Let’s face it, Bitcoin and most cryptocurrency markets have been a bit rocky of late. Even though experts differ on whether crypto is technically in a long-term bear market, the price of Bitcoin is nowhere near its peak valuation.
The definition of a bear market is a 20% decline in the value of an asset. But taking Bitcoin’s last high of $31,400 in July 2023, it has dropped around 13%, to current levels. Moreover, it has actually climbed 34% over the past year.
Nevertheless, we have seen sustained crypto bear markets before, and it’s important to know how to react. In the article, which is not designed to be professional tax advice, we explore the options if you want to protect and grow your crypto wealth.
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When the Crypto Market is in Decline
You could have built up substantial gains during the crypto good times, and you’ll want to hold on to your wealth, right?
Crypto investors and traders have made a lot of money in the past, and that means governments are looking to regulate it. In fact we have seen countries with renewed push to make the lives of crypto investors difficult. And of course there is the issue of rising taxes and greater enforcement.
In any market, it’s vital to know how to avoid crypto taxes and wealth grabs. During the dips, it’s easiest to leave your country when your assets aren’t worth as much.
Crypto fluctuates so often that whether you want to leave your country and expatriate, you can choose what you lock in, and what your assets are when you leave the country.
When people build up gains through crypto portfolios, they eventually want to take some of those off the table and diversify. As crypto regulation and taxation grows it becomes more difficult to do that. Western governments are beginning to impose stern reporting requirements.
In response, rather than trying to hide your crypto wealth, or keep it on a ledger where you can’t effectively spend any of it, we believe in exploring tax efficient options that are fully legal and transparent.
For example, no matter where you’re from, having a second residence in a tax-friendly country, and having a second citizenship that doesn’t impose wealth taxes, are very good options.
If you’re an American crypto investor, you must then decide how best to do that.
Option 1 – Moving to Puerto Rico
You can go to Puerto Rico. This is especially beneficial if you’re from the United States of America. You can keep your US citizenship and live in Puerto Rico for a number of months a year.
You have to commit though. Sometimes, people think they can move overseas for six months, cash in all their chips, and then come back to avoid being taxed.
Now, that’s pretty difficult, but if you look at it from a three, five, and seven-year perspective, and if you believe that crypto is going back up in the long term, then now is the time to get your chips off the tax table at a lower value.
If you think that the numbers are going to be lower still, then you can wait for that.
However, we think they’re going back up, so now is a great time.
There are different programs with different tests you need to pass to qualify, but let’s say that you can commit about half of your time. Then you can go to Puerto Rico and lock in the value.
Crypto markets can be volatile. This means that no matter which of these processes you’re going through, it’s going to be hard to exactly lock in the lowest prices.
However, if you can get it close, then you can say, “Here’s what I have, and these gains will stay put.”
As a US citizen, you can realize the gains in Puerto Rico. Not only that, but you can settle with the IRS, only on the part that they’re entitled to.
You see, anything that comes back and any further gains that are taxed in Puerto Rico come at 0%. So you’re basically locking in the numbers without even the need to necessarily pay right now.
This is one of the best crypto bear market strategies that every investor needs to know.
Option 2 – Leaving Your Country
The second thing that you should know is that you can simply leave your country and live abroad.
For non-Americans, becoming a tax non-resident of your country is not something that happens overnight. You need close connections to that particular country, and to shut down your ties at home.
Not only that, you have to migrate all your assets, including non-crypto assets. Plus, you need to make sure that you don’t have a house there. In some cases, you need to leave the country physically, which for some people might be difficult.
Sure, it’s difficult to physically leave, but if you settle up, when you do leave, you can go through the tax on residence process that every country has, which is their own “exit tax.”
Some countries don’t have an exit tax, and in that case, it would just be getting out as soon as possible.
However, if you’re Canadian, Australian, or someone from a legacy brand country, then you probably have an exit tax of some kind.
Dealing with Your Country’s Exit Tax
If you think that crypto will go through the roof and fiat won’t, you can potentially provide fiat denominated assets in some countries. However, when you get to the day of your departure, they’re going to say that you owe some more money.
