Business Briefing- Virtual Currency Investment Options

This report provides a comprehensive business briefing on Bitcoin as a virtual currency investment option. It examines the current market state, market penetration, government position, tax implications, benefits, drawbacks, security, and long-term outlook. The report concludes with recommendations for investors considering Bitcoin.

Business Briefing- Virtual
Currency Investment Options
(Bitcoin)

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Overview......................................................................................................................................1
Current market state.....................................................................................................................2
Market penetration.......................................................................................................................3
Government position...................................................................................................................5
Tax implications..........................................................................................................................6
Benefits and drawbacks...............................................................................................................7
Security: backing, risks, threat analysis.......................................................................................9
Long term Outlook......................................................................................................................9
Recommendations......................................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................13

EXECUTIVE SUMMARY
Virtual currency is an unregulated digital money whose transaction tends to take place
only online. Bitcoin is one of them. Bitcoin is considered to be the first open source software
that was issued and introduced in the market as cryptocurrency for people, to use, in the year
2009. The customer does not have to deal with third party while opting for any type of
investment and transfer of virtual currency. It has been able to develop peer to peer network for
various types of investors, irrespective of what amount they are trying to invest in. Australia
have also been able to attract investors towards Bitcoin as it works independently without any
type of government interventions.
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INTRODUCTION
In the era of internet, digital currency has become one such aspect that has started attracting
investors towards it. It has its core presence on internet and functions in virtual format only. The
report makes comprehensive discussion regarding presence of virtual currency in the market and
various benefits and drawbacks attached in its investment. Since, Bitcoin have been one of the
most famous cryptocurrency among all, the report makes its overall discussion based on it. The
report then focuses upon role of government in the functioning of Bitcoin and its tax
implications.
Overview
Virtual currency is considered to be a kind of unregulated digital money which is generally
issued as well as controlled by its developer and which can then be used and accepted among the
member of specific virtual community. It is a digital asset that can be used as a medium of
exchange. Encryption techniques are used in it so as to generate units of currency and ensure that
funds are being securely transferred. Bitcoin is the first open source software that has been issued
and introduced in the market as cryptocurrency for people in the year 2009 (Minor and
Bitreserve Ltd, 2015). Operations generally lie in the hands of central bank. These types of fund
transfers are safe and trusted as well as encrypted sites are brought into use to generate, invest
and further transfer funds. Bitcoin is one of the most common as well as modern examples of
virtual currency which also offers outlet for personal wealth. It is beyond any type of restrictions
as well as codifications. It also gives assurance to the customers that their money will not be
looted and can also be preserved from any type of robberies with the help of encrypted code.
The customer does not have to deal with third party while opting for any type of
investment and transfer of virtual currency (Lingappa and Visa International Service
Association, 2015). Moreover, there is not boundaries of location as all the transactions tend to
take place at the virtual platform. One can also get the cryptocurrencies investment in a crypto
wallet and can store it for longer period of time as well. There are various types of
cryptocurrencies that are available in the market. These are, Zcash, Dash, Ethereum, Litercoin,
Monero. One of the cryptocurrency that have been able to become a trend setter is Bitcoin. It has
been able to develop peer to peer network for various types of investors, irrespective of what
amount they are trying to invest in. Bitcoin is an electronic cash which is a first decentralised
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currency. Bitcoin can be sent from user to user on peer to peer bitcoin through the network
directly without any requirement of intermediaries (Ametrano, 2016).
Bitcoin was introduced in the year 2008 under the domain name, bitcoin.org. Namamoto
was involved in implementing the software as open source code. These are generally processed
with the help of private network that are then linked with the help of certain shared programs.
Each transaction is recorded simultaneously as and when it takes place. It is recorded in the form
of blockchain on each computer which helps in updating and informing regarding all accounts
(Chepurnoy and et.al., 2017).
