What CryptoDad must do to avoid the fate of PirateDad

In “If You Thought The Coinbase Bankruptcy Disclosures Were Bad…”, Mark Jeftovic under a big picture of Canada’s Prime Minister Justin Trudeau on his Davos throne, alerts us that in the private property rights including bank accounts, have reverted to the pleasure of the realm:

“Hell yeah, we’ll take your savings.”

Given the behaviour of  governments just this year alone, where

• in Canada having the wrong political views could get your bank accounts seized,
• The US seized the  foreign reserves of two sovereign nations
• European banks are frantically seizing assets of persons with surnames ending in ‘-ved’ , ‘-nin’, ‘-tin’, ‘-lin’ or ‘-ov’
• Russia, for their part, is seizing assets of Western companies within their borders

Jeftovic’s bigger point is that it’s not safe to keep your cryptocurrency on an exchange. While Jeftovic is right that leaving your crypto investments in the hands of a dodgy exchange is straight madness, no matter how you store it cryptocurrency is intrinsically insecure. Given that cryptocurrency is entirely digital, cryptocurrency is about the least safe place to keep assets unless they are entirely secret. Good luck remembering or hiding those keys. Robbers have been known to visit crypto-tycoons and quietly confiscate their entire holdings. Pretty good wages for a bit of surveillance and a couple of hours of hard work.

It’s like 16th century pirates maps. Most of the treasure just disappeared under a palm tree on an uninhabited island:

One well-connected tech-industry figure said he knew someone who kept the keys to $350 million worth of cryptocurrencies in a physical safe and had another contact who buried the private keys for millions of dollars of cryptocurrencies in a forest for safekeeping.

Who knows how many golden goblets and cases full of jewellery and gems are still buried. The descendants of those pirates for the most part trod this earth miserable and broke.

Dad was a pirate, usually caught within three or ten years and then keel-hauled or hung. All of dad’s visible wealth was confiscated by the forces of justice in favour of the Crown. Pirate dad’s descendants, where they existed, were either enslaved or enjoined into the navy. Most of the descendants of pirates were métis as the only women out in the South Sea or the Caribbean were natives.

Moving back to modern times, if CryptoDad managed to keep his crypto wealth secret from the government, partially by never using it or never trading it publicly for assets, then CryptoDad has committed a tax crime. Deliberate fraud, and omission counts, has no statute of limitations.

“Fraud is deception by misrepresentation of material facts, or silence when good faith requires expression, which results in material damage to one who relies on it and has the right to rely on it.”

Jeftovic doesn’t go far enough. Even holding your own keys is enough.

As crypto continues to develop as a pirate and undeclared asset, one can expect that the IRS and the US financial system (this will hit us in Europe as well in many cases) will change statutes to make crypto based fraud – “hidden assets” – a multi-generational crime, with the proceeds subject to confiscation. Hence, the only viable way to play crypto at this point (and it will get worse) will be to report holdings and report income. If you cannot make money trading in and investing in crypto in jurisdictions where it is legal and while declaring your income, eventually the authorities will catch up to you. It’s not just the IRS who are tracking crypto-investors and traders. Here’s advice from a UK tax lawyer:

“Remember, with any sale or other disposal – such as a gift to someone else – a Capital Gains Tax liability will arise, even if the sales proceeds are reinvested in another type of crypto or in other more conventional assets.”…

“If you buy and sell crypto regularly, or as part of a business trading in crypto, you will be liable to Income Tax instead of Capital Gains Tax on your trading profits – after setting off losses.

There are micro-investors who could slip through the sands here, of course. Just as over the centuries there have been small time pirates, robbers and burglars who managed to acquire substantial assets via their trade. I don’t like the odds in the digital age, with unlimited record-keeping and permanent spying. Everything is filed now in Utah, in the CIA’s huge data-centres – this includes email, especially Gmail or Outlook or Hotmail, but not limited to, all centralised instant messages (WhatsUp, Messenger, Slack), all social media (Facebook, Twitter, of course and many of the more obscure ones too, including VK.com from the public posts). In the good old days, records were paper and difficult to store and maintain. Many of the statutes of limitations were based on the impossibility of presenting a reasonable case after five years, as the documents would all be gone and the case would be mostly hearsay.

Steps to elude the techno-gulag

Now documents are forever, at least at a state level. We are prisoners of the technocracy. The sooner we realise that we all live in a giant gulag, far beyond what the Siberian gulag which Solzenitsyn survived and described, the better for us. Some ground rules include:

• reducing your social media profile (if you wouldn’t want to see it printed on the front of your local paper, don’t put it online)
• taking care what you send in email
• if you are dealing in real secrets, find an old laptop whose OS you can live with and physically remove or disable all radios and networking. I know many lawyers who own such a computer and keep it in a locked safe. This already affects journalists and should eventually affect writers.
• do not have substantial conversations via telephone. There was a brief golden age of cellphone communication where it was possible to obtain a true burner phone with no ID shown or attached to the purchase of the SIM card and where the conversation was encrypted. At this point, anonymous SIM cards don’t exist and all call records are filed, with most conversations recorded and filed in parallel.¹

How to keep your wealth safe

Sadly there’s almost no magic answer here. Personal real estate enjoys substantially more protection still. For now the government is loathe to turf the families of white collar criminals into the streets.

Cash is very helpful. Transact in cash where you can, as that leaves no record or what you bought or where your money came from. This only helps in relatively small amounts but a little bit of privacy goes a long way to disrupting investigation. Family businesses like ice cream shops and street stands can still do a good portion of their trade in cash, although I’ve heard France is making this much more difficult in 2022. If half the profit of a cash-business stays in cash and is distributed among the principles in cash, and spent in cash, that is a substantial improvement in quality of life without attracting undue attention.

File your taxes and file them accurately. There is still a fair amount of scope for legal deductions, make sure to know your tax code well. The people at the top always leave a current dodge in the tax code for themselves, whether making mortgage payments tax deductible, removing income tax on dividend payments or allowing unlimited presents to family members. As far as I know none of those dodges are currently in place, but they have recently existed in some European jurisdictions.

Do not put wealth offshore. There was a period of about fifteen or twenty years where the “smart” upper middle-class money in Canada, the UK and Europe was setting themselves up accounts in tax havens and slipping. There were countless guides to how to do it, respected tax advisors built-up helpful contacts. The end result was an endless string of leaks. Even UK celebrity football players were punished for ostensibly legal offshore film investment schemes, some of them made homeless. These days everyone who puts wealth offshore gets caught. Even golden boy Vladmir Zelensky has been caught red-handed stashing over a billion dollars offshore. Zelensky knows the only way he and his family will be able to hold onto that money is via favour of the realm, as a protected party, in this case the USA and NATO.

Never grow attached to your money. Somebody can always take it away. A good technique is to give away a lot of it to family and business partners in small pieces. Pursuing all the bits and pieces through an extended social network is still hard and unpopular work for the tax authorities. This contradicts some of what I’ve written above, but what I’m talking about is breaking off pieces of the small fortune to allow it to naturally disappear beneath the froth of life. A generous (wo)man is always popular and it will always be easier to rebuild your fortune with all that good will among your community and extended entourage.

Fate of CryptoDad²

The Golden Age of Crypto is almost over. CryptoDad is a pirate and will finish as pirates almost always do – chased by the authorities, hounded to death. Clever CryptoDad is in touch with good tax lawyers, declaring his main holdings and converting them to real property before the collapse of crypto and/or the implementation of new anti-Bitcoin, anti-cryptocurrency laws.

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Image from promotional images for Amazon’s Black Sails series.