If you’re leaving when Bitcoin is $30,000, and the cycle going to $100,000, then you have a $70,000 Bitcoin tax exposure. The percentage is on the capital gain that you will have in the future.
It’s possible to move to a zero-tax country, a territorial tax country, or a country that has an exemption on crypto. In some, there could even be an exemption on all income for new arrivals. Then you can go and book that income somewhere else, but you can’t just say, “I got from $1 a Bitcoin to $30,000.”
You can’t just leave and not pay taxes. This is why most developed countries have exit taxes.
In doing this, you have a lot more flexibility than non-Americans, besides just being able to go to Puerto Rico. You just have to find a place that’s tax-friendly.
Dealing with Your Country’s Exit Tax
If you think that crypto will go through the roof and fiat won’t, you can potentially provide fiat denominated assets in some countries.
However, when you get to the day of your departure, they’re going to say that you owe some more money.
If you’re leaving when Bitcoin is $30,000, and you see the cycle going to $100,000, then you just have a $70,000 per Bitcoin tax. Whatever the percentage is on that capital gain that you will have in the future.
There are possibilities to shift and move to a zero-tax country, a territorial tax country, or a country that has an exemption on crypto. Maybe there could even be an exemption on all income for new arrivals.
Then you can go and book that income somewhere else, but you can’t just say, “I got from $1 a Bitcoin to $30,000.”
You can’t just leave and not pay taxes. This is why most developed countries have exit taxes.
In doing this, you have a lot more flexibility than non-Americans, besides just being able to go to Puerto Rico.
You just have to find a place that’s tax-friendly.
Option 3 – Giving Up Your Citizenship
Expatriating from the country and giving up your citizenship might seem pretty difficult and emotional decisions. But there are some pretty sound reasons for wanting to.
Escaping high taxation, excessive regulation, and lack of privacy, for example, as well as the benefits of more freedom and an attractive lifestyle, are why we believe in ‘going where you’re treated best.’
However, let’s say that you don’t want to go to Puerto Rico. The main option you have is saying that you’re not going to be part of the US tax system at all.
Although, bear in mind that the US does tax people on a worldwide basis. There’s no exemption for cryptocurrency or passive income. Plus, if crypto is somehow involved in your business, then this is worth looking into.
Although generally speaking, you still need to have an active income that can be exempted, and even that’s not perfect. Still, you can save a lot of money by moving your business overseas. As an American, it’s not quite as easy as it used to be.
So what if Puerto Rico isn’t an option for you, and you still want the flexibility to go anywhere else in the world? Truth is, renouncing your citizenship shouldn’t be taken lightly and shouldn’t be done solely for financial reasons.
Sometimes, the financial benefits are the icing on the cake. However, there are certainly other reasons that you might want to leave. So if you’re going to cut your ties with your country thoroughly, that’s one option you can explore now.
The Best Crypto Bear Market Strategies
We believe that anyone with substantial crypto assets should be working on, or should already have, a second passport as an insurance policy. Whatever happens, if you can get your second passport, you’ll always have the option of cutting your ties with the US.
First you’ll have to deal with the embassy, one last time. The day before you do, they’ll figure out what assets you have on that day. So now it’s a matter of knowing the best tax strategy.
Not only that, but you have to make sure that you’re presenting yourself in the best light and reducing your tax legally. So everything should be done legally, and everything should be above board.
Sure, there are forms to file, and things to do in all these cases. Although, if you do it legally, we think there’s a silver lining when crypto prices go down.
Prepare for the Next Crypto Bear Market
A crypto bear market is a great opportunity to state your assets on paper. If you’re moving to Puerto Rico, or simply leaving your country as a tax resident, perhaps you’re even giving up your citizenship – whatever the case, you have to be able to show your financial position that day.
It’s best to go through the right steps to get yourself out of the system legally. Whatever happens later, you’ll protect your crypto wealth if you make the right moves now.
Instead of waiting for crypto to recover, now’s the time to do it. Right now, you have an opportunity to reduce your financial exposure to 30%, 40%, and even a whopping 70%. Put the fear aside this time. It’s well worth it to save yourself some money.
