Cryptocurrencies That Can Be Sold
Nearly all cryptocurrencies can be liquidated to cash it is dependent on the broker and the digital assets that it offers. If an investor owns crypto like Bitcoin or Ethereum, they can access liquidity within the platform and have their crypto converted to fiat, which is ultimately withdrawn to their bank account.
Below are some of the popular cryptocurrencies that are subject to instant liquidity. They are often considered a great store of value and they are recognized in hundreds of exchanges.
What Is A Disposition
This refers to the way you get rid of something, such as by giving, selling or transferring it. In general, possessing or holding a cryptocurrency is not taxable. But there could be tax consequences when you do any of the following:
- sell or make a gift of cryptocurrency
- trade or exchange cryptocurrency, including disposing of one cryptocurrency to get another cryptocurrency
- convert cryptocurrency to government-issued currency, such as Canadian dollars
- use cryptocurrency to buy goods or services
Valuing Cryptocurrencies Either As Capital Property Or Inventory
To file your income tax return, you need to know how to value your cryptocurrencies. This depends on whether they are considered capital property or inventory. When cryptocurrencies are held as capital property, you must record and track the adjusted cost base so that you can accurately report any capital gains.
If the cryptocurrencies are considered to be inventory, use one of the following two methods of valuing inventory consistently from year to year:
- value each item in the inventory at its cost when it was acquired or its fair market value at the end of the year, whichever is lower
- value the entire inventory at its fair market value at the end of the year
You might have to use other methods of valuing inventory, depending on the type of business you have. For example, property described in the inventory of a business that is an adventure or concern in the nature of trade must be valued at the cost you acquired the property for.
You will have to compare the cost and the fair market value of each item to figure out which is lower. You then use the lower figure for each item to calculate the total value of your inventory at the end of the year.
“Cost” as used in the phrase “cost at which the taxpayer acquired the property,” means the original cost of the particular item of inventory , plus all reasonable costs incurred to buy that particular block of cryptocurrency.
Use the same inventory method from year to year. Please review our archived page on inventory .
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Is Bitcoin The Next ‘big Short’
That brings us to what many believe is going to be the next way to cash in big on the Bitcoin phenomenon: You can short the cryptocurrency. What goes up must come down, and you can actually profit when any investment, including Bitcoin, drops in value.
If youre not familiar, shorting an investment is a relatively simple processas far as the actual trading. Its figuring out your investment playand actually making a profit as the value of the investment goes up or downthats the tricky part.
As with any investment, you cant just jump into the action uninformed and uneducated. But the great news is that you dont have to be a pro. Anybody can learn how to short sell Bitcoin to potentially profit.
With the price of Bitcoin continuing to be relatively volatile and many analysts claiming that its recent meteoric rise is unsustainable and a crash is imminent, the urgency to start trading and learning how to short sell Bitcoin has never been more urgent. Another factor to consider is that world governments are closely scrutinizing Bitcoin exchanges and investments in the cryptocurrency. Due to its anonymous nature, authorities are concerned about the tax avoidance possibilities.
Why Can’t I Open A Short Position
eToro is one of the world’s most popular trading platforms, and in 2018 it opened its doors to the U.S. market.
For the moment, not all markets are available to trade and certain features are disabled. Note, sell positions are also not currently available on any stocks and ETFs.
A gradual rollout is planned – we are now in the initial phase of the U.S. launch, and we are hoping to launch additional features soon.
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Leveraged Bitcoin Trading Provider
Leveraged trading providers offer products such as CFDs and spread betting. Unlike exchanges where you borrow the cryptocurrency, with leveraged trading products you do not own the underlying asset. Instead, you take a position on whether bitcoinâs price will rise or fall, and your profit or loss is dependent on if you are correct or not.Spread betting and CFD trading are both types of leveraged trading, meaning you are only required to lay a small deposit to gain exposure to the full trade value. However, as your exposure is based on your full trade value and not your deposit, your profit and losses are amplified in accordance with the full exposure. The deposit value differs by asset class but is currently 50% when you trade on bitcoin with CMC Markets.
Shorting bitcoin on our leveraged trading platform comes with several different features when compared to shorting bitcoin on an exchange, such as:
- Both spread betting and CFD trading are exempt from stamp duty*
- Spread betting is exempt from capital gains tax*
- Opportunity to trade with leverage
- FCA regulated business
- Negative balance protection for retail clients
If you are interested to start leveraged trading, why not practise your trading strategies on a demo trading account with CMC Markets.Make sure to visit our âWhy CMCâ page to see what differentiates us from our competitors.
