Portuguese Tax Structure Highlights Custody Concerns

A new CNBC article features a “Bitcoin family” which has decided to set up roots in Portugal due to the country’s tax rules on cryptocurrency. It has a 0% tax rate, including on capital gains, as long as the Bitcoin wasn’t earned for providing services in Portugal. That makes the country’s rules among the most enticing in the world for a family which sold nearly all of their earthly possessions to purchase Bitcoin when it was trading at $900.

“First, the story here intrigues the reader, thinking about the profit an ordinary family realized. Second, and perhaps less obvious, however, is that it highlights the extremely fractured nature of cryptocurrency regulations. In some ways, tax codes change from country to country, and that’s why we see lists of the most competitive countries to start a business and so forth. But, this isn’t even a question of capital gains or tax rates. It is really a question of how a country legally treats cryptocurrencies,” said Richard Gardner, CEO of Modulus, a US-based developer of ultra-high-performance trading and surveillance technology that powers global equities, derivatives, and digital asset exchanges.

“Absolutely, this has made Portugal a haven for cryptocurrency expats. But it really highlights just how differently countries see Bitcoin and other digital assets. The lens by which they view it just differs so dramatically. Some countries still hope it is a fad, others see it as a potential cash cow, others want to entice crypto-preneurs. Portugal is definitely among the friendliest locales,” said Gardner.

Modulus is known throughout the financial technology segment as a leader in the development of ultra-high frequency trading systems and blockchain technologies. Modulus has provided its exchange solution to some of the industry’s most profitable digital asset exchanges, including a well-known multi-billion-dollar cryptocurrency exchange. Over the past twenty years, the company has built technology for the world’s most notable institutions, with a client list which includes NASA, NASDAQ, Goldman Sachs, Merrill Lynch, JP Morgan Chase, Bank of America, Barclays, Siemens, Shell, Yahoo!, Microsoft, Cornell University, and the University of Chicago.

“However, it isn’t just in tax structure. The rules vary wildly from country to country in most aspects of cryptocurrencies. Right now, even though digital assets have become mainstream and accepted, even by institutional investors, regulators are still lagging behind the eight ball. That’s long created questions about how regulatory agencies will legally treat crypto. Now, it has even created custody questions,” said Gardner.

Fireblocks, which is among the best known providers, found itself embroiled in a lawsuit with StakeHound, which alleges the custody company lost roughly $70MM of Ethereum, after the key vanished. As a result, StakeHound could not access over 38,000 ETH.

“Custodial services just aren’t what they should be. Even the big players are having issues which need consideration, and, in order for cryptocurrencies to truly break out, the custody issue needs to be solved. The question is whether global regulators will find a way to develop commonsense guidelines for digital asset custody, or whether we will see a piecemeal approach that varies dramatically across jurisdictions,” said Gardner.