It seemed to coincide with the onset of the pandemic just over two years ago. I started to receive lots of enquiries about the tax treatment of money earned from gains in trading cryptocurrencies. Some thought it was outside the tax net, but they were sadly wrong. Answering the questions was tricky, as HMRC were caught unaware and were very slow to understand what was happening and come up with a taxation solution.

Delivering massive gains for investors

Cryptocurrencies, led by bitcoin and ethereum, became all the rage a couple of years ago, and started delivering massive gains for investors and, logically, a huge new taxation stream for the Treasury. There are reportedly well over 10,000 different cryptocurrencies available, although the two market leaders account for over 50% of the value and number of transactions.

Last year, El Salvador became the first country to adopt bitcoin as legal tender. One of America’s largest and well-known banks decided to allow customers to include bitcoin in their investment portfolios. Everything was set for cryptocurrency dealings. By the time the market peaked in November 2021, cryptocurrencies reached a combined value of $2.8 trillion, a mind-blowing sum. Quite where would it go from there? You’d be a dinosaur if you didn’t join in.

Values can go down as well as up

But as most investors know, values can go down as well as up. Cryptocurrency was no exception. A massive downward spiral began last November, with over 50% wiped off values in the following six months. Panic set in and the doom-mongers started questioning whether cryptocurrencies were for the longterm.

Who knows the answer to that question? Not me, that’s for sure. But I’ll watch it with interest and prepare for the questions that are bound to follow on the tax treatment of crypto losses!