Pros and Cons of Paying Employees in Cryptocurrency

Paying employees in cryptocurrency has several potential advantages and disadvantages.

Pros

• Transaction speed – Crypto transactions can be completed instantaneously without any time-consuming procedures, such as through the banking system allowing employees to receive their remuneration immediately.
• Transaction fees – Cryptocurrency processing has lower transaction costs, enabling businesses to pay employees without incurring high fees.
• Tax efficiency – The laws regarding cryptocurrency vary according to a company’s operation region. Paying employees with cryptocurrency can generate tax efficiency for several employees.For example, Bitcoin is treated as a property in the United States. Bitcoin owners are required to pay capital gains tax (CGT) which is applied on the sale of any cryptocurrency that has appreciated in value since it was acquired.Therefore, many high-salary employees prefer receiving crypto compensation rather than cash salary when the CGT is lower than the high-income tax bracket.
• Workforce appeal – Paying employees in the form of cryptocurrency acts as a hiring incentive for young individuals and the global workforce in general who understand and use crypto and want to minimize their reliance on other authorities, such as financial intermediaries. Therefore, making remunerations in crypto can provide a distinctive recruiting edge to any business.
• Potential gains – One of the unique features of the crypto market is its constant fluctuation in value. Therefore, it carries a great investment potential allowing employees to get a better value than they would have received through cash payments.

Cons

• Compliance – Laws related to cryptocurrency constantly evolve and vary greatly based on location. Therefore, it is difficult to ensure that companies paying employees in cryptocurrency comply with federal law as well as local laws.
• Volatility – The world of virtual currencies experiences great volatility, which could increase or decrease the value of payments within a short time, leaving them worthless. Therefore, making base salary payments to employees in cryptocurrency carries a high amount of risk.
• Inconsistency in global integration – Cryptocurrency lacks integration with the banking and finance systems making it a major challenge on the logistics part, such as paying cryptocurrency as salaries. Many financial institutions, including banks, do not recognize virtual currency and offer no option to integrate payments for goods and services.

Moreover, cryptocurrency is not treated as lawful money or legal tender in many countries, making it a global challenge to pay employees in cryptocurrency.

Are Crypto Payments Subject to Taxes?

Payments made in crypto are treated differently according to the legal regulations in various countries and carry different tax implications for employees and how employers choose to distribute crypto.

For Employees

The tax implications for employees receiving crypto vary according to the type of payment. For example, if employers pay bonuses, they are treated as fringe benefits and are treated in compliance with the Fringe Benefits Tax Assessment Act 1986, which accounts for 47% of the taxable value. Crypto gifts and bonuses of less than $300 per year are exempted from this tax.

For Employers

Just buying and holding crypto is not taxable in the U.S., as all taxes are applied to capital gains in the event of selling or using a cryptocurrency. However, in the U.K., cryptocurrency taxes are applicable to the current market value at the time of making payments.

Companies Paying Wages in Cryptocurrency

The increasing demand and acceptability of payments in the cryptocurrency by the top companies, including Microsoft and Tesla, has encouraged businesses to pay wages in crypto. Some companies that offer compensation in crypto include GMO Group, BitShares, SC5, Fairlay, and Bitwage.

• GMO Group- Focuses on online advertising, media, and internet finance.
• BitShares- A cryptocurrency exchange platform that allows the trading of virtual currencies and pays its employees wages in crypto.
• SC5 – A Finnish company that offers application and software development services.
• Fairlay- A cryptocurrency exchange and a prediction platform that pays its employees in Bitcoin.
• Bitwage- A solution provider that caters to services such as payroll and invoicing.

FAQs: Is Paying Employees in Crypto Worth It?

What is the legal status of paying employees in crypto?

The laws related to cryptocurrency are different throughout the world, and they might be treated as legal tender in some countries, such as El Salvador, whereas they are banned in some countries, such as China. Even if cryptocurrency exchange is accepted in a country, it does not necessarily mean that it can be used to pay wages.

What are the tax implications of making cryptocurrency payments to employees?

The state law for making a payment to an employee in crypto is different in compliance with the regulations of each country. For example, tax is due on all earnings in the U.K., which means that cryptocurrency holders are liable to pay taxes in accordance with the fair market value at the payment time.

On the other hand, the IRS treats cryptocurrency as property, and owners are liable for tax payments on capital gains.

How to be smart about paying employees in crypto?

Crypto compensation can be a convenient option with multiple potential benefits, but it will take time until it is well-understood and coordinated amongst different state and legal authorities.

Moreover, this process still needs regulatory guidance and confidence so that it can be completed without any inconvenience. Employers need to take into account multiple aspects when making their remuneration decision, such as tax implications, legal aspects, and the regulatory environment.

Final Thoughts

There is no question about the feasibility, and positive impact cryptocurrency has made on the global financial paradigm, including the payroll procedure of many companies, such as in the United States.

However, the use of digital currencies is still prohibited in many countries, including China which puts a question mark on the use of cryptocurrency as a compensation option.

As the use of cryptocurrency to pay employees is a relatively new concept, it will take some time until it becomes a reliable business practice. Therefore, the decision to pay employees in cryptocurrency should be considered through a holistic perspective by taking into account all concerning factors such as tax implications, legal aspects, and employee well-being.

