Crypto Considerations for Traditional Traders in the Philippines

Overview of the Cryptocurrency Market in the Philippines

The cryptocurrency market in the Philippines has experienced significant growth in recent years. With the increasing popularity of digital assets, more traditional traders are exploring opportunities within the trading crypto space.

As a traditional trader venturing into cryptocurrency, it is crucial to understand the regulatory landscape to ensure compliance and mitigate risks.

Differences Between Trading Traditional Assets and Cryptocurrencies

While traditional trading and crypto trading share similarities, there are notable differences that traditional traders should be aware of.

Firstly, cryptocurrency markets operate 24/7, unlike traditional financial markets with limited trading hours which make trading volume and market movements unpredictable. This constant availability presents both opportunities and challenges, as it requires constant monitoring and quick decision-making.

Secondly, cryptocurrency markets have unique characteristics, such as high volatility and liquidity. The price of cryptocurrencies can experience significant fluctuations within short periods.

This volatility can lead to substantial profits but also carries higher risks. Traditional traders need to adapt their trading strategies to account for these differences and manage the associated risks effectively.

Understanding Digital Assets and Their Classification

Digital assets, such as cryptocurrencies, are a new asset class that traditional traders need to familiarize themselves with.

Unlike traditional financial systems, cryptocurrencies operate on decentralized networks, making them independent of any central authority. They offer unique features such as transparency, immutability, and fast transactions.

In the Philippines, digital assets are classified as securities, utility tokens, and cryptocurrencies. Securities are digital assets that represent ownership rights or entitlements to future profits, while utility tokens provide access to a particular product or service.

Cryptocurrencies, on the other hand, function as a medium of exchange, store of value, or unit of account.

Capital Gains Tax

Capital gains tax on cryptocurrency trading has significant implications for traditional traders entering the crypto market. Understanding these implications is crucial to making informed investment decisions and mitigating financial risks.

Firstly, traditional traders must be aware of the tax liability associated with capital gains tax. Any profit made from the sale or exchange of cryptocurrency is subject to taxation. Failing to report and pay the appropriate taxes can result in penalties and legal consequences.

Therefore, traders need to factor in the tax liability when calculating their potential returns from cryptocurrency investments.

Secondly, to regulate and tax the growing digital asset market, the Philippine government implemented a capital gains tax of up to 15% on cryptocurrency transactions.

This tax professional applies to profits made from selling or exchanging cryptocurrencies and purchases made using crypto. Traders must factor this into their financial planning.

Lastly, the tax rate for capital gains on cryptocurrency is influenced by the holding period. Traders who plan to hold their cryptocurrencies for an extended period may benefit from the lower tax rate applicable to long-term capital assets.

This consideration can help traders come up with the best trading strategy and have their investment approach and align with their risk tolerance and financial goals.

Regulatory Landscape for Traditional Traders in Cryptocurrency

In 2017, the Bangko Sentral ng Pilipinas (BSP) issued Circular No. 944, officially recognizing virtual currencies as a legitimate payment method.

This marked a significant milestone for the crypto industry in the Philippines. The circular mandated that virtual currency exchanges register with the BSP and adhere to anti-money laundering (AML) and counter-terrorism financing (CTF) regulations

Moreover, the Securities and Exchange Commission (SEC) in the Philippines has classified digital assets as securities, subjecting them to existing securities regulations.

To ensure comprehensive understanding and adherence to the regulatory landscape in the Philippines, traditional traders should consider utilizing platforms like Binbex for insightful guidance and reliable information on cryptocurrency trading practices.

This means that traditional traders engaging in crypto trading must comply with the same rules and requirements as they would when trading assets in the traditional markets. If traditional traders are still unsure, they should seek investment advice from verified crypto traders.

Guidelines for Virtual Asset Service Providers (VASPs)

Building upon the initial regulations, the BSP introduced the Guidelines for Virtual Asset Service Providers (VASPs) in 2021. These guidelines provide a comprehensive framework for virtual currency exchanges operating in the country and ensure market integrity. Key points include:

Licensing Requirement:

VASPs must obtain a license from the BSP before commencing operations. This ensures that only compliant and trustworthy entities participate in the crypto market.

Know Your Customer (KYC):

Effective KYC measures are essential. VASPs must collect customer identification information and actively monitor transactions for suspicious activities. This aligns with global AML standards.

Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF):

VASPs play a critical role in preventing illicit financial activities. Compliance with AML and CTF regulations is non-negotiable.

As of January 31, 2023, there are 19 registered VASPs in the Philippines, including ABA Global Philippines, Inc. (trading as COEX STAR), Bloomsolutions, Inc., and the Philippine Digital Asset Exchange (PDAX).

Securities and Exchange Commission (SEC) Oversight

The Securities and Exchange Commission (SEC) holds authority over securities, investments, and financial instruments in the Philippines. Here’s how it impacts the crypto market:

Initial Coin Offerings (ICOs):

In 2018, the SEC issued an advisory on initial coin offerings (ICOs) and crypto assets. The advisory cautioned investors about the risks associated with ICOs and mandated that companies conducting ICOs register with the SEC. This move aimed to protect investors and maintain market integrity.

Documentation for Digital Asset Token Offerings (DATOs):

The new regulation mandates that all Digital Asset Token Offerings (DATOs) have proper documentation related to cryptocurrencies.

These documents should include details about the issuer, project, certificates of experts, and accompanying advice. Additionally, the token must be listed on a licensed Offshore Virtual Currency Exchange (OVCE).

Unregistered Exchanges:

In late December 2022, the SEC issued a warning against using unregistered exchanges within the country. Many of these exchanges were allowing Filipinos to access their platforms unlawfully. Traders must ensure compliance with SEC regulations to avoid legal repercussions.

Risk Management Strategies for Traditional Traders in Cryptocurrency

Trading cryptocurrencies involves inherent risks due to their price volatility and the emerging nature of the market. Traditional traders should adopt risk management strategies to protect their investments.

Diversification is key, as it helps spread the risk across different cryptocurrencies and reduces the impact of price fluctuations.

Additionally, traditional traders should stay informed about market trends and developments. Regularly monitoring the cryptocurrency market, studying charts, and understanding trading indicators can assist in making informed trading decisions.

It is also important to set realistic goals and establish stop-loss orders to limit potential losses.

Challenges and Opportunities in the Cryptocurrency Market

Entering the cryptocurrency market as a traditional trader presents both challenges and opportunities. One of the challenges is the fast-paced and ever-evolving nature of the market. Keeping up with technological advancements and regulatory changes requires continuous learning and adaptation.

On the other hand, the cryptocurrency market offers unique opportunities for traditional traders. The market has lower barriers to entry, enabling retail investors to participate more easily.

Moreover, the availability of cryptocurrency exchanges provides a convenient and accessible platform for trading.

Conclusion

Traditional traders entering the Philippine crypto market must stay informed about evolving regulations. While the government embraces crypto adoption, it does so cautiously, recognizing the risks associated with digital currencies.

By adhering to BSP and SEC guidelines and understanding tax implications, traders can navigate the regulatory landscape effectively. Remember, the crypto industry is dynamic, and staying updated is essential for success in this exciting and ever-changing space.