How Can You Buy Bitcoin & Co?

An insight into my personal crypto set-up

“Big Picture” of how to buy and store crypto currencies as well as declaring your taxes.

Disclaimer: The following is an account of my personal set-up for crypto-investments. I am in no way qualified or licensed to give investment, legal or tax advice. You should not base your investment decisions on any statement in this article. Crypto currencies are very volatile and present an extraordinarily risky asset class. The only recommendation that I can give, is not to invest any amount in crypto currencies that you could not cope with losing entirely.

TL;DR

• If you want to invest into crypto currencies, crypto exchanges like, e.g. Kraken (affiliate link), are your place to go.
• To buy crypto currencies, you have to fund your crypto exchange account with fiat currency (Euros, Dollars, …).
• On the exchange itself you can trade (buy and sell crypto currencies for fiat currencies or trade crypto currencies against each other).
• Should you decide to sell your crypto currencies, you can withdraw fiat currency from the crypto exchange back to your bank.
• You shouldn’t permanently store your crypto currencies on the exchange for security reasons. To that end, use a hardware wallet like, e.g. Ledger Nano X (affiliate link), and store them in the way that is “native” to the blockchain.
• As crypto currency adoption progresses, new possibilities arise. There is now a provider for Bitcoin savings plans (and there might be others but I only know this one so far): Relai (not an affliate link itself but if you enter REL2951 when registering, your fees will be 2.5% instead of 3.0% and I will participate with 0.5%).
• If you trade cryptocurrencies, you will most probably have to pay taxes on your gains. To support you with your tax declaration, you can export your transaction data from the crypto exchange and let a professional provider like, e.g. CryptoTax (affiliate link), prepare your tax report.

A long long time ago in a galaxy far far away I first heard of a digital currency called Bitcoin. A friend of my brother who worked as a Java programmer had received some Bitcoins as part of his variable salary component. Actually, I only heard about it when the price had already risen quite a bit and that friend was allegedly able to quit his job and live of his Bitcoin profits for a year or two. I knew nothing about Bitcoin and the underlying blockchain technology back then and — unfortunately — I did not decide to find out because I thought that that ship had already sailed…and boy was I wrong…

Years later, on a flight from Hamburg to Stuttgart, I read an article in the German business magazine “manager magazin” that portrayed a number of very young and — what really caught my attention — very rich people that had made a fortune with mining and/or trading Bitcoin and other crypto currencies. Now, although I really liked my job as a management consultant, I still thought it would be quite awesome to make heaps of money without much effort and maybe not having to board planes at 05:45 am anymore. So this time, I decided to dive in and secure a part of the cake for myself.
What’s important for this article is that following the decision to finally buy some Bitcoins, I just didn’t know how to do it. And I believe that’s a hurdle many beginners have to overcome. While more and more “bridges” are being built, in most cases, you still cannot just call your bank and ask them to add some Bitcoins to your portfolio. That’s why I decided to write this article: To point out and explain one possible set-up to invest in crypto currencies. Don’t be fooled, there are about a million ways to do that by now and I’m not providing you with the one-and-only best solution.
I will explain everything in a step-by-step account so if you already have some basic knowledge, you may want to skip a section or two.

First things first: What is Bitcoin and what are crypto currencies?