Current market state
The current state of cryptocurrency, especially Bitcoin values at $70 in the year 2013. It
has reached to approximately $6000 per Bitcoin in2018. It shows that Bitcoin have become the
trendsetter and majority of the individuals are involved in investment of this transactions (The
Effects of Electronic Payments on Monetary Policies and Central Banks, 2015). It can be stated
that Bitcoin is at constant hike of prices since the time it has actually been introduced. Although
these virtual currencies are quite volatile in nature, there are large number of people who believe
that the prices of cryptocurrency will always be at increasing state due to its acceptance by large
number of people and constant increase in number of investors in it, day by day. Apart from
Bitcoin, there are various other cryptocurrencies which have been generating benefits out of it.
These are, Ethereum, Litecoin and ripple XRP. Due to its current market state, people have
constantly been looking to invest in digital currencies.
However, there are other researchers as well, who believe and have serious fear that,
Bitcoin has created a bubble which can burst at any moment. In this scenario, large number of
people will lose their money and have greater impact on their market value of bitcoin or any
other cryptocurrency in which they must have been invested (Reid and Harrigan, 2013)
Market penetration
Bitcoin gained popularity in August 2017, after its introduction in 2009, when its prices
jumped from $572.33in August 2016 to approximately $ 4,764.87 in August 2017. It was then
increased to $13,860 as in December 2017. The total market capitalization value of Bitcoin has
dramatic increase at that time and it reached to a level of 237.62 billion US Dollars in Quarter 4
of 2017 (Garay, Kiayias and Leonardos, 2015).
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Australia have also been able to attract investors towards Bitcoin as it works independently
without any type of government interventions. The below graph states regarding market
penetration of Bitcoin in other countries as well (Ponsford, 2015).
Figure 1Market penetration of Bitcoin
(Source: Chuen, 2015)
The above graph states that Bitcoin have been able to show its presence in various
countries, such as, Canada, Netherlands, Germany, United States, United Kingdom, Russian
Federation, China, France, Poland and Australia. Maximum penetration has been experienced by
Australia have been one of the large number of investors tend to invest in cryptocurrency with
the sole aim of generating high amount of profits. It has approximately 0.016% of the total
investors of Bitcoin in the country (Eyal and Sirer, 2014). Hence, it can be stated that, Australia
have been able to accept cryptocurrency better way in comparison to the other countries.
Although, there are various other nations as well who did not support the functioning and dealing
of digital currencies in the country. Hence, people, belonging to that nation, are not allowed to
invest in Bitcoin, Ethereum or any other type of virtual currency.
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Figure 2 Country wise market penetration in Bitcoin
(Source: Fleder, Kester and Pillai, 2015)
The above graph shows that ranking of Bitcoin penetration in various countries. The
lowest penetration of bitcoin has been experienced by China which 0.001% of total investors of
this total Bitcoin currency. Further, Poland also contributes only, 0.07%. maximum contribution
of Bitcoin is given by Netherlands, followed by Canada and Australia. It can be stated that
Australia is among those top three countries which have been contributing towards investment in
Bitcoin (Kondor and et.al., 2014).
Government position
As per the experts in Australian Securities and Investments Commission (ASIC),
Cryptocurrency is not considered as a provider of financial services. Hence, it is not required to
have Australian Financial Services Licence (AFSL). Although, all the transactions of Bitcoin
tend to take place as it has been carried out in case of bank or any other financial institutions, that
is, with the help of Western Union and PayPal. Further, it is also not considered as money due to
which it is not considered in exchange processes and providing financial services or payment
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systems to people. There are chances in near future that Bitcoin may be accepted as a source of
money by Australian government (Smith, 2016).
Previously, the Anti-Money Laundering and Counter-Terrorism Financing Act, mentioned
regarding e currencies as an “internet based electronic means of exchange”. It has also been
backed by certain physical and precious metals (Badev and Chen, 2014). It is difficult for the
government to mention that value of currency which is not available in physical format and is
only present in digital format. It is difficult to imagine the value of currency which is only
digitally present. Hence, it is not important for Bitcoin to report itself to Australian Transaction
Reports and Analysis Centre (AUSTRAC). However, there are chances that Australian
government may introduce new rules and regulations with respect to Bitcoin in the 21st century
so as to give digital currency, more recognition (Bartoletti and Pompianu, 2017).
