Exploring Cryptocurrency Taxation, Investment Opportunities, Rewards and Cashback Benefits

In this interview, we speak with Elitsa Taskova, the Chief Product Officer at Nexo. We'll discuss various aspects of cryptocurrency taxation, outlining individual investor's and institutions' challenges in this evolving landscape.

We'll also explore the psychology behind cashback incentives in fintech, comparing them to other financial rewards.

Please introduce yourself and tell us what you do.

I'm Elitsa Taskova, Chief Product Officer at Nexo. My role is to steer the company's 360-degree product suite. I have over eight years of professional experience in software project management within some of Europe's leading internet-native and payment businesses, so I'm no stranger to trends in the ever-evolving fintech industry.

As a Cognitive Science graduate, I am fascinated by technology's impact on our lives, and I take inspiration for my work from humanity's never-ending push to expand boundaries. I believe blockchain technology can transform every aspect of human life.

Can you describe the current landscape of cryptocurrency taxation and the challenges it presents to individual investors and institutions?

The cryptocurrency landscape presents unique challenges in taxation for both individual investors and institutions. While crypto has democratized financial participation, it hasn't necessarily equipped users with the skills to manage their financial responsibilities, particularly in tax reporting. In places like the U.S., where tax reporting is already complex, adding crypto assets adds another layer of difficulty.

This complexity is not just limited to the U.S.; in various jurisdictions such as smaller and emerging economies, people are unprepared to report earnings outside of more regular sources of income, and the average person has less access to an accountant than in the United States, making the starting point for crypto tax reporting even harder.

The result is a reluctance to liquidate crypto assets, hesitation to engage with the crypto market, frequent errors in tax reporting, and a pervasive distrust between crypto participants and tax authorities. Despite improvements over time, this gap in understanding and trust continues to be a significant source of anxiety, especially for smaller investors in the crypto space.

What trends or changes in the crypto market have increased the demand for robust crypto tax reporting tools?

The demand for robust crypto tax reporting tools has surged due to several key trends in the crypto market. Firstly, the policy shift by neobanks, which began collecting tax information, has closed avenues previously used to obscure crypto income. This change significantly impacted the way users handle their crypto finances.

Secondly, the wider adoption of cryptocurrencies has brought a larger group of people into the fold, many inexperienced in managing and reporting crypto-related taxes.

Thirdly, there's been a noticeable increase in regulatory scrutiny over the past year, highlighting the importance of legal and responsible crypto use, including proper taxation. This regulatory attention underscores that cryptocurrencies are no longer peripheral financial instruments but are becoming mainstream.

The central role of crypto taxation in discussions and policies reflects this move towards the mainstream, marking a significant shift in how cryptocurrencies are perceived and managed in the broader financial landscape.

Can you walk us through how the Nexo-Koinly integration works from a user's perspective?

We've made the integration quick and easy to use. All a client has to do is click on the Koinly button at the top of their "Transactions" section.

Then, they receive a pop-up informing them that an account with Koinly will be created, and Nexo will share their name, email address, and transaction history. It is very important for us that our clients are aware of what information we share with our partners before proceeding.

If the user decides to proceed, an account is created in Koinly, and the system redirects them to the Koinly website. Koinly pulls the transaction history from Nexo and imports it into the account – it is seamless, so clients don't need to do anything.

The client can generate tax reports from there through the new Koinly account. All reports are jurisdiction-specific (and we've got clients in 200+ jurisdictions), so our users can always generate the exact report they need.

What impact do you foresee this collaboration's overall tax compliance among crypto investors?

The collaboration between Nexo and Koinly aims to improve crypto investors' tax compliance significantly. Simplifying processes often increase usage; this integration does that for tax reporting.

Historically, a segment of crypto users preferred not to cash out their assets, opting for solutions like Nexo's Instant Crypto Credit Lines for liquidity and we expect users to continue to opt for it. But with tax reporting made easier, we're proud to be making the option to cash out on your crypto easier and less daunting.

Furthermore, accurate and timely submission of tax forms is desperately needed to streamline public sector processes for crypto, enhancing public trust in the industry. This integration serves as a tool for simplification and a bridge between the crypto community and regulatory bodies.

By automating this aspect of financial management, we foresee a notable boost in the institutional trust towards the cryptocurrency sector and its participants.

