• James Robinson CFP

Beware of Cryptocurrency and Blockchain Stocks ‘Fraud’

I recently reached out to HashChain Technology Inc., after getting a call from a dear friend (Name omitted to protect his identity) who I consider quite successful in business and I consider him a seasoned investor. But like many investors…he is vexed by Cryptocurrencies related stocks.

If fact he invested a sizable amount in HashChain Technology Inc., (TSX.V: KASH, OTC: HSSHF www.HashChain.ca ) and has seen his investment caved in to almost nothing over a short period of time. I reminded him that it was a ‘Pink Sheet Stock.’ At the same time, I went to the company website and their Twitter feed and left this message.

“You make this statement in a September news release posted on your website.":

'Since this deployment, Hashchain accumulated a gross value of CAD $1,770,000 from Bitcoin and CAD $14,000 from Dash, based on coinmarketcap.com prices for both digital currencies on September 5, 2018 (CAD $8,965, CAD $30). The company will not be receiving Canadian dollars (or any other fiat currency) as a result of the company's plans not to convert the Bitcoin or Dash into fiat currency and until the company's plans change..." Source: HASHCHAIN NEWS

Here are my QUESTIONS sir:

  • Is this value baked into your current stock price?

I asked this question to give them the benefit of the doubt that the company may be worth more than the dismal stock price currently reflects.

  • How are the other two companies (Recently acquired) figured into the stockholder’s equity?

Sir, investors need to be able to connect the dots. You are the experts…we are not.'

This has been a week ago as of this post (11/10/2018). I have not heard from them and do not expect to hear from them. I conveyed this opinion to my friend. He was not happy.

More bad news. He thought that he could leverage his sizable loss as a short short-term capital loss. He cannot as his IRA holds this investment. The IRS treats investment losses within an IRA far less generously than those outside an IRA. Most people who lose money on stocks in an IRA won't be able to deduct their stock loss. Those who may have a deductible loss must give up tax advantages on their retirement savings to claim the loss. Here’s why; You must close out your IRA and take all the money as a cash distribution. If you have multiple IRAs, you must close out all of them, not just the one that suffered the loss. No money or assets can remain in any Traditional or Roth IRA accounts. By closing your accounts, you will no longer enjoy the IRAs' tax advantages. Also, you must itemize deductions on Schedule A to claim an IRA stock loss.

The Journal of Accountancy.com gives us this guidance: “The IRS treats cryptocurrencies as property rather than currency for federal tax purposes (Notice 2014-21). Holdings are not taxed but gains and losses are. When a trader who holds a cryptocurrency as a capital asset sells that cryptocurrency, the rule is that if it was held for less than a year it is treated as short-term capital gain and taxed at an ordinary income rate. If it was held for more than a year, it is taxed at long-term capital gains rates. If it wasn't held as a capital asset, the taxpayer will recognize ordinary gain or loss on the sale. Increased regulation, however, is a near certainty. We're still in the Wild West, but the days of a more settled landscape are fast approaching. The IRS issued a news release in March reminding taxpayers that income from virtual currency transactions should be reported on income tax returns. In May, the AICPA submitted comments recommending the IRS release immediate guidance regarding the tax treatment of virtual currency transactions, similar to that of Notice 2014-21 so that authoritative guidance exists. All blockchain-based trades have a permanent record, so if you want to be conservative, it is safer to report these transactions.Source: Journal of Accountancy News Letters

In conclusion, I heed you to learn from my dear friend mistake. There are honest sincere Cryptocurrency and Blockchain companies...then there are the bad guys.

Cryptocurrency and BlockChain related stock fraud and trading scams have grown significantly and are among most-common kind of investment scams in the United States

Investing is one thing. Gambling and speculation are another. If you know the difference…it prevents angst, heartburn and anger.

Stay safe and use common sense.

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