While we may not need to become experts on Bitcoin & Co, we should probably gain at least a basic understanding of what we are investing in. Bitcoin is one (and actually the first) example for the broader definition of crypto currencies. Like the name suggests, we are dealing with some kind of money, i.e. something that serves as a means of exchange, a measure and store of value and so forth. However, crypto currencies are usually not emitted by a central bank of a country (or union of countries) and thus neither backed by a country’s creditworthiness nor broadly accepted as a means of payment (yet). Their value entirely depends on demand and supply and thus ultimately on whether people believe in them.
We will probably see the rise of a number of so-called central bank digital currencies (CBDCs) in the years to come and some of these may be implemented as crypto currencies and potentially be tradable along the same paths described in this article but that’s just speculation for now.
The word “crypto” in crypto currencies stems from the fact that cryptographic methods are used in the technology underlying the digital currency to link data in a way that makes it pretty tamperproof and for securing access to any funds stored in what we might consider an account. The common misconception that crypto currencies provide privacy by means of cryptographic measures does not hold true by default. In fact, the networks maintaining the crypto currencies that are tradable today are public and whose money has been transferred to whom is only masked by pseudonyms that allow to infer identities if the same “accounts” are used in transactions repeatedly.
A crypto currency is technologically maintained on a so-called distributed ledger, i.e. there are countless replications of a shared ledger that records all transactions distributed across a network. The most common data structure used to implement a distributed ledger is blockchain (used for well-known crypto currencies like Bitcoin, ether and tez) but there are also other approaches like the directed acyclic graph called “the tangle” that is the technological foundation of the crypto currency Iota.

Ok, got it — but how can I buy a crypto currency?

The “native” way of transferring money of a crypto currency is to use the crypto currency’s actual network. A so-called wallet is where you keep what you might think of as the crypto currency version of a bank account (just minus the bank). You (auto-)generate a pair of keys (two very long alpha-numeric sequences), one of which can publicly be shared and serves as the address used to receive money (you might want to think about it as the equivalent to your bank account number: anyone who knows that number can send you money). The other one is your private key that should not be shared with anyone and that you can use to digitally sign a transaction, i.e. to authorize the transfer of funds from your wallet to someone else’s address (or another one of your own addresses). You might want to think of the private key as your bank account’s password plus any multi-factor authorization mechanism. Just bear in mind that it only is one factor (that is considerably longer and much more random than any password you are likely to choose) and that there is no bank that can help you regaining access to your funds should you lose or forget your private key.
Now in order to buy a crypto currency — let’s say Bitcoin, you would need to find someone who already owns some amount of Bitcoin, agree with them to exchange some of their Bitcoin for your Euros, Dollars or whatever currency you possess (the currencies that you are likely to know as “normal currencies” are referred to as “fiat currencies”) and execute two transactions: one within the Bitcoin network where your trading partner sends you the agreed amount of Bitcoin and one in the “classic” banking world, where you send an agreed amount of fiat currency to their bank account.
This process is of course very impractical and there is no “phone book” with people willing to sell Bitcoin for fiat currency. That’s why there are so-called crypto exchanges. You can think of them along the same lines as stock exchanges: they provide a marketplace for demand and supply of listed crypto currencies and charge a fee in return for their services (usually a trading fee but no fees for opening and maintaining an account). Compared to the inherent network fees of a crypto currency, these fees are usually relatively high, compared to fees charged in the context of trading stocks and other “classical” financial assets, they are usually relatively low.
The classical approach for exchanges is to provide a centralized platform but in the crypto context, more and more decentralized exchanges emerge so you might come across the acronyms “CEX” and “DEX” for centralized and decentralized exchanges respectively.

How do I choose a crypto exchange?

That is of course entirely up to you, but I am happy to share some considerations that led to my decision:

• Trustworthiness: Where there is light, there are also shadows and where there is money, there are often people trying to cheat you out of it. The young crypto scene has seen a fair share of scams and you should always be careful where you put your money. To select a trustworthy crypto exchange, I’d make sure that my exchange has existed for more than just a year or two and that it is located in my country or a jurisdiction that I deem strict enough to prevent or at least prosecute scams. There are also a couple of ranking sites out there, that might be worth checking. A quick Google search led to Coinranking, CoinMarketCap, CoinGecko and many more.
• Security: A crypto exchange is just another platform on the internet and thus prone to hacks and phishing attempts. I’d choose an exchange that has successfully avoided hacking and phishing scandals like the 2019 attack on the formerly Chinese crypto exchange Binance. I’d also make sure all “visible” security features that are common today are in place.
• Reliability: Another bad thing that could happen would be if you urgently wanted to buy or sell a crypto currency but couldn’t due to system downtime. That could also be caused by an attack but may simply be the result of poor IT infrastructure or badly conducted updates. Again, I’d scan the internet for any complaints to vet my favorite candidate.
• Fees: Fees charged by the exchange directly impact your trading profits. High trading fees might be more acceptable for a longterm investment strategy that speculates on a longterm upward-trend while they could be a killer if you want to engage in high-frequency trading that mainly exploits the asset’s volatility. Of course, there might be a trade-off between fees and other properties like trustworthiness as new exchanges might charge less in order to gain market share.
• Listed trading pairs: Trading pairs are the combinations of assets/currencies that you can trade on the exchange, e.g. Bitcoin-Euro is a trading pair, meaning that you can buy and sell Bitcoin with/for Euros. The whole exchange won’t do you any good, if you cannot trade the asset of your desire there. If you only want to trade the most common crypto currencies like Bitcoin and ether, any crypto exchange should do. If you want to buy a new crypto currency because you speculate on an astronomic success of the coin, you might have to go for the only exchange that has listed the currency so far (which might render all other considerations irrelevant).
• Trading volume: The more people trade on the exchange, the higher the average trading volume, the more liquidity. If there are not enough traders on an exchange, you might have to wait comparatively long before your trade is executed and miss out on chances through follow-up trades.
• UI and feature set: The UI — especially the forms for entering the actual trades should be clean and understandable. Most exchanges offer different versions for beginners, intermediate and advanced traders. There might also be differences in additional features like the possibility to leverage deals. I have never used these additionally risky features but if that is what you are looking for, then you should make sure your exchange offers it.
• Recommendations from friends: It may not be the most rational criterion but word of mouth recommendations always carry some weight. Maybe one of your friends already uses a crypto exchange and is happy with it. It’s only a very small sample in statistical terms but there’s also the advantage that your friend will be able to “show you around” the exchange and it’s features.

I decided to use Kraken (affiliate link). The exchange has been around since 2013 and is based in San Francisco, USA. To the best of my knowledge, it has never caved to any hacker attack, it ranks among the largest exchanges with respect to trading volume and it has acceptable fees that actually decrease with personal trading volume (within the 30 days prior to the trade). It was recommended to me by a friend and it has all the “visible” security features that I can think of. This review confirms the impression.

Ok, I chose my crypto exchange — what’s next?

After deciding on a crypto exchange, you’ll naturally have to sign up with them. Usually, there are different verification levels, that allow different functionalities/limits on the exchange.

In the screenshot below, we can see the example of the Kraken account verification stages as well as their associated features and limits. For a Starter account, you just need to provide some personal information that doesn’t go beyond the usual stuff you would expect to be asked for any online platform. However, the Starter account doesn’t allow bank transfers, so you wouldn’t be able to deposit and withdraw Euros, Dollars (or whatever floats your boat) from your bank account. But that was one of the main reasons we even needed a crypto exchange, right? So better get verified for Intermediate. For this, Kraken does a real KYC (know-your-customer): You have to provide a photo of yourself presenting your ID to the camera and a handwritten note with an individual text.
The good news is that you don’t need to proceed to the Pro verification level, if you can live with the ample limits of the Intermediate level and don’t wish to engage in over-the-counter (OTC) trades.

Screenshot from the different account verification levels and their associated limits and features

How Do I transfer fiat money to the crypto exchange?

There are multiple ways to deposit fiat money into your crypto exchange account and some of them might work quicker which can be an advantage, if you quickly need to get liquidity to exploit a market opportunity. Most of the time however, it doesn’t really matter if you have to wait a little while and that’s the way I work with: a simple bank transfer — for me that’s a Single European Payments Area (SEPA) bank transfer.
On Kraken, you have to go to Funding, choose your fiat currency (Euros in my case) and click on Deposit. You’ll be redirected to a page where you can select from the various transfer methods in a dropdown menu and then be presented with the details of how the transfer works. You can select from several banks that Kraken cooperates with. You don’t need an account at that very bank, it’s just a bank where Kraken has an account. The details include the IBAN of that account and — most importantly — a personal reference code that you need to include in order for Kraken to be able to associate the bank transfer with your account. I copy-paste the data and always double-check. Even when I use a transfer template from my bank, I always check that nothing has changed, before I send the money. I believe a SEPA transfer is allowed to take up to three banking days, but I can’t remember ever having to wait that long for the money to appear in my Kraken account.