What steps are Nexo and Koinly taking to educate users about the importance of crypto tax compliance?

Mainly engaging in educational initiatives to emphasize the importance of crypto tax compliance. Firstly, we're collaborating on detailed "How to" articles with video materials and walkthroughs to guide users through our joint integration. These resources aim to make the integration process as clear and user-friendly as possible.

Both Nexo and Koinly representatives will address the most popular queries, ensuring we respond to both our perceptions of client needs and the actual issues they face. This direct engagement is key in educating our users and addressing their concerns regarding crypto tax compliance.

How do you see the demand for crypto tax solutions evolving?

I'm an optimist and a strong believer in blockchain and crypto solutions, so I can only say that I think demand will grow with adoption. If we want jurisdictions to trust crypto users and accept this industry as a full-fledged part of the financial sector, they have to.

From here, the next step in addressing the complexities of crypto taxation would be for governments to work with crypto companies and their tax partners. This would minimize end-user fees and greatly simplify the process for all parties involved (governments, consumers, crypto companies, crypto tax reporting intermediaries).

Could you explain the basic psychology behind cashback incentives and how they tend to influence consumer spending habits? How do they compare with other financial incentives, such as discounts or loyalty points, in influencing consumer behavior?

Cashback acts as a reward mechanism, especially effective in fintech and crypto industries, where it doubles as a savings tool. When consumers use cashback incentives, they save money on purchases through cashback while spending, enhancing the appeal of transactions.

The impact here is twofold. Firstly, consumers feel they are getting more value for their money, as cashback effectively reduces the net cost of purchases. This perception of getting a deal increases the likelihood of further spending.

Secondly, unlike direct discounts, cashback is credited into the consumer's account, subtly encouraging reinvestment or reuse within the same ecosystem and fostering ongoing engagement.

However, cashback is a more short-term strategy. Our focus goes beyond this into more sustainable mechanisms like our loyalty program and Earn Crypto Interest product that provides longer-term wealth growth for our customers. This approach incentivizes immediate spending and aligns with long-term financial goals, resonating more deeply with consumers.

How does the Nexo Card integrate cryptocurrency and traditional currency transactions? Can users seamlessly switch between the two?

Yes, absolutely! It all works with a simple toggle in the app between Credit Mode and Debit Mode and by adjusting what spending priority you would like to have for all the assets in your account. When using Credit Mode, the client effectively uses Nexo's Instant Crypto Credit Lines.

The required amount of crypto in their account is collateralized, and our systems automatically send the relevant amount of whichever traditional currency is requested to the client's desired bank account.

In Debit mode, the mechanism is slightly different. When a client spends EURx, USDx, GBPx, BTC, ETH, or any other cryptocurrency, we instantly sell the needed balance of the relevant currency. Now, this sum reaches the merchant in whichever traditional currency is being spent.

Swapping between these two modes can take a single tap and is instant. Clients can make one transaction using Credit mode and another in Debit mode a second apart if they wish.

The same goes for switching between spending crypto and spending fiat in Debit Mode. Clients can adjust their spending priority on the go to spend BTC with one transaction and then revert to spending their euro-based balance in their next transaction moments later.

How does the Nexo Card promote financial inclusivity, for example, in regions with limited access to traditional banking?

While the Nexo Card is currently available only in the European Economic Area, we are working on showing its true potential through our planned product expansion soon. Here's why:

First, our card could help with currency stability and conversion. It allows users to hold their funds in cryptocurrencies, which can be more stable than local currencies in some emerging markets.

When making transactions, the crypto is converted to the local currency in real-time, providing a hedge against local currency volatility. This would be especially useful in countries like Argentina and Turkey, which we are looking into.

Secondly, the Nexo Card is also handy in places with economic and political instability. Cryptocurrencies and crypto cards are considered a safer alternative in countries facing economic challenges or political instability. This is especially relevant in regions where political decisions might affect traditional financial systems. For instance, in Nov. 2023, Argentina raised taxes on USD purchases destined for savings or made with bank cards.

The crypto card is a great alternative in such cases. In countries with strict capital controls, the card offers a way to circumvent these restrictions. For instance, Argentinians cannot buy more than $200 p.m. But with a tool like the Nexo Card, individuals can make international payments and access funds more freely and for the sums they want/need than through traditional banking systems. This is why we're looking to expand into regions beyond Europe regarding our card.