Since I started working in the crypto world full time, I had to learn, on my own skin, a whole series of procedures and notions that I didn’t have before, both because I didn’t need them, but above all because I didn’t use crypto that much. Today, working at Avascan, crypto is my daily bread and I make lots of transactions every month, both to receive money, and to send it, and to modify my investment portfolio.

Today living on crypto is possible.

Declare

The hardest part is the declaration. Today, in reality, it is not mandatory to declare your crypto. Or rather, it is mandatory to do so, but the Revenue Agency has no legal or fiscal tool to be able to check self-declarations. Or, even better, it could do it, but not for everything: it could for example ask all centralized exchanges (like Coinbase, Binance, Bittrex) which currently are obliged to collect personal information (through the famous KYC procedure) what each person’s funds are, and it would have every right. Centralized exchanges are in fact providers of custodial wallets, i.e. cryptocurrency wallets of which they themselves also keep the private keys, and therefore are to all intents and purposes like banks: when you deposit money in the bank, you are giving your money to the bank which remembers that you put it there. But in reality they belong to the bank. Similarly centralized exchanges are custodians of crypto assets.

In addition to this, however, there are also non-custodial wallets, i.e. those wallets whose private key is in the hands of the fund holder, and not a third party. There are many of these wallets, I’ll name just a few: Metamask, Jaxx, Exodus are the most famous multi-currency wallets on the market, but there are also specific wallets for each crypto, which allow you to interact better with the reference blockchain (tendentially, multi-currency wallets only allow you to manage funds and not interact with smart contracts, for example). The Revenue Agency, in Italy and in the world, has no way to state that a certain address belongs to a certain person, also because in most cases new addresses are generated for every interaction with the blockchain by single-currency wallets but above all multi-currency ones.

All this digression to say that yes, it is technically mandatory to declare all crypto, and actually it is also useful to do so (and then I will explain why), but the State to date does not have a consolidated procedure to verify and possibly contest the declarations. Having said that, I declare everything I can, yet technically I will pay nothing in taxes.

To make it better understood, I will give an example: I (without going too much into detail) hold about twenty different cryptocurrencies:

• bitcoin;
• Binance Coin (BNB);
• Ether (ETH) and coins on Ethereum;
• Avalanche (AVAX) and coins on the Avalanche network;

On Ethereum, and especially on Avalanche, the coins I have are not still, on the contrary: 90% of the funds are invested and locked in special funds, which allow me to diversify earnings and above all risk. For those who know a bit more, I can say that I have funds locked in this way:

• Liquidity Pool
• Staking
• Yield farming

In Liquidity Pools, for example, I have a high earning potential because I have a constant risk of losing a slice of the funds I put in, to earn new coins. The others instead (Staking and Yield Farming) tend to give me fewer earnings, but are safer. I also use combinations of these modes, real financial instruments.

All this to say that I might not have the funds at the moment I make the declaration, but I might only have a token that represents my position in that investment (and not always). It is all still so new that it is really difficult to explain it in simple terms, I hope to be as clear as possible.

To make the declaration, according to the latest resolution of the Revenue Agency of 2018, I must insert the information relating to my capital gain in the RW framework of the Personal Income Tax Return. Here is what was declared by the Revenue Agency itself:

"[...]spot sales of virtual currency do not give rise to taxable income lacking the speculative purpose unless generating other income if the sold currency derives from withdrawals from electronic wallets (wallets), for which the average balance exceeds a countervalue of euro **51,645.69 for at least seven continuous working days in the tax period**, pursuant to article 67, paragraph 1, letter c-ter), of the consolidated text of income taxes approved with D.P.R. December 22, 1986, n. 917 (TUIR), and paragraph 1-ter of the same article. By spot sale is meant a transaction in which there is the immediate exchange of a currency against a different currency. The value in euros of the average balance in virtual currency must be calculated according to the reference exchange rate at the beginning of the tax period, that is on January 1st of the year in which the taxation prerequisite occurs (cf. circular June 24, 1998, n. 165)."

The crucial point is here, I highlight it well:

... if the sold currency derives from withdrawals from electronic wallets (wallets), for which the average balance exceeds a countervalue of euro **51,645.69 for at least seven continuous working days in the tax period**

There is no special treatment: it is like when on a current account one holds currencies other than the EURO (such as USD). So the limit is 51,645.69€ for more than seven days, beyond which, once declared, 26% tax on capital gains must be paid.