Uses Of Prediction Markets
Because they represent a wide variety of thoughts and opinionsmuch like the markets as a wholeprediction markets have proven to be quite effective as a prognostic tool. As a result of their visionary value, prediction markets have been utilized by a number of large companies.
The blending of economics, politics, and more recently, cultural factors, has only made the demand for prediction even greater. Add the benefits of data analytics and artificial intelligence we’re living in the golden age of data and statistical utility.
Over the past 50 years, prediction markets have moved from the private domain to the public. Prediction markets can be thought of as belonging to the more general concept of crowdsourcing. Crowdsourcing is specifically designed to aggregate information on particular topics of interest. The main purpose of prediction markets is eliciting aggregating beliefs over an unknown future outcome. Traders with different beliefs trade on contracts whose payoffs are related to the unknown future outcome the market prices of the contracts are considered as the aggregated belief.
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Keeping Books And Records
If you acquire or dispose of cryptocurrency, you have to keep records of your cryptocurrency transactions. This also applies to businesses that accept cryptocurrency as payment for goods and services.
Cryptocurrency exchanges have different standards for the kinds of records they keep and how long they keep them. If you use cryptocurrency exchanges, we suggest that you export information from these exchanges periodically to avoid losing the information necessary to report your transactions. You are responsible for keeping all required records and supporting documents for at least six years from the end of the last tax year they relate to.
You should maintain the following records on your cryptocurrency transactions:
- the date of the transactions
- the receipts of purchase or transfer of cryptocurrency
- the value of the cryptocurrency in Canadian dollars at the time of the transaction
- the digital wallet records and cryptocurrency addresses
- a description of the transaction and the other party
- the exchange records
- the software costs related to managing your tax affairs.
If you are a miner, also keep the following records:
- receipts for the purchase of cryptocurrency mining hardware
- receipts to support your expenses and other records associated with the mining operation
- the mining pool details and records
For more information, please review our link on keeping records.
Make The Best Choices Of Crypto Brokers & Wallets
Whether you like the idea or not, it is a fact that your brokers and the wallets you choose determine the safety of your funds in the cryptocurrency market. For instance, if you use an exchange that isnt secure enough, hackers could attack them and get to your assets the same goes for crypto-wallets. You should make good choices with the cryptocurrencies that you choose. These assets must have good use cases and have the potential for long-term growth.
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Can You Short Crypto
In short, yes. Like in any financial market, you can take short or long positions on cryptocurrency. Taking such positions can prove to be smart leverage against the volatility of the market. If you play your cards right, you could be able to make money whether prices go up or down.
Right now, you might be asking yourself how you can short sell cryptocurrency.
There are four different methods to shorting crypto, which Ill go through with you.
How To Short On Bitfinex
Fill your Trade bag with cash. This is used to back up the loan . It deals only with BTC / LTC.
When you believe it has been identified, enter a sale number and place your order on either the sector or place a restricted order at a fixed price. It initiates a loan, and you immediately borrow BTC/ LTC and join your position in the process.
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Is Shorting Crypto Illegal
In traditional financial institutions short selling is highly regulated. However, crypto trading is unregulated in many jurisdictions, including the US, Canada, Australia, Europe and India. Traders should be wary of cryptos being hyped on social media as this could be a deceptive pump and dump scheme. Note, trading crypto with CFDs or other derivatives is no longer possible in the UK.
Reporting As Either Income Or Capital Gain
Generally, if disposing of cryptocurrency is part of a business, the profits you make on the disposition or sale are considered business income and not a capital gain. Buying a cryptocurrency with the intention of selling it for a profit may be treated as business income, even if its an isolated incident, because it could be considered an adventure or concern in the nature of trade.
If the sale of a cryptocurrency does not constitute carrying on a business, and the amount it sells for is more than the original purchase price or its adjusted cost base, then the taxpayer has realized a capital gain.
Capital gains from the sale of cryptocurrency are generally included in income for the year, but only half of the capital gain is subject to tax. This is called the taxable capital gain. Any capital losses resulting from the sale can only be offset against capital gains you cannot use them to reduce income from other sources, such as employment income. You can carry forward your capital losses if you do not have any capital gains against which to offset those losses for the year or any of the preceding three years.
