Ask Amber: Does bitcoin investment bring regulatory headaches?




Amber D. Scott, Compliance Nerd

Hey Compliance Nerd!

A friend of mine who wants to make a investment in Bitcoin. However his concern is declaring it to the government, so a couple years down the road if it is a successful investment he isn’t left dealing with AML regulations. Is that something that should be a cause for concern?

A Shy Investor

 

Hey & happy new year Shy!

I understand that concern, and there is a relatively simple test that should clear up most of the apprehension. Is the intent to purchase bitcoin for personal use (for instance in the hope that it rises in value, or to buy goods or services at a discounted rate)? If so, there aren’t anyregulations that I am aware of that would “capture” these uses of bitcoin. Even in the U.S. (which has been much faster than Canada to apply regulation to bitcoin related activities), there are rulings like this one, which provides exemptions for bitcoin miners, and related investments.

If your friend’s intention is to simply buy bitcoin, with the intent to sell it when the price rises, I don’t anticipate regulatory issues for him.

As a compliance nerd, I do have two caveats. The first of these is that while one may consider bitcoin an investment, it is not generally regulated as such. This means that no one will be providing a prospectus or standardized financial risk analysis type of document… and as one can see by looking at price fluctuations over time, there is indeed significant financial risk here. The tax consequences of those fluctuations can also be tricky to figure out (so having an accountant that knows about bitcoin is always a good idea).

The second is that if the intent is to then advertise the sale of bitcoin (at the time that he is ready to cash in) to the public (as opposed to selling through an exchange or other method), there is a possibility of being considered an exchange oneself. There are a few tests for this, which boil down to the determination of whether this is a business or just a person selling something. If the quantities are going to be very large, it’s worth diving into further (the rules will be slightly different based on the jurisdiction).

I hope that helps!

Cheers,
Amber

Amber D. Scott, MBA, CIPP, CBP, CAMS
Founder & Chief AML Ninja, Outlier Solutions Inc.
Amber is a long time, self-described “compliance nerd”. Amber is a firm believer in the idea that good compliance can enable good business. Find out how at www.outliercanada.com or reach out to her directly at [email protected].

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