SEC - Page 302

As cryptocurrencies continue to reshape the landscape of global finance, a steadily increasing number of people are seeking ways to tap into this burgeoning digital economy. For UK-based investors, understanding which exchanges are most suitable is paramount to success.

With the plethora of options available, this article aims to highlight the three best crypto exchanges in the UK, detailing their standout features, security protocols, and suitability for various types of investors.

1. Binance

Arguably the most popular cryptocurrency exchange worldwide, Binance has also established a substantial user base in the UK. Its comprehensive platform offers an array of features that caters to both novices and seasoned traders.

Breadth and Depth of Market: Binance offers over 500 cryptocurrencies for trading, including Bitcoin, Ethereum, and Binance Coin (BNB), its native cryptocurrency. It also provides a plethora of trading options, including spot trading, futures contracts, and leveraged tokens.

User-friendly Interface: With its intuitive user interface, Binance caters well to beginners. For more experienced traders, its advanced charting tools offer an opportunity to conduct sophisticated technical analyses.

Security: Binance employs state-of-the-art security measures, including multi-factor authentication and an advanced risk control system. It also operates an insurance fund named SAFU (Secure Asset Fund for Users), providing an extra layer of protection.

Educational Resources: For beginners, Binance offers an extensive learning platform, Binance Academy, packed with articles, videos, and quizzes covering the basics of blockchain and cryptocurrencies.

2. Kraken

Since its inception in 2011, Kraken has become one of the most reliable and secure digital currency exchanges globally. Its top-tier liquidity and extensive range of cryptocurrencies make it an excellent choice for UK investors.

Trading Options and Currency Pairs: Kraken provides over 50 cryptocurrencies for trading and several fiat currency pairings, including GBP. It supports various trading types, such as spot, futures, and margin trading.

Security: Known for its emphasis on security, Kraken has never been breached since it started operations. It deploys robust security protocols such as two-factor authentication, encryption, and cold storage for funds.

Transparency: A distinguishing feature of Kraken is its commitment to transparency. It was one of the first exchanges to provide proof-of-reserves audits, ensuring customer deposits are properly backed.

User Support: Kraken offers excellent customer support, including live chat and a comprehensive FAQ section. It also features a beginner-friendly guide on its platform.

3. eToro

eToro’s unique proposition lies in its fusion of traditional financial trading and the cryptocurrency market. This social trading platform allows UK investors to trade cryptocurrencies while leveraging the insights and strategies of other successful traders.

Social Trading: Users can mimic trades made by experienced traders through eToro’s “CopyTrading” feature. This function is particularly useful for beginners looking to learn from seasoned investors.

Selection of Cryptocurrencies: While eToro doesn’t offer the vast number of cryptocurrencies like Binance or Kraken, it does provide a selection of the most popular ones, such as Bitcoin, Ethereum, and Litecoin.

Ease of Use: eToro’s user interface is clean and simple to navigate, making it ideal for novice traders. The platform also allows trading in stocks and commodities, offering users a gateway to more traditional markets.

Regulated Platform: eToro is regulated by the Financial Conduct Authority (FCA) in the UK, which enhances its credibility and reliability for users.

Summary

In conclusion, while Binance, Kraken, and eToro all offer strong features, the best choice when it comes to crypto exchanges in the United Kingdom depends on individual needs. If you’re a beginner, the comprehensive educational resources and user-friendly interface of Binance, or the social trading aspect of eToro, might appeal to you.

For seasoned traders, the advanced features and depth of cryptocurrencies offered by Binance and Kraken are likely more attractive. Remember, in the world of cryptocurrencies, due diligence and research are your best allies.

Hong Kong law enforcement authorities have arrested employees from Trust Reserve, the payment company responsible for the CNHC and HKDC stablecoins tied to the Hong Kong dollar and RMB. A notification displayed on the company’s office door confirmed the judicial seizure on May 29, 2023. The nature of the charges leading to the arrests remains undisclosed.

Trust Reserve, known for its cross-border payment business, employs stablecoins—digital currencies whose value is tethered to traditional fiat currencies—but has not heavily publicized these.

Notable examples of stablecoins are Circle’s USDC and Tether’s USDT, both linked to the US dollar’s value. Recently, Trust Reserve secured $10 million in a funding round spearheaded by KuCoin Investments, Circle, and IDG Capital. This followed their relocation of headquarters from the Cayman Islands to Hong Kong.

The specifics surrounding the arrests remain murky. It’s speculated that Chinese authorities are reinforcing control over digital transactions, particularly those not utilizing its e-CNY central bank digital currency. The e-CNY has reportedly amassed 260 million wallets and expanded its footprint across 25 cities.

