Can Cryptocurrency Be Used as a Source of Funds to Invest in the U.S?

by | Mar 31, 2022

U.S. immigration law makes visas available to immigrant investors seeking to enter the United States to engage in new commercial enterprises that benefit the U.S. economy through job creation and capital investment. The two most common – and quite different- investors visas are EB-5 and E-2 visa. 

One of the visa requirements is that the investor must have acquired the funds from lawful sources such as personal savings, investment earnings, gifts, inheritance, proceeds from sale of property, business, or sale of cryptocurrency (under certain circumstances). 

To understand if cryptocurrency can be used as a source of funds for E-2 visas, it’s important to understand certain terminology.

What is Cryptocurrency?

Cryptocurrency is a digital or virtual currency that is secured by cryptography and uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of cryptocurrency is carried out collectively by the network. 

Cryptocurrency is based on a blockchain, which is a system in which a record of transactions in Bitcoin or any other cryptocurrencies are maintained across several computers that are linked in a peer-to-peer network. Blockchain is the underlying technology of cryptocurrency that keeps the system secure and is the main reason why cryptocurrency is such a big deal. It’s the backbone of the whole operation. A series of blocks make up a block chain within each block are a series of transactions.

The first Bitcoin was the very first cryptocurrency invented in 2008 by an unknown person or group of people using their name Satoshi Nakamoto. Since then, several other cryptocurrencies, tokens and NFTs have been created: EthereumLitecoinCardanoPolkadotBitcoin CashDogecoin and more. 

What is a Crypto Wallet?

crypto wallet is a virtual or digital wallet where people store their cryptocurrency to keep it safe. There are different types of wallets:

  1. Software Wallet is a software used on your desktop or mobile phone similar to a digital bank account for your cryptocurrencies, in order to manage, send and receive your coins. GeminiBlockFiZenGo
  2. Web Wallet is also called “hot wallet” and hosted by third partis such as cryptocurrency exchanges online for convenience. For example, a popular web wallet is Coinbase.
  3. Cold Wallet is any type of wallet that is not connected to the internet, such as paper wallet or USB drive
  4. Hardware Wallet is a device specifically designed to safely store cryptocurrencies. They are probably the safest way to store cryptocurrencies. 

Every cryptocurrency wallet has a public key and a private key

Public Key is used to receive funds. It identifies your account on the network and it can be searched in the ledger.

Private Key is only used to sign transactions and prove you own the related public key. 

Why was Cryptocurrency Created?

Satoshi Nakamoto wrote “the brute problem with conventional currency is all the trust that’s required to make it work.”

The main purpose of cryptocurrency was to create a new way of payment that could be used internationally and globally. It could be decentralized without having any financial institution behind it and have a set limited supply of it. 

Where is the Problem?

The two principal problems of using cryptocurrency to invest in a U.S. enterprise is that the investor must prove the funds were legally obtained and ownership. Cryptocurrency transactions are relatively new. The legal framework is still new and there are still many unregulated areas. 

Is There a Regulatory Legal Framework?

The first step in the analysis is to know if crypto transactions are legal in the jurisdiction where it was purchased or transacted. This requires investigating if there is any regulatory framework for crypto currencies exchanges and any tax implications.

The United States hasn’t yet developed a clear regulatory framework for the asset class. What is clear, so far, is that the Internal Revenue Service (IRS) classifies cryptocurrencies as property for federal income tax purposes and are subject to short-term and long-term capital gains.

Canada regulators have generally taken a proactive stance toward crypto in Canada. It became the first country to approve a Bitcoin exchange-traded fund (ETF) in February 2021. Additionally, the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) have clarified that crypto trading platforms and dealers in the country must register with provincial regulators. Furthermore, Canada classifies crypto investment firms as money service businesses (MSBs) and requires that they register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). From a taxation standpoint, Canada treats cryptocurrency similar to other commodities.

The United Kingdom considers cryptocurrency as property but not legal tender. Additionally, cryptocurrency exchanges must register with the U.K. Financial Conduct Authority (FCA) and are banned from offering crypto derivatives trading. Moreover, the regulatory body has introduced cryptocurrency-specific requirements relating to know your customer (KYC), as well as to the above-mentioned AML and CFT. Although investors still pay capital gains tax on crypto trading profits, more broadly, taxability depends on the crypto activities undertaken and who engages in the transaction.

Similarly, to the United Kingdom, Singapore classifies cryptocurrency as property but not legal tender. The country’s Monetary Authority of Singapore (MAS) licenses and regulates exchanges as outlined in the Payment Services Act (PSA). Singapore, in part, gets its reputation as a cryptocurrency safe haven because long-term capital gains are not taxed. However, the country taxes companies that regularly transact in cryptocurrency, treating gains as income.

Cryptocurrency is legal throughout most of the European Union (EU), although exchange governance depends on individual member states. Meanwhile, taxation also varies by country within the EU, ranging from 0% to 50%. In recent years, the EU’s Fifth and Sixth Anti-Money Laundering Directives (5AMLD and 6AMLD) have come into effect, which tighten KYC/CFT obligations and standard reporting requirements. In September 2020, the European Commission proposed the Markets in Crypto-Assets Regulation (MiCA)—a framework that increases consumer protections, establishes clear crypto industry conduct, and introduces new licensing requirements.

Proving Identity and Ownership of Proceeds From the Sale of Cryptocurrency.

This analysis may present different scenarios, some more complex than others. The essential issue is the anonymity of the crypto wallets. Investors have the burden to prove their individual identities and ownership of the cryptocurrency and transactions. This can be more difficult is the investor has several types of wallets, own different cryptocurrencies and Tokens, or obtained cryptocurrency using Decentralized Finance (DeFi), Decentralized Autonomous Organization (DAO), or if the investor may have traded cryptocurrency in surface web, or in the dark web, or deep web.

Conclusion:

Foreign investors may use the proceeds from the conversion of cryptocurrency into U.S. dollars.  Working with an experienced immigration attorney well versed in cryptocurrency will provide you the answers you need. The attorney will take a proactive approach, investigate, research, and decide if using proceeds from the sale of cryptocurrency to apply for a U.S. investor visa is doable. Silvina Tondini is a national speaker on Immigration Law and cryptocurrency and has represented several foreign investors to successfully obtain investors visas in the U.S. using the proceeds of the sale of cryptocurrency while minimizing tax consequences.

Silvina Tondini, Esq.
Silvina Tondini is a bilingual, skilled, international advocate and a national speaker on Immigration Law with years of diversified experience providing counsel and directing individuals and business clients on business and immigration law matters.

Attorney Silvina Tondini can be reached at (760) 579-7389 or by email at info@tondinilaw.com

Disclaimer: This blog is for informational purposes only. If you have any questions, please contact our office.