Tax implications
Bitcoin or any other cryptocurrency is not considered as money by Australian Tax Office
(ATO). Money is considered to be a unit of account and hence it is not subjected to Capital Gain
Tax (CGT) (Böhme and et.al., 2015). Hence, bitcoin is measured as an asset by ATO for CGT
purposes. If Australian currency is gained from sale in comparison to what cost was actually
been paid in order to buy Bitcoin. Since, it is charged as asset, ATO have right to ask for the
records and hence an individual must have the following as records:
 Date of purchase of bitcoin (Lewenberg and Rosenschein, 2015)
 Amount one purchased Bitcoin for
 Details of seller or buyer
The Goods and Services Tax (GST) in Australia is considered to be a value added tax of 10%
on majority of the goods and services transactions. However, it is refunded to all the parties
during production chain. Final burden of tax lies on the consumer (Glaser and Siering, 2014).
There are numerous reasons which states that Bitcoin must be treated as ‘money’ as per the rules
and regulations of GST Act. If bitcoin will be considered as money then it can have certain
negative impact on taxpayers for GST which can then be used for making payment of goods and
services.
If Bitcoin has been acquired as an investment, it is mandatory to pay tax on it. However, in
case of its investment, the asset is not entitled to personal use of asset exemption. Capital loss
can be used to reduce capital gain, that has been made in in same or later years. However, the net
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capital loss generated out of it can not be settled down against income from other heads, being
generated by the individual (Regulation of Bitcoin in Australia: Part 2 – The Australian
Government response. 2017).
Benefits and drawbacks
Bitcoin has various advantages as well as disadvantages. Some of them are mentioned
below:
Advantages:
 It is quite easy to send and get money even if the individual is situated anywhere in the
world. Hence, Bitcoin helps in giving freedom of location to people. One do not have to
worry about holidays, banks holidays or any other limitations. As, an individual have access
to currency 24*7 and 365 days (Katsiampa, 2017).
 There is no central authority that is involved in governing money involved in Bitcoin. Hence,
one has its own control over the payments and receivals (Androulaki, Scherer and Capkun,
2013). Users are allowed to control their transactions, which makes the overall Bitcoin
network safe, in comparison to the other.
 Merchants do not hold right to change extra fees from people and it must be confirmed by the
consumer before organization opt for adding such charges to the overall cost (Brown, 2014).
 Payments of bitcoin can be finalized without having access to one’s personal information
attached to the transaction. It is due to the reason that, personal information can be kept
private from prying eyes (Spagnuolo, Maggi and Zanero, 2014). Hence, it has adequate
measures that can help in protecting identity of individual from being theft.
 Further, all the information that is available about the transactions and identity of the
individual being investing is kept encrypted so that no one can have access to it. With the
help of block chain facility, the transactions made last, are available to be seen by everyone
However, personal information of the individuals is kept hidden (Kharraz, Robertson and
Kirda, 2015).
 Any information and protocol of Bitcoin can be manipulated by any individual, organization
or government as it is cryptically secured. Further, Bitcoin do not provide the facility to
reverse the transactions which makes the merchants to be safe from any kind of potential
losses that may occur from fraud.
Disadvantages
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 There are various people who are still not aware of digital currencies. Hence, there is a
requirement of educating people regarding the same.
 There are various corporations who accept bitcoin with the hope of getting large advantages.
However, the list of merits is quite small in comparison to that of other merits attached to
physical currency (Murphy, Murphy and Seitzinger, 2015).
 There is a requirement to make the workers more educated with respect to Bitcoin so that
they can help customers in better manner.
 There is high degree of volatility that is attached to Bitcoin as there are only limited number
of coins available to make transactions and demand of coins have been increasing day by
day. However, it is expected that there will be adequate reduction in volatility as the time will
pass.
 There is constant increase and decrease in prices of bitcoin due to fluctuations in aspects
related to digital currencies. It can be stated that there is requirement of analysing growth of
bitcoin before it reaches to its full and final potential (Bouoiyour, Selmi and Tiwari, 2014).
