The financial expert: wallet or bank deposit – crypto purchase in comparison

Smartphone mit Kryptowallet und René Louis Delrieux.

The purchase by means of a Wallet is the traditional form of crypto purchase and a direct investment in crypto currencies.

There are different types of wallets, with a rough distinction being made between hot wallets (online) and cold wallets (offline). The hot wallets include the wallets managed by crypto platforms. There private investors can set up a wallet, transfer liquidity from the current account, buy and store cryptocurrencies. In Germany, providers such as Bison, Binance and Coinbase have established themselves, who store the cryptocurrencies and the associated private keys of the wallets on behalf of the customers.

This developed in parallel bank deposit a convenient alternative for investing in cryptocurrencies. The driver of this development is the increasing financial market regulation, which gives asset managers, stock exchanges and banks clear rules for dealing with financial products based on cryptocurrencies.

The high investor demand for cryptos since the end of 2020 has led to a wide range of financial market products. Bank customers can primarily use Exchange Traded Products (ETPs), such as B. ETNs, ETCs or ETIs, invest in one or more cryptocurrencies.

Crypto ETPs aim to replicate the performance of the underlying cryptocurrency(s) as closely as possible. The majority of the crypto ETPs on offer use physical deposit for this purpose. This means that the cryptocurrencies are bought directly and held with a trustee. The investor thus only buys cryptocurrencies indirectly, which he could, however, also have delivered from some providers.

Pros and Cons: Availability vs. Security

The wallet most closely corresponds to one of the basic ideas of the crypto world, namely independence from the financial system. Accordingly, the wallet offers 24/7 access to your own coins, which can be traded or transferred at any time. With increasing freedom, however, personal responsibility also increases and with it the risk that e.g. B. access to the hot or cold wallet is lost.

The bank deposit offers customers a familiar and legally secure framework for trading and storing their indirect crypto investments. Unlike in the wallet, these can only be traded in the bank deposit during the usual stock exchange hours. Exchange trading itself works like other securities.

Taxation on cryptos can vary widely

The basic taxation of this income varies depending on whether the cryptocurrency is purchased directly via wallet or indirectly using a financial instrument in your own bank deposit.

Wallet: When directly purchased by a private individual, cryptocurrencies are subject to income tax as “other economic goods” according to § 2 I No. 7 EStG. The sale thus represents a private sales transaction and the regulation according to § 23 EstG applies. Accordingly, a distinction must first be made between the holding period. If this is more than twelve months, the capital gains (and losses) are tax-free. Below that, the profit is subject to personal income tax, taking into account an exemption limit of up to 600 euros.

Depot: When buying cryptos indirectly via a financial instrument, the profits and losses are subject to the usual deposit taxation. For the majority of German private investors, this corresponds to the flat-rate withholding tax of 25 percent.

Pros and Cons: The planned holding period as an important criterion

Depending on the planned holding period and personal tax situation, both direct and indirect purchases can be advantageous for the investor. If, for example, the investor wants to invest part of it strategically and for the long term and want to trade another part tactically and over the course of the year, both forms are sometimes suitable.

While the taxation of financial instruments is strictly regulated in this country and is carried out automatically by the custodian bank, the wallet entails administrative effort and uncertainties in the assessment bases. In the case of a direct crypto purchase via wallet, investors must state the sale transactions themselves in their income tax return and be able to prove them on request. This can quickly lead to calculation chaos. Although the first crypto platforms offer the possibility of exporting transactions, the individual calculation of capital gains (and losses) taking into account airdrops, staking rewards, savings plans and other special situations should not be underestimated. Crypto control programs promise a remedy, but here too manual follow-up is often required or the user has to set up and configure an API between the control software and the wallet provider himself.

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The costs in comparison

The direct trading of cryptocurrencies via wallet is characterized above all by the transaction costs, whereas in the case of a bank deposit, product costs are added to the transaction costs. There are also other cost components, such as B. the spread (difference between bid and ask price), or fees, e.g. B. to transfer liquidity from the checking account to the wallet.

The hot wallet user usually has no running costs for the wallet, with a cold wallet there may be acquisition costs. The first costs often only arise when the user wants to transfer liquidity (fiat currency) to the wallet provider. Depending on the provider, zero to three percent of the amount of money will be withheld.

The wallet user is then prepared for crypto trading, but should note the difference between the buy and sell prices and the market price. Some platforms display the market price and add a fee to it, others follow the market price and offer a slightly higher price for buying and a slightly lower price for selling. In addition, there are also crypto platforms, mostly crypto exchanges, that use the current market price and only charge a variable or fixed fee for each transaction.

In contrast, the normal custody account customer usually pays an ongoing fee for his account details. For the purchase and sale of crypto ETPs, the bank then mainly charges a flat fee and/or a transaction fee that depends on the volume. In contrast to direct purchases, with crypto ETPs an issuer is still responsible for the administration and custody of the cryptocurrencies. Accordingly, most issuers charge a management fee spread over the year, which is fed directly from the assets of the ETP.

Conclusion

The bank deposit and crypto ETPs offer increased investor protection and administrative advantages, such as order and tax statements or the safekeeping of cryptocurrencies, for which the customer pays an ongoing fee. On the other hand, there is the mostly free wallet, where the user should keep an eye on the costs of trading (spreads and fees) and the transfer of liquidity.

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