia. In Japan, the government has gone through an opposite process to China’s, classing Bitcoin as “not currency” in 2014 and then correcting its position in March 2016, when the Payment Services Act finally recognized cryptocurrencies as money. However, as an indication of the uniqueness of crypto, the actual definition included in the act described cryptocurrency more specifically as a “property value” that can be used to buy goods and services, rather than as a currency.
Over in South Korea, cryptocurrencies are recognized as an “asset with measurable value,” a verdict furnished by the nation’s supreme court on May 30. It is consistent with the regulation and guidelines issued by South Korean authorities to date.
In Singapore, the government is also inclined to view cryptocurrencies as assets rather than money. In August 2017, the Monetary Authority of Singapore (MAS) warned ICOs and crypto exchanges that it has jurisdiction over those tokens falling under the definition of securities, a warning it repeated in September and also this May to eight exchanges that hadn’t yet registered with it.
Again, what such stances underline is that most developed nations are cautiously open to cryptocurrencies as a new financial instrument, as a new means of generating income and raising capital and as the basis of a new technology — i.e., blockchain. However, it’s clear that few currently want to recognize Bitcoin or any other decentralized coin as money, especially if their governments happen to be more authoritarian. This reluctance is particularly evident in certain examples we’ve skipped over: In Russia, cryptocurrencies are “not a legal method of payment” but rather property, while the government in Turkey has previously stated that Bitcoin is “not considered as electronic money” under current law and isn’t compatible with Islam.
Because most governments are still unsure of how cryptocurrencies will develop in the future, and possibly because they don’t want to recognize the radical implications of decentralized money, they’ve shied away from establishing a distinct legal identity for cryptos. Instead, many have attempted to apply whatever relevant pre-existing laws they can, in the hope that this will curb those effects of cryptocurrencies that may be undesirable from the perspective of a national government. This is why, on an international level, cryptocurrencies have been swamped by a flood of miscellaneous categorizations, from private money to property and ‘transferable value.’
On the other hand, the variation in classifications is also a product of the versatility of cryptocurrencies. Because they generally aren’t issued and control by a central body, there are few restraints on how they can be used. Some holders may therefore use them as a means of payment, others may treat them as a speculative financial instrument or as property, while the future could bring yet even more functions. This adjustability to the needs of holders is one of crypto’s defining characteristics, which is why the U.K. government was probably right to say in 2014 that cryptocurrencies have a “unique identity.” And it’s also why, when the world’s governments finally get around to introducing specific legislation for cryptocurrencies, they’d be well advised not to attempt to subsume them entirely under existing legal categories.
In our next video we explore in depth the Six Principles of EWP, and why Wikipedia discusses them in their article on International Tax Planning. These Six Principles are at the core of any properly designed EWP asset structure, and explain why Private Placement Life Insurance is best suited to protect your crypto assets from evasive government regulation and taxation.
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