For more information on capital gains, see Guide T4037, Capital Gains.
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How To Start Shorting Cryptos
If youre interested in shorting cryptos, follow our step-by-step guide:
What Makes A Good Long/short Strategy
The best long/short strategies combine both methods to create a more diverse and profitable investment portfolio.
The key thing to remember with your overall long/short strategy is that prices always come down faster than they go up, but they also go up the majority of the time.
As David Gardner puts it:
Stocks always go down faster than they go up, but they always go up more than they go down.
In fact, the guys over at eToro suggest cryptocurrency prices increase two-thirds of the time and spend the final third the year in decline. Which describes Bitcoin prices for the past 12 months fairly accurately:
A great long/short strategy for Bitcoin investors over the last year would have been to go long on the cryptocurrency once prices started to climb after dipping below $1,000 and then watching their value increase.
At this stage, youd be looking at $8 profit per coin on your long positions, which is a pretty impressive return in itself.
However, going short on Bitcoin when prices were climbing towards that $20k barrier, using one of the short selling strategies we mentioned earlier, means you could have made huge profits from the Bitcoin crash that started in December last year.
Prices plummeted from almost $20k to under $6k, and you can guarantee short sellers made insane amounts of money in those early months of 2018.
A long/short strategy wont protect you from all risks, but it will put you in a strong position to profit from prices as the rise and fall.
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What Does Short Selling Bitcoin Mean
Shorting is when a person borrows money to sell the value behind Bitcoin in order to buy it back at discounted price to return to the sender. It is the opposite of the manta ‘buy low and sell high’. A person who short sells Bitcoin is betting on the price of Bitcoin will decrease in value in order to buy Bitcoin back for a cheaper price. The difference between the money that borrowed to short Bitcoin and returned once the position is closer at a lower price becomes their profit minus any fees.
A few key points to remember about shorting Bitcoin:
- Shorting is essentially betting on the asset value decreasing in price
- Shorting can increase the amount of Bitcoin in a portfolio by profiting on price corrections during an uptrend
- Short selling can hedge a Bitcoin portfolio to lock-in gains and minimize losses during a downtrend
- Short selling Bitcoin can create significant profit potential by using leverage to borrow more money
- Short selling is risky and can result in losses that exceed the initial deposit amount
How To Short On Poloniex
On the exchange Poloniex, three separate accounts are created for each trader exchange, margin, and lending. The exchange balance contains the funds that you use, for normal trading, in the Exchange section . On the margin balance, there are funds intended for servicing borrowed money. The lending balance contains funds that you can lend to other players in order to get your profit from the turnover.
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Short Selling With Myconstant
We offer another short-selling option alongside our new Futures product, where you can pair BTC, ETH, or BNB with USD. The process is straightforward deposit the USD into your short-selling balance, and then select how much of your chosen crypto you want to short.
Bear in mind that your collateralized USD is a risk if your crypto increases in price. So, consider carefully what you can afford to lose.
It a good idea to set a stop-loss and take profit mechanism, which can help secure profits and limit your losses. Once that is all set, you can then hit that Short Crypto Now button. The other key benefit of short-selling with us is that you can repay at any time, which allows you to capitalize on any profit you may get.
However, if the price of your shorted crypto rises, your collateral will be at risk. Once your collateral value falls to 105% of your loan value , we have to sell, and you lose it.
Short selling is risky to get into, and many seasoned investors have lost a lot of money using margin trading and CFDs. However, starting with MyConstant can provide invaluable insight into market movements and leave you in a better place to make more lucrative calls.
If you have any questions on this topic or our Futures product, dont hesitate to contact us. We are here to support you.
Reasons To Short Sell Crypto
One of the biggest reasons to short sell crypto is that it allows you to make profits without owning any crypto. You only need to have enough money to pay the rent payments to the crypto lender. Depending on how you choose to short, these payments could be recurring margin payments or a one-time premium . In either case, the amount is generally less than the upfront purchase price of the cryptocurrency.
Another reason to short crypto is that it can be a way to deal with the risks of volatile crypto prices. In other words, you can go long and short of a crypto asset at the same time. That way, you can make some money whether the price goes up or down. This is a specialized technique called hedging the risk of price volatility.
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