Bit coin what an opportunity to invest

With major U.S. cities competing for investments in the fast-growing blockchain industry, their leaders are increasingly trying to promote policies that help more people get at least a part of their salary in crypto.

Miami Mayor Francis Suarez said last month he would take his next paycheck “100% in Bitcoin” and has announced that he is working on a plan to pay the city’s more than 4,000 employees in cryptocurrency. Not only that, residents would be able to pay fees and taxes in Bitcoin, he told Bloomberg Television in an interview earlier this month.

Not to be outdone, New York City Mayor-elect Eric Adams says he’s exploring ways in which all the millions of people working in the largest U.S. city could be paid directly in Bitcoin and other cryptocurrencies. He himself said last month that he would take his first three paychecks in Bitcoin. Professional athletes Russell Okung, Odell Beckham Jr and Aaron Rodgers have all said they will be paid at least in part in crypto. The number of Bitcoin ATMs in the U.S. has soared 577% to about 28,500 over the past two years, according to Coin ATM Radar.

Despite the risks, proponents cite the possibility of big gains as mainstream investors increasingly plow into the space. Crypto can certainly drop, they say, but so too can it catapult to levels higher than you’d ever expect from any annual raise in a fiat-denominated salary. 

“We may not be very far from a world in which this is an option that’s offered by employers,” said Cathy Barrera, founding economist of Prysm Group and program director of the Wharton Economics of Blockchain and Digital Assets program at the University of Pennsylvania. “Whether or not employees decide to take up that offer is a completely different question.”

So in case that moment ever comes at the company where you work, Bloomberg News talked to experts about the most important things to know before making a decision:

Control the Calculation

One of the biggest allures of being paid in a prominent cryptocurrency is, of course, growth potential. Over the past decade, the price of a single Bitcoin has skyrocketed from several dollars to well over $45,000, even after the latest drop. Given surging growth this year, someone who was paid a lump sum of $100,000 in Bitcoin on Jan. 1 and managed to hold the whole time would — even after the dip — now be sitting on roughly $170,000. Those are serious returns.

But one of the main rules of investing is that past performance is not indicative of future results. Yes, Bitcoin has been on an incredible upward climb. But as this weekend’s dip shows, the crypto and its peers are notoriously volatile. The largest digital token spiked 80% in February, only to fall another 20% within a week, and rise another 30% two weeks later. In May, the currency tumbled 42% and in late November, Bitcoin fell over 8% in a single day. For someone with $100,000 in Bitcoin, that would amount to an $8,000 loss in one day. 

To be sure, most people receive their salaries in smaller disbursements over the course of the year. This can mitigate some of the severe drops of a crypto paycheck by spreading out potential gains and losses over time. Yet it still leaves a lot of questions to be answered. For instance: What happens if there is a major price change between the last day of your pay period and the day you receive your paycheck?

“You might be making it out like a bandit,” said Mati Greenspan, founder and CEO of Quantum Economics. But if prices retreat, “you might also be shooting yourself in the foot.”

To manage such uncertainty, Greenspan recommends stipulating a fiat-denominated amount of crypto compensation in your contract. That would be in your local currency, such as dollars, pounds or euros. Instead of receiving 0.05 Bitcoin every pay period, your contract would indicate that you’d receive $3,000 in Bitcoin at its price at a specified time. This would take out some of the upside if Bitcoin surges, but would ensure a more stable salary over time. 

Still, it’s also important to remember that not all coins behave in the same way, and such a contractual stipulation could lock you into a token that ends up taking an unexpected turn from its peers. This weekend, for instance, Bitcoin and Ether both dropped, but the former actually underperformed the latter. Analysts indicate this may be because of Bitcoin’s links to larger macro trends in the economy versus Ether’s connection to decentralized finance and non-fungible tokens. Even a year ago, this divergence would not have been quite so clear. 

Plan Your Tax Strategy Early

Crypto compensation simplifies pay in a lot of ways. You could theoretically cut out your bank as a middle man. Transfers are quick and transparent, a boon if your employer is in a foreign country. 

Taxes are a different story. In the U.S., the Internal Revenue Service treats virtual currencies as property, meaning their tax status resembles that of stocks or bonds, rather than of cash. As such, recipients owe ordinary income tax on whatever the fair market value of the coins is when they receive them, according to Lisa Zarlenga, a partner in Washington, D.C. at the law firm Steptoe & Johnson LLP. Recipients also face capital gains taxes when they sell or swap the coins for other digital currencies. 

Complicated taxation calculations are one reason why crypto paychecks can be a headache for both employers and employees.Still, it’s also important to remember that not all coins behave in the same way, and such a contractual stipulation could lock you into a token that ends up taking an unexpected turn from its peers. This weekend, for instance, Bitcoin and Ether both dropped, but the former actually underperformed the latter. Analysts indicate this may be because of Bitcoin’s links to larger macro trends in the economy versus Ether’s connection to decentralized finance and non-fungible tokens. Even a year ago, this divergence would not have been quite so clear. 

Plan Your Tax Strategy Early

Crypto compensation simplifies pay in a lot of ways. You could theoretically cut out your bank as a middle man. Transfers are quick and transparent, a boon if your employer is in a foreign country. 

Taxes are a different story. In the U.S., the Internal Revenue Service treats virtual currencies as property, meaning their tax status resembles that of stocks or bonds, rather than of cash. As such, recipients owe ordinary income tax on whatever the fair market value of the coins is when they receive them, according to Lisa Zarlenga, a partner in Washington, D.C. at the law firm Steptoe & Johnson LLP. Recipients also face capital gains taxes when they sell or swap the coins for other digital currencies. 

Complicated taxation calculations are one reason why crypto paychecks can be a headache for both employers and employees.