China maintains a firm ban on crypto trading and mining activities. Some analysts believe these recent arrests may signal the state’s intent to decrease reliance on the US dollar for cross-border transactions, shifting instead towards the RMB. This shift is evidenced by the interest expressed by nations like Saudi Arabia, Bangladesh, and India in utilizing the digital yuan for trading purposes.

Post-2008 financial crisis, China fortified its cross-border payments infrastructure with bilateral currency swap agreements and the Cross-Border Interbank Payment System. Recently, a broadcast on Chinese Central Television hinted at a potential change in China’s stance on cryptocurrency, prompting speculation about the lifting of its crypto ban. However, the broadcast was subsequently removed without further clarification or updates.

Since the start of April, the price of Ethereum (ETH) has experienced a downward trend, diverging from a pivotal long-term resistance level. However, projections from the wave count and short-term market activity imply a likely upward swing in the future.

Ethereum’s main token, ETH, was established by Vitalik Buterin on the Ethereum blockchain. Although the long-term weekly outlook is primarily bearish, it is also marked by certain contrasting indicators.

In the first week of April, Ethereum reached its yearly peak at $2,151, seemingly surpassing the resistance barrier around $1,950.

Nonetheless, a dramatic drop in the subsequent week resulted in a price below this resistance level, effectively solidifying it as a robust resistance area (highlighted by the red icon).

As a result, the earlier price surge is now considered void, and the bearish trend is substantiated due to the inability of buyers to maintain the upward momentum. The closest support zone is identified at $1,600.

Yet, the weekly Relative Strength Index (RSI) maintains a bullish outlook. The RSI is a valuable tool for traders, used to determine whether a market is oversaturated or underperforming, thus guiding their buying or selling decisions.

An RSI score over 50, along with a rising trend, points towards a market favoring the bulls, whereas a score under 50 signals the opposite. At present, an RSI reading over 50 is suggestive of a bullish trend in motion.

A Brighter Picture in the Short-Term The technical analysis from a short-term, six-hour timeframe provides a more optimistic perspective, largely owing to the wave count.

The dominant wave count infers that Ethereum is currently in a long-term second wave (white). As such, a noteworthy upward climb is anticipated following the completion of the current market correction.

The short-term wave count suggests that Ethereum is in a complex W-X-Y corrective structure, thereby influencing the shape of the channel.

If this count is accurate, the price will descend towards the 0.382-0.5 Fib retracement support level, falling between $1,600 and $1,725. This trajectory also aligns with the channel’s support line.

Upon reaching this point, a significant upward surge, potentially boosting the ETH price to a minimum of $2,500, is predicted.

Cryptocurrency tax regulations in the United Kingdom are an essential consideration for any individual or business involved in cryptocurrency trading. Her Majesty’s Revenue and Customs (HMRC), the UK’s tax authority, has provided guidance on how cryptocurrencies, or as they term them, “cryptoassets,” are taxed.

How are cryptocurrencies defined in the UK?

To begin, it’s crucial to understand how HMRC classifies cryptocurrencies. They recognise three types of cryptoassets: exchange tokens (like Bitcoin), utility tokens, and security tokens. The tax treatment depends on the nature and use of the token. For our purposes, we will mainly focus on exchange tokens, which are most commonly used for trading.

HMRC does not consider cryptocurrencies as currency or money. Instead, they are viewed as a form of property. As a result, the buying, selling, and even trading of cryptoassets can have tax implications. Specifically, two types of taxes are most relevant to crypto trading in the UK: Capital Gains Tax (CGT) and Income Tax.

CGT is the primary tax applied to profits made from buying and selling cryptocurrencies. When a person disposes of a cryptoasset – either by selling it, exchanging it for another cryptocurrency, using it as payment, or gifting it – they may be required to pay CGT on any gains they have made.

The taxable gain is the difference between the purchase price (plus associated costs) and the sale price (minus any transaction costs). However, each individual has an annual tax-free allowance for capital gains, known as the Annual Exempt Amount. For the 2022/23 tax year, this was £12,300. If the total taxable gains in the tax year are below this amount, there is no CGT to pay.

If the total gain exceeds the Annual Exempt Amount, CGT is due. The rate of tax depends on the individual’s income and the asset type. As of my knowledge cutoff in September 2021, the tax rate for individuals is 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers. For businesses, the Corporation Tax rate applies.

Calculating gains and losses from crypto trading

The calculation of gains or losses can be complex due to the volatility of cryptocurrencies and the fact that they are often traded in pairs. When calculating the gain or loss for CGT purposes, the Sterling value of the cryptocurrency at the time of acquisition and disposal must be used.

In some cases, trading cryptoassets may be considered a trade, much like trading in shares or property. If the level of activity, nature of the sales, and decision-making process indicate a financial trade, the profits may be subject to Income Tax instead of CGT. This might be the case for individuals who are regularly day trading or swing trading cryptoassets.

