Crypto tax services a ‘major market gap’, says specialist firm

Tax on Chain directors and co-founders Oliver Woodbridge and Rafael Franco have seen significant growth in their firm since opening only two years ago.

The firm, which specialises in servicing individuals and businesses engaging in crypto related activities, has filled a large gap in the market, according to the two founders.

Mr Woodbridge first became interested in the crypto space back in 2017 after his business partner Rafael Franco encouraged him to start working with the smart contract platform Ethereum.

“At the time I was quite sceptical about cryptocurrency and digital assets like a lot of people are. However, the more I started to look into it, I realised the underlying blockchain technology had the potential to really revolutionise the legacy financial system and provide massive efficiencies through the entire economy in general,” said Mr Woodbridge.

“Back then it was more theoretical and mostly just a lot of hype. It wasn’t till around 2020 when we started to see some real innovations occurring in the decentralised finance space or DeFi as it’s referred to.”

Automated market makers started to gain widespread adoption within the crypto community around that time.

“These applications allow traders to simply trade assets with one another without the need to set up any sort of account with a centralised exchange or without the need for any centralised order book,” said Mr Woodbridge.

“We then started to see the rise of borrowing and lending applications and this allowed investors to use their assets as collateral to borrow against them in with US denominated stable coins. Again, this could all be done seamlessly through smart contracts, there was no need for any loan application process, which would often take weeks or even months in the traditional finance system. All of this can be executed almost immediately through smart contracts.”

However, most investors had no idea how these complex crypto transactions were going to be taxed.

“There weren’t really many accountants out there that understood the technology at all. There weren’t really many tax practitioners that were able to provide adequate advice to anyone heavily involved in the crypto space,” said Mr Woodbridge.

“There was a big gap in the market that needed to be filled.”

The two business owners started by offering tax services to crypto investors in their spare time but as soon as the website was launched were inundated with inquiries.

There was no shortage of work and after six weeks of starting business on the side, they soon realised they could build a proper business around specialist crypto tax services.

“We decided to take the plunge and focus on building an accounting that specialises pretty much solely in crypto. Ever since then the business has been growing very quickly. There’s now a team of seven of us now,” said Mr Woodbridge.

“It’s been an exciting two years and I’m glad we made the move. We’re enjoying the ability to combine our passion for crypto with our professional expertise in accounting and tax.”

Innovation and development in the crypto space

With the expansion of different types of applications for Ethereum and other types of smart contract blockchains, transactions in this area are becoming increasingly complex.

“It’s gone from just sending assets between different wallets and maybe buying into an initial coin offering (ICO) to depositing your Ethereum into a smart contract which then allows you to borrow US denominated stable coins against them. You might be providing those through a liquidity pool in an automated market maker protocol and earning a yield from that which is paid in some type of obscure token. So things get complicated pretty quick,” said Mr Woodbridge.

“The tax complexities that come with all of that are still quite difficult to navigate even today”.

The outlook for cryptocurrency

Cryptocurrency has been around for almost 15 years and has had some large fluctuations in that time.

“The asset class as a whole has actually proven to be quite resilient. Bitcoin has actually been one of the best performing assets over the last decade,” said Mr Woodbridge.

“Price valuations aside, there’s still an enormous amount of development and innovation that’s occurring in the space at the moment.”

The following year ahead could be volatile year for cryptocurrency depending on what happens with the global macro environment and interest rates.

“I don’t think crypto is going anywhere though, it’s definitely here to stay. Over the next few years we’re going to see more real world use cases being adopted for cryptocurrency.”

Mr Woodbridge noted there has already been significant developments across payments, trading, borrowing, and lending.

“In the next phase we’ll see blockchain technology being ingrained in our everyday lives without people necessarily realising it’s happening,” he said.

"For example, we’ll see tickets to events being issued as NFTs and as part of that NFT, a royalty fee can be encoded into the NFT contract, meaning that with any sales on a secondary market there would be a large royalty fee paid back to the ticket seller. This could potentially eliminate ticket scalping.

There is also potential for real world assets such as property, shares and commodities to be tokenised and brought onto the blockchain.

“[This technology] could also give investors access to different kinds of investments that were previously inaccessible”.