As the world of cryptocurrency changes pretty much as regularly as I change my underwear (just to be clear mum, that is a lot, I promise), one of the very common questions we are asked by prospective managers looking to set up a new crypto focused fund is whether they can take in subscriptions in a digital currency of some form, whether that is from their own wallet or from an outside investor’s stash.
Now, my colleague Lewis Chong did a fantastic job in an earlier blog of setting out one of the primary issues with this request, which is fundamentally whether the fund is technically able to satisfy its anti-money laundering and countering the financing of terrorism obligations when the largely anonymous and untraceable nature of these assets makes it very difficult to verify that they actually belong to the proposed investor.
Lewis went on to set out some ways in which a fund might be able to reduce this risk and I am sure as and when he finds his mystical silver bullet and pops it in his gun, he’ll publish another blog on this front, because it is so crucial to ensuring the rapid growth of this bespoke sector isn’t stunted.
But, there is another interesting angle to the digital subscription in kind, if a fund (with a highly competent administrator) is able to get comfortable with taking them in. As I was talking to our friends at Richey May recently, who have been in this space for a long time now, they pointed me towards one of their blogs in January which addressed the question of the tax analysis in these circumstances. Rather than remotely trying to paraphrase it, I thought it far more preferable to post it for your education (as well as mine). Enjoy.