This Just In: Crypto Transactions Aren’t Tax Free

Patrick White, CEO, Bitwave

“I don’t always believe people that say they are surprised about having to pay taxes on crypto. There’s a field on your tax form to say where you’ve made money doing illegal things. If you sell drugs, there’s a place to report how much money you’ve spent selling drugs. The IRS doesn’t care. Everything is taxed in this country.”

There is no such thing as too many crypto transactions when it comes to accounting purposes according to Patrick White, CEO of Bitwave. Bitwave operates the software that does the accounting for major blockchain companies and retailers who have taken crypto as payment.

White says that the high volume of crypto transactions aren’t coming from individuals sending digital assets back and forth, but rather from the companies that host the infrastructure of these transactions.

“It’s not just trading, trading is fun and we all love the rat race that is trading, but where it’s a lot more interesting is how some of our customers who are in the NFT space are seeing millions of revenue transactions a month.”

These sites like OpenSea, a client of Bitwave, are seeing sky high amounts of these types of transactions. When asked about the cost of accounting for an individual doing ten-thousand trades a month, White laughed.

“Ten-thousand trades a month is nothing,” he said.

White spoke of an instance which is seemingly a common occurrence in the crypto world. “We had a customer who when we were running their [transactions], I couldn’t figure out [an issue] with one of their months. I went to go look at the data, and they had turned on a Binance bot and without even realizing it, they didn’t know this, they accidentally had 200,000 trades in a month. The volume is incredible.”

When asked about how digital assets have impacted the accounting world, White stressed that the amount of transactions have resulted in companies appearing larger than they are from a transactional-perspective. According to him, some of his clients are doing as many transactions as some of the largest companies in the world.

“[One client] is a one-year old company that is doing the volume of a sixty year-old retail business, it’s unheard of.”

When asked further about the difference of cost in accounting digital assets versus dollars, White explained that it isn’t much different than how larger companies have maintained their books for some time.

“No matter what, if you are a high frequency trader and you’re making hundreds of millions of trades a year, you will need software to deal with that,” said White. “I wouldn’t say that [the amount of transactions] are increasing costs across the board, it is a cost that you would already be expected to [have].”

When asked about the apparent vacuum of crypto-native accountants, White seemed to cast blame on the approach of the information. When hiring, he says he finds more value in people with engineering experience over accounting experience, and blockchain experience over anything else.

“[Other accountants] are trying to apply finance 1.0 things to this crypto world,” said White. “We look for good engineers. A good engineer can figure anything out, a bad engineer with accounting experience can’t. We’re looking for blockchain experience, as blockchain [technology] is more difficult than accounting in many ways.”

While most businesses will file extensions this time around and finish their taxes in October, White believes that blockchain accounting will become more widespread as new firms leverage the infancy of the space and settle into their niches.

“Cottage industries will come up in order to enable the IRS,” said White. “I don’t expect the IRS to build this technology or this understanding in-house. There will be people and businesses that will do it for them.”

With the IRS’ decisions about taxing crypto having the potential to change at any notice, White stressed the necessity for malleability when developing this kind of accounting technology in such an unpredictable space.

“We’ve designed Bitwave from the very beginning to be able to rapidly adjust to the new laws that are coming out,” he said. “Even back then, it was very obvious that we couldn’t build this tech in such a way that it is inflexible.”