Lastly, please note that this is not a piece of financial advice, and employees as well as employers need to understand the risks of cryptocurrency before making their decisions.

According to Coinglass, the latest data indicates that PENGU has recorded spot market outflows of $1.14 million. This would tend to suggest that many investors are cashing in on the recent price increase, which would be profit-taking behavior and a possible lack of confidence in further gains.

Adding to the uncertainty, PENGU’s Chaikin Money Flow (CMF) stands at -0.19, despite the price rally. A negative CMF often signals weak buying interest and hints at a possible price reversal. This divergence raises concerns about whether the rally can be sustained.

At its current price, PENGU remains just above its all-time low support level of $0.022. Analysts warn that if buying pressure continues to decline, the token’s value could dip to this level soon. On the other hand, renewed demand for the token might push its price up to $0.030.

For now, all eyes are on PENGU as traders watch for signs of either a deeper drop or a renewed surge.

North Dakota regulators are debating a bill that introduces consumer protections to combat scams involving cryptocurrency ATMs.

During a Jan. 22 hearing, lawmakers in North Dakota discussed House Bill 1447, introduced to the state’s legislative assembly earlier this month, which seeks to cap daily withdrawals, regulate transaction fees, and mandate fraud warning notices on crypto ATMs to safeguard residents from financial scams.

For those unfamiliar, crypto ATMs are kiosks at physical locations that allow users to convert cash into cryptocurrencies and vice versa. However, the limited regulation surrounding these machines and the anonymity provided by cryptocurrency transactions have made them increasingly susceptible to exploitation by scammers, who use them as a channel for funneling illicit loot.

According to Lisa Kruse, North Dakota’s Department of Financial Institutions Commissioner, locals filed 103 crypto scam complaints with the FBI in 2023 alone, resulting in reported losses of $6.5 million. 

Reported losses are much higher when considering the latest Federal Trade Commission data, which shows that scam incidents in the United States have surged over tenfold between 2020 and 2023.

At the hearing, House Representative Steve Swiontek, the primary sponsor of the bill, raised concerns over the current lack of regulations and protection measures that make it easier for criminals to exploit crypto ATMs.

What is House Bill 1447?

The bill seeks to put in place various protection measures, such as capping daily withdrawals at $1,000 and limiting transaction fees to $5 or 3% of the transaction amount, whichever is higher. 

Additionally, it mandates that all crypto ATMs display fraud warning notices to alert users of common scam tactics and advise them to contact law enforcement if they suspect fraudulent activity.  Users will also be notified of the irreversible nature of crypto transactions so they’re aware that funds, once sent, may not be recoverable.

Meanwhile, Kiosk operators will be required to acquire a license, comply with requirements applicable to money transmitters under state law, and submit quarterly reports to the state commissioner. 

They must also ensure that kiosks are placed in commercially accessible areas, are accessible to users with mobility limitations, and are equipped with adequate security measures such as proper lighting and surveillance.

The bill has received support from committee members and industry representatives, including Kevin Lolli from CoinFlip, who backed its consumer protection measures but was against the transaction limits and fee caps.

Regulatory efforts

With crypto ATM-related fraud cases on the rise, regulators all across the globe have moved to tighten oversight of the sector. Concerns over money laundering and unregulated operations also remain at the forefront.

The Niagara Regional Police announced a similar initiative on Jan. 22 where it said it would collaborate with major kiosk operators in Ontario, Canada, to issue warnings on crypto ATM machines.

Meanwhile, in Germany, authorities reported carrying out nationwide raids to crack down on unlicensed crypto ATM operations. Roughly $28 million in cash and 13 kiosks were seized as a part of the effort.

Volatility traders looking to capitalize on significant price swings may soon find opportunities. A key indicator suggests that bitcoin (BTC), currently above $100,000, resembles a coiled spring poised to release energy in either direction.

The indicator is the rolling 60-day price range, representing the variation in maximum and minimum price ticks in percentage terms. A tighter range implies stable market conditions characterized by range play and demand-supply equilibrium.

Analysis by Glassnode shows that bitcoin’s 60-day range is now tighter than the current trading range. Historically, such patterns have presaged volatility explosions.

“All of these instances have occurred prior to a significant burst of volatility, with the majority being in early bull markets or prior to late-stage capitulations in bear cycles,” Glassnode said in its weekly analysis report.

Volatility is mean-reverting, that is, it tends to oscillate around its lifetime average. Rapid price swings typically follow a low-volatility period and vice versa.

It is also price agnostic. Higher volatility means price fluctuations will become bigger and potentially more unpredictable. It does not say whether prices will surge or slump.

Recent flows, however, have been biased bullish, particularly on the Chicago Mercantile Exchange, where traders have been piling into call options. A similar bullish bias is apparent on Deribit and other exchanges.

“BTC futures continue to trend upward, especially on the front end, as the market’s net-long exposure from last week remains solid. Bullish bets currently outpace bearish ones by a ratio of approximately 20:1,” QCP Capital said in a Telegram broadcast.

If the positioning is a guide, it’s safe to say that market participants expect a bullish resolution to BTC’s multiweek consolidation between $90,000 and $110,000.