Security: backing, risks, threat analysis
Bitcoin have been totally installed and present on online platform. An individual who plans
to invest in bitcoin just require a mobile phone and an internet connection to perform its
functions. There are various risks that are related to security, which can be inclusive of risks
backing and threat of theft of information. One of the basic issue that is linked to security is,
transferring money to other individual where malware can automatically change copied address
entered.
In the traditional system of banking and money transfer, a user gets adequate number of
chances to reverse back their transactions. However, in case of Bitcoin, this facility is not
enjoyed by people, which makes it more difficult to opt for bitcoin due to ineffective security
provisions. Another security issue that can be faced is related to hacking of payment gateway.
Even after entering genuine payment address, the individual may experience loss of money
(Neudecker, Andelfinger, and Hartenstein, 2015). Hackers tend to use social engineering
methods so as to convince the host that they are the real domain owners. It results in incepting
cash flow to the hacker. Hacking is quite common when an institution is involved in presenting
their data and transacting on online platform.
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Long term Outlook
With the increasing trend of investment in cryptocurrency, there are numerous new users
that tend to connect to Bitcoin or other cryptocurrencies every day (Karame, Androulaki and
Capkun, 2012). Various researchers have predicted high peaks of enthusiasm and increase in
values of cryptocurrencies in the near future. Since, the value of cryptocurrency is at constant
rise, there are expectation that, it will continue rising in the near future as well. Bitcoin has
historically been connected to high correlation between transactions and unique users. The
concept of demand and supply tend to apply on it. The more people will indulge in using bitcoin,
overall demand will tend to rise. Also, it will result in making the prices on higher side.
The above graph reflects, that future outlook shows positive results in the functions of
Bitcoin. The first graph that is attached to it show, after sudden down fall of bitcoin in January
and February, it is expected that there will be constant increase in number of unique addresses as
a holder of Bitcoin. It will thereby result in increasing transactions that takes place with respect
9
Figure 3Bitcoin Outlook for 2018
(Source: De Filippi, 2014)

to it. Hence, it will also help in increasing overall daily transaction volume with respect to
Bitcoin in the coming period of the year 2018. Another aspect that is related to Bitcoin is its
prices. Increase in demand leads to constant increase in the overall prices of Bitcoin as well. It
reflects that currency have been performing effectively at the online platform (Möser, Böhme
and Breuker, 2014).
Hence, in the end, it can be stated that there will be constant growth in current situation
of cryptocurrency, that is Bitcoin, in the coming period of 2018. The year will also attract and
provide knowledge to new users so that they can plan investment in it, ultimately increasing
overall service users.
Recommendations
Based on the requirement of a client, who have been planning to invest in Bitcoin, it is
important to analyse that whether adequate profits will be generated out of it. The client is
planning to invest AUD $ 100,000 in the initial year and then increase the ongoing purchases of
$ 5,000 per month for the next 12 months. In this scenario it is important analyse its profitability
aspects. Hence, following aspects can be recommended to the client:
 It can be recommended to the client that he can plan investment in Bitcoin as it will help in
enhancement of overall revenue aspects of the individual (Drainville, 2012).
 It is important to analyse the prices and overall expected outcomes out of it that are expected
out of investment of Bitcoin.
 It is important to secure bitcoin as and when it is necessary. It is due to existence of
scammers, thieves and hackers. It must only be kept in the wallet which is only controlled by
the individual.
 It is important for the client to effectively diversify between the portfolios that can help in
ensuring impressive gains out of it (Luu, Saha and Hobor, 2015).
CONCLUSION
It can be concluded from the above report that, due to increase in usage of internet,
cryptocurrency have boomed in all developing as well as developed countries. Bitcoin has
predominant presence in the market and it is preferred by majority of investor. It has been able to
survive in digital investment market to the longest. The current state of cryptocurrency,
especially Bitcoin values at $70 in the year 2013. It has reached to approximately $6000 per
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Bitcoin in 2018. In the end, it is recommended that, all the transactions related to Bitcoin must be
recorded by the consumer so as to evaluate the output and assess amount of tax to be paid on it.
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