Trading and Investing

Large Institutions Embrace a Crypto Future

Published
March 1, 2021
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Cryptocurrencies have become extremely popular over the past few years thanks to their strong price performance. With around half of Americans owning cryptocurrencies, financial institutions have finally started to embrace the new technology both as a currency (e.g., payment processing) and as an alternative investment.

Let’s take a look at the growing support for cryptocurrencies without payment systems and merchants, as well as how investors could have easier access to crypto assets.

Square And PayPal Accepting Crypto Payments

Payment providers have been consistently expanding their support for cryptocurrencies as consumer demand for virtual currencies has skyrocketed.

Square was an early adopter of cryptocurrencies when it added Bitcoin to its Cash App in 2018. Since then, Pantera Capital estimates that its clients have accounted for about 40% of the Bitcoin that entered the market over the past two years. The company more recently announced a $50 million direct investment into Bitcoin and a fund to support developers.

PayPal recently announced a new service enabling customers to buy, hold and sell cryptocurrencies directly from their PayPal account. In addition, it plans to make cryptocurrencies available as a funding source for purchases at its 26 million merchants worldwide, which could dramatically expand the market.

Mastercard became the latest payment firm to throw its weight behind cryptocurrencies after announcing that it would support some cryptocurrencies on its network this year. While the company already offers a card that enables people to transact in crypto, the new initiative will permit transactions directly on its network.

Bringing Crypto to Retailers Like Tesla

Many companies have accepted cryptocurrency payments for products and services, but the process has been challenging without support from payment networks.

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While Overstock.com was the most popular early adopter, AT&T, Microsoft, Namecheap, NewEgg, Twitch and other companies have begun accepting crypto payments. Burger King, KFC and other mainstream companies have also accepted crypto in unique circumstances, including as part of certain promotions or in countries with currency fluctuations.

Tesla recently announced that it purchased $1.5 billion worth of Bitcoin and would accept Bitcoin payments in the near future, making it the most high-profile company to make such a move. Of course, the company is uniquely positioned to benefit since it operates its own showrooms and has a lot of high-value transactions where crypto can save on costs.

The number of main street merchants accepting cryptocurrencies could see a dramatic rise as payment processors warm to virtual currencies. For instance, merchants that use Square or PayPal may be able to soon accept crypto payments, and with half of Americans owning virtual currencies, it could open the door to significant payment volumes.

Mainstream Investments In Crypto

Coinbase has seen tremendous success in offering a cryptocurrency trading and investment platform for the masses, but conventional financial products have been slow to adapt.

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BlackRock, the world’s largest asset manager, could quickly shift the industry into overdrive with the addition of Bitcoin futures as an eligible investment to two funds—the BlackRock Strategic Income Opportunities Fund and the BlackRock Global Allocation Fund Inc. The move marks the first time that money managers are offering clients exposure.

Several financial services companies have also been attempting to launch crypto exchange-traded funds (ETFs). These funds would allow everyday investors to purchase a basket of cryptocurrencies through a security rather than having to purchase them in crypto wallets—a move that could open the flood gates to wider crypto ownership.

Robinhood and other investment apps have also been adding cryptocurrency support, making them more accessible to everyday investors. At the same time, Decentralized Finance, or DeFi, applications are providing new ways to generate yield by lending cryptocurrencies that investors may already be holding in their portfolios.

The Future of Crypto

Cryptocurrencies have the potential to radically transform the financial industry. In addition to being an alternative investment and payment medium, crypto and blockchain assets could play a central role in many different financial services, ranging from peer-to-peer lending to the way that securities are traded on exchanges.

Some examples of recent innovations include:

  • INX Limited became the first company to register crypto tokens as securities through a Reg A+ exemption. The company offered 130 million INX tokens at 90 cents each to raise $117 million under the terms of the registration statement.
  • Overstock.com’s tZERO was approved by FINRA to launch a broker-dealer subsidiary. Over time, the company aims to provide the ability to trade traditional stocks and financial assets on its crypto-based exchange.

In addition to these securities-related innovations, several DeFi companies are already operating their own liquidity platforms that process billions of dollars worth of transactions.

Remember the Tax Implications

Cryptocurrencies have become increasingly popular among individuals and companies, but the IRS is taking an equally strong interest in virtual currencies.

The IRS treats cryptocurrencies as property, which means that taxpayers are responsible for paying taxes on any gains in value. These responsibilities even apply when making purchases with cryptocurrencies. For instance, a taxpayer that acquired Bitcoin in 2012 and purchased a Tesla in 2021 would owe tax on the gain in Bitcoin’s value over that period.

The IRS has warned taxpayers of their responsibility to pay taxes on cryptocurrency gains over the past two years. In 2020, the agency is stepping up its enforcement of cryptocurrency taxation by asking taxpayers if they’ve transacted in virtual currencies at the top of Form 1040—and a wrong answer could entail stiff penalties.

ZenLedger Crypto Tax
ZenLedger’s Interface – Source: CaptainAltCoin

The good news is that crypto tax software can simplify the tax preparation process and even help taxpayers save money. ZenLedger automatically aggregates transactions across wallets and exchanges, autofills popular IRS forms and ensures that you’re accurately filing taxes and not overpaying what you owe. Sign up to try it today!

The Bottom Line

Large financial institutions and companies are finally starting to embrace the potential for cryptocurrencies to revolutionize both payments and investments. With the increasing exposure, taxpayers should be aware of their tax responsibilities, particularly given the growing interest on the part of the IRS.

Try ZenLedger for free and ensure that your taxes are accurate!

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