Cryptoassets: understand how it works and how to invest in digital assets

 Cryptoassets: understand how it works and how to invest in digital assets

Cryptoassets are a digital representation of transacted values, such as cryptocurrencies, which have gained recognition among young investors with the surprising appreciation of bitcoin.

Until a few years ago, virtual currencies were discussed among young nerds in internet chat rooms. Bitcoin, the first and most famous virtual currency, became known in other groups when it reached the value of US$ 20,000.

As a result, people who have never invested – especially the younger ones – were tempted to make their first investments in crypto assets, even without much knowledge on the subject.

The truth is that investing in variable income, as in company stocks, already requires a capacity for market analysis. Imagine investing in something that most people don't even know why they value or devalue. How to make buying and selling decisions?

If you are interested in learning more about crypto assets and how they work, stay with us.

In this article, we will cover:

• What are crypto assets?

• What is a cryptocurrency?

• Difference between crypto-assets and cryptocurrencies

• How is cryptocurrency trading regulated?

• How to invest in crypto assets

• How to invest in crypto funds

• How to declare investments in crypto assets

• Terms related to crypto assets

Good reading!

 

What are crypto assets?

Cryptoassets are the digital representation of values ​​transacted through virtual media.

 

The most common example of a crypto asset is a cryptocurrency, such as bitcoin.

There are currently numerous other cryptocurrencies – and more and more new ones are emerging, which aim to achieve the recognition and appreciation of bitcoin.

Cryptoassets are investment products that especially attract younger people.

Partly due to the promise of high profits, partly because they are fully connected to the virtual world, it is certain that people between 20 and 30 years old tend to start investing in crypto assets without ever having made an investment in stocks, for example.

The risk is high, of course. We'll talk about that later.

What is a cryptocurrency?

Cryptocurrencies are crypto assets used for payments and other financial transactions carried out exclusively in a virtual way, which can be used anywhere in the world. In short: they do not “ exist ” physically.

By not leaving any kind of “trace”, since they are created and monitored by countless people, using blockchain, cryptocurrencies have been the main form of payment for hackers when invading corporate systems of private or public companies.

There are many cryptocurrencies, with bitcoin being the best known. Other examples are:

• Ethereum

• Litecoin

• Currency

• Nano

Difference between crypto-assets and cryptocurrencies

As explained, cryptocurrency is a type of crypto asset. This is the difference: every cryptocurrency will be a crypto asset, but the reverse does not apply. That's because there are other types of crypto assets.

Cryptoassets are digital assets encrypted under blockchain technology, trading in this same environment, and which have exclusively virtual records.

When investing in bitcoins, for example, you will be investing in cryptocurrency-type crypto assets. Another example of a crypto asset is tokens that use blockchain technology.

Simple, isn't it?

 

How is cryptocurrency trading regulated?

The IRS has published specific instructions for cryptocurrency transactions.

Cryptocurrencies emerged in 2009, but it was not until 2019 that the federal government adopted enforcement measures, as many people used the crypto-asset system to embezzle money and evade taxes.

With RFB Normative Instruction No. 1,888, accountability for all operations involving crypto-assets of any type is mandatory.

Operations must be declared through the Virtual Service Center (e-CAC) by the last business day of the following month. In case of failure to render accounts, a fine of BRL 100 to 3% of the transaction value is foreseen.

In addition, cryptocurrencies experience high volatility, which comes with risks. Bitcoin, for example, in 2017, obtained quotes that ranged from about US$1,000 to US$17,000. The following year, prices ranged from about $3,000 to $10,000!

In March 2020, in the face of the uncertainties caused by the coronavirus pandemic, this same cryptocurrency accumulated a 50% devaluation in a single week.

So, before investing in crypto assets, protect your capital in low-risk investments, such as fixed income. Cryptocurrencies look attractive and trendy, which is why they are especially popular with younger investors. But it takes feet on the ground.

There are already national exchanges that buy and sell cryptocurrencies. In addition, some brokerages have investment funds that include crypto-assets in the composition of their portfolios, as per CVM Instruction No. 555.

However, they must be operated with the help of investment advisors, to reduce risks and protect the investor.

To invest in crypto assets, consider:

• Your investor profile;

• Your availability of capital;

• Your medium and long term goals;

• The profitability offered (always be wary of high gains in a short period of time);

• The institution's performance history;

• The liquidity of cryptocurrency;

• Study widely the concepts and terms used in this market;

• First, build an emergency reserve;

• Distribute your capital across other investments, varying your portfolio and controlling risk.

Still not investing your money? So, start with the basics: get to know Modalmais fixed income products! 

 

 

 

How to declare investments in crypto assets

When transacting via exchange abroad, operations up to BRL 30 thousand do not need to be informed.

 

Although cryptocurrencies are not considered official currencies, the investor needs to declare their earnings with these assets.

The possession, purchase, or sale of cryptocurrencies in the previous year must be declared annually (must occur in the “Assets and Rights” form) in the income tax return. That is, once a year, operations carried out through national exchanges must be passed on – as is the case with the withholding income tax return.

The monthly statement is also mandatory when:

• Exceed the limit of BRL 30,000 transacted in the same month, regardless of purchase, sale, or exchange, if carried out through an exchange abroad;

• All operations use a national exchange, regardless of value.

Terms related to crypto assets

As we mentioned, the most common crypto asset is cryptocurrency. Bitcoin is responsible for popularizing the term and the concept, reducing the distance from the general population with this financial transaction model.

But there are other related terms such as:

• ICO (Initial Coin Offering): is the initial offering of a coin. Just like the IPO, which takes place on the Stock Exchange when a company goes public, the ICO process takes place when a new coin is about to be launched. This is the moment that many investors bet, expecting relevant gains (as happened with bitcoin);

• STO (Security Token Offering): similar to the offering of new coins, the STO is the offering of security tokens;

• IEO (Initial Exchange Offering): is the offer of currency carried out within an exchange - a kind of virtual "exchange" for the quotation of cryptocurrencies.

Conclusion

Crypto assets are high-risk investments.

 

Crypto assets, as we have seen, have gained visibility with the phenomenal rise of bitcoin. However, those who left to invest in bitcoin when it reached its maximum, lost a lot of money.

Investing in cryptocurrency is considered high risk, especially since little is known about the reasons that make a cryptocurrency appreciate or depreciate.