Income Tax would also apply to individuals who receive cryptoassets as a form of payment or through mining, transaction confirmation, or airdrops. The amount of Income Tax due depends on the individual’s Income Tax band, with rates ranging from 20% to 45%.

HMRC also has rules on ‘Pooling’ for cryptoassets. Instead of tracking the gain or loss for each transaction, cryptoassets of the same type and acquired in the same way can be ‘pooled’ together. Each pool calculates its own ‘allowable cost’ – the total cost of the pooled tokens plus any allowable costs. When a token is disposed of from the pool, a proportion of the pooled allowable cost is deducted to work out the gain.

In terms of record-keeping, HMRC requires individuals and businesses to keep records of each cryptoasset transaction for at least 5 years after the tax year they relate to. This should include the type of cryptoasset, date of the transaction, if they were bought or sold, number of units, value of the transaction in pound sterling, and the cumulative total of units held.

Summary

In summary, the tax implications of crypto trading in the UK can be complex and depend on a variety of factors. HMRC’s guidelines offer a starting point, but given the complexity, seeking advice from a tax advisor or professional well-versed in cryptoassets can be extremely beneficial. It is also essential to stay updated with any changes to tax legislation and HMRC guidelines regarding cryptoassets, as these may change over time.

Leverage in the world of cryptocurrencies refers to the use of borrowed capital, or margin, to increase the potential return on an investment.

Trading on leverage involves borrowing money to increase the amount of cryptocurrency a trader can buy, with the expectation that the profits made from the trade will exceed the cost of the borrowed funds.

How does crypto leverage trading work?

To illustrate, consider a cryptocurrency that a trader expects to increase in value. Without leverage, a trader with $1,000 could buy 10 units of a cryptocurrency priced at $100. If the price increases by 10%, the trader’s holding would be worth $1,100, a gain of $100. If the trader used 2:1 leverage, however, they could buy 20 units of the same cryptocurrency for $2,000, with $1,000 being their own money and $1,000 borrowed. If the price increases by 10%, the trader’s holding would be worth $2,200. After repaying the borrowed $1,000, the trader would have $1,200, a gain of $200.

It’s important to note that leverage is a double-edged sword; it can significantly magnify profits, but it can also exacerbate losses. If the trader in our example made a wrong prediction and the price of the cryptocurrency dropped by 10%, they would lose $200 instead of just $100.

Crypto exchanges usually offer different levels of leverage, such as 2x, 5x, 10x, or even higher. Some exchanges, like BitMEX and Binance, offer up to 100x leverage for certain cryptocurrencies. The choice of leverage level depends on a trader’s risk tolerance, market expectation, and trading strategy.

When trading with leverage, a trader needs to provide collateral to the exchange, which serves as a guarantee for the borrowed funds. This collateral is typically a percentage of the total value of the trade and is known as the margin. Should the trade go against the trader, the exchange will execute a margin call, requesting additional funds to cover potential losses.

The specific point at which a margin call is executed is determined by the maintenance margin. This is the minimum amount of collateral that must be held in the account to keep the trade open. If the account balance falls below the maintenance margin, the exchange will automatically close the trade to prevent further losses, a process known as a liquidation.

Why crypto leverage trading is risky

Crypto leverage trading can be extremely risky, especially in the volatile crypto market. Price fluctuations can be abrupt and significant, which can lead to quick liquidations and substantial losses. In a highly leveraged trade, even a small market movement against a trader’s position can wipe out their entire account balance.

Despite the high risk, leverage trading is popular in the crypto market for several reasons. Firstly, it allows traders to potentially achieve high returns with a small initial investment. This can be especially attractive in the crypto market, which is known for its high volatility and substantial price movements. Secondly, leverage trading can be used for hedging purposes, allowing traders to open positions that offset potential losses in their other investments.

However, to successfully navigate the complexities and risks of leverage trading, traders need a deep understanding of the crypto market and strong risk management skills. This includes setting proper stop-loss orders, regularly monitoring market conditions, and being prepared to adjust their strategies based on market changes.

Regulation is another important consideration for leverage trading in the crypto market. Crypto markets are still relatively unregulated compared to traditional financial markets, and this can expose traders to additional risks, including the risk of exchange insolvency and fraud. However, some countries have started to introduce regulations to protect traders and ensure market integrity.

In conclusion, crypto leverage trading is a high-risk, high-reward strategy that can potentially yield substantial profits but can also lead to significant losses. It is not suitable for everyone and requires a high level of knowledge, experience, and risk tolerance. As with any investment strategy, it is crucial to thoroughly research and understand the implications of leverage trading before getting involved.