Here, too, an aspect still unexplored: let’s imagine that I create an NFT, and spend 10 USD to publish it on the blockchain. To have this NFT, a user (let’s say on Opensea.io) buys it, for 1000 dollars. I do not have the name of this person, and therefore I cannot issue an invoice. I could then generate a receipt, but I can do it only if the activity of creating NFTs, in one way or another, is part of the object of my business (if I have a business - if I don’t, I stop even before). If I am a private individual who for a hobby wants to draw on the computer and sell his works on blockchain, today there is no law that tells me that I have to declare something. A bit like when a street artist paints pictures of people passing by. Maybe it is not within the limits of the law, but it is not outside either. It is in limbo.

For this reason, if I receive Ether (ETH), bitcoin (BTC) or another cryptocurrency, and then that coin increases in value, I can declare it, I must declare it, but since I am not exchanging it for another currency (the so-called spot sale cited by the Revenue Agency), I do not have to pay any tax on it, because I have not to all intents and purposes hospitalized my profit.

In short, to put it briefly: I will pay the capital gains tax only upon the occurrence, together, of all these conditions:

• I received crypto or bought it;
• I exchanged it for another cryptocurrency or for a current currency;
• The value of that cryptocurrency was greater than 51,645.69€;
• This value was such for more than seven days in the same calendar year;
• I do not hold cryptocurrencies in staking or in yield farming;
• If I hold cryptocurrencies in liquidity pools, or a token that represents my position
• I exchange the liquidity pool token mentioned above.

Very complicated, huh.

The easiest part is the last one: to collect all this information, I use only one service, which costs me about 80€ a year, and which is called Koinly. With Koinly I can connect all wallets (both custodial and non-custodial) of many blockchains (not all blockchains are supported though). Once the wallets are connected, based on the number of transactions I have made, I will have to wait a few minutes or a few hours, then I can go to the Tax Reports section, buy the report and download the complete version to send to the accountant. In the report there is an overview that indicates what my capital gain was and, if needed, a breakdown of all the coins I held in the calendar year, the number of transactions, the money spent on commissions, etc.

Spending

Once you hold crypto, to be able to live on it you must be able to spend it. This was perhaps difficult until 2017, but now it is really easy. There are centralized exchanges or service providers that allow you to request a prepaid card that takes liquidity from crypto and current currency availability to make purchases or withdrawals at ATMs. I use two.

Crypto.com VISA Card

My main crypto card: actually there are different levels, and in each level there are increasing additional benefits. I have the Royal Indigo, which to receive I had to lock 10,000 CRO (Crypto.com Coin) for 6 months. The card that arrived is a Platinum VISA with all the benefits that cards of this type have (so free lounge in all airports via LoungeKey, insurance of various kinds and more), plus other benefits specific to Crypto.com. The Royal Indigo for example gives me 3% cashback on 99% of online and offline transactions (except withdrawals at ATMs) and gives me reimbursement up to 13.99 USD of Netflix and up to 9.99 USD of Spotify every month, all in CRO. By now in 6 months I have already recovered 600€ in cashback, it is really excellent. By signing up via this link you get 25 USD bonus if you order a card that requires locking at least 350€.

Binance Card

My backup crypto card. Signing up for Binance is easy: if you haven’t already done so this is the link, and after having done the procedure of compiling all personal data (the KYC procedure), you can go to this page to start the request for a VISA card. The card arrives in 7 working days and basically offers a cashback of 1% in BNB on 99% of transactions except withdrawals at the ATM. It is already compatible with Google Pay but not yet with Apple Pay. The cashback is actually proportional to the BNB held in the Binance account, and up to 8%. Obviously without commissions on payments.

Q&A

Luca asks, via email:

Hi Giacomo, I read on your blog the article "How to declare crypto simply", and I would just have a question for you. You write that cryptos must all be declared but capital gains taxes must be paid if "The value of that cryptocurrency was greater than 51,645.69€;" for at least 7 consecutive days in the same calendar year. Do you mean that taxes are paid if you own more than 50k of the same cryptocurrency for more than 7 days in the same wallet? What happens if instead you operate with cryptocurrencies but then the balance is in euros? For example, I am mostly doing arbitrage with crypto (not bitcoin) and euros, and what I earn for now I am keeping on the exchanges themselves in euros. Should these earnings not be declared?

Hi Luca, Thanks for writing to me and thanks for reading the article. Regarding your question, the tax calculation must be done on all cryptocurrencies and on all wallets you own. If you use Koinly, the service I suggest, you can track and declare crypto from multiple wallets. For example, if you have 10K in BTC, 20K in ETH and 30K in LTC, you have a total of 60K, so you exceed the threshold and will pay capital gains tax for any capital gain you make on those 60K, so if your funds become 61K, you will pay at the end of the year 26% of 61K-60K = 26% of 1K = 260€.

If you use Koinly this calculation is done automatically, you just have to resolve any ambiguities, tagging transactions that the service fails to categorize (for example airdrops, mining rewards, income from NFTs or liquidity rewards).

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