Sale of Investment Product – A look at Crypto Currency
For this feature on how the Deferred Sales Trust can help owners of highly appreciated financial assets, let’s take a look at highly appreciated Crypto Currency and Concentrated Stock Positions.
Both can involve a high degree of speculation and can also be a result of being in the right place at the right time.
First let’s take a look at Bitcoin, arguably the most well known Crypto Currency being traded today. Crypto investing is not for the faint of heart. It is relatively new and how it works is not well known to the masses. It is highly speculative for these reasons as well as being as yet unknown how widely this new form of currency will be adopted in coming years around the world. Price swings over the past several years have been wide and unpredictable. Without trying to explain the phenomenon, let’s just look at some numbers.
If you had invested $10,000 in Bitcoin in February of 2013 you might have purchased each coin for around $134 giving you about 75 Bitcoin. Had you held that same Bitcoin until February of 2018 each Bitcoin would have been worth about $9,664 per coin giving you a total value of over $721,000, If you had held that same Bitcoin until February of 2021, each coin could have been worth over $45,000 giving you a total value of $3,375,000. Of course, timing is everything and between 2013 and 2021 there were more days than not where the value of your Bitcoin was probably not worth much more than you paid for it.
It is often said that a successful gambler or a successful speculator will know to take some chips off the table from time to time. The problem here (even though it may be a good problem to have) is that you will have to pay capital gains taxes on the gains or profits you realize when you sell.
This is where the Deferred Sales Trust (DST) can come in to help you take some chips off the table, defer the capital gains taxes on the sale, and diversify your proceeds among less risky investments, and maybe hold some back to reinvest back into the next dip in crypto.
The DST Strategy can work just as well with highly appreciated Crypto Currency as it can with Real Estate, a Business or highly appreciated collectables such as Art.
If you are a crypto investor and might be looking to take some of your chips off the table, give us a call to see how this might work for you. But be aware, due to the volatile nature of coin values, don’t wait until the next market high before you start looking at this solution. It takes some measure of time to set up the structure before you are able to execute a sale successfully so exercise good timing on both ends of the spectrum.