How do I get fiat money out of the crypto exchange?

It probably won’t surprise you, but it’s just as easy to withdraw money that you have traded back to your fiat currency. Again, there are multiple ways, but I stick with the good old SEPA transfer. On Kraken, you again go to Funding, select your fiat currency and click on Withdraw. After selecting SEPA, you can register one or more bank accounts and then use the registered account to withdraw money within the allowed daily/monthly limits (according to your verification level) and of course your available funds.

Now I know how to get fiat money into the crypto exchange and how to get it out again — can we please finally buy some crypto currency?

Sure thing — that was the whole point, right? Most exchanges offer different trading frontends for different levels of proficiency. On Kraken this is called Simple, Intermediate, and Advanced.

The Simple interface allows you to buy and sell at market or a specified limit price. I don’t use the market price option as cryptos are very volatile and sometimes the price may change quite a bit even during the time I enter my order. The limit option lets you define a specified price at which the trade should be executed.
What can be a bit confusing with the Simple interface is that you cannot change the trading pair within the interface itself. Instead, there is a horizontal bar beneath the website’s header where you can select your “market” and this market is then used as the trading pair in the Simple interface.

The “Simple” trading interface on Kraken

The Intermediate interface is the same as the Advanced one minus two things: It’s limited to the order types Market and Limit already known from the Simple interface and it doesn’t offer the optional conditional close of a trade. I usually use the Advanced interface and just leave out the options that don’t concern me:

The “Advanced” trading interface on Kraken

In this view, you can select your trading pair directly in the interface (by default, the one from the selected “market” is used). In addition to the Market and Limit order types, the Advanced view also offers Stop Loss, Take Profit, Stop Loss Limit, Take Profit Limit and Settle Position order types. What is important to understand is that the Stop Loss and Take Profit orders will generate a Market order when the Stop Loss Price/Take Profit Price is touched while the Stop Loss Limit and Take Profit Limit orders will generate a Limit order at your specified Limit Price once the Stop Loss Price/Take Profit Price is touched. So the Stop Loss/Take Profit orders are good if you want to guarantee (full) execution of your order but there’s a risk (especially in markets with lower liquidity) that the market price will jump quite a bit between the touch of the Stop Loss Price/Take Profit Price and the actual price your order executes at (so it might be a lot worse from your perspective). The Stop Loss Limit/Take Profit Limit orders have the advantage that they guarantee an execution at a price that is equal to or better than your specified Limit Price but they come with the risk that they may not be (fully) executed.

Let’s consider an example: I have 1 Bitcoin and am celebrating that around Christmas 2020, it hit a new all-time high at a price of over 20,000 €. However, I fear that this price peak was only caused by exaggerated euphoria and that the price will soon plummet. Of course, I could just sell my Bitcoin at the current market price and be done with it. But what if I’m wrong? What if the Bitcoin continues to rise to 40,000 € and I miss out because I sold prematurely?
To avoid this regret, I could post a Stop Loss Order to sell — at let’s say 20,000 €. This way, if the Bitcoin continues to rise I participate in its success but if it touches 20,000 € a Market order will be created and I can be pretty sure that my whole Bitcoin will be sold. Maybe at 20,000 €, if I’m lucky even above that, but there is also the risk that there is a gap in the order book and the next best buy order (after the order that touched my Stop Loss Price) is at 19,800 € (this may or may not be a bit exaggerated, but it illustrates the point). Then I would sell my Bitcoin at 19,800 € and get a whole 200 € less.
To avoid this risk, I might want to go with a Stop Loss Limit order with a Stop Loss Price of 20,000 € and a Limit Price of 19,950 €. Now a Limit order would be created at 19,950 € once the Bitcoin price touched 20,000 €, guaranteeing that I would only sell at a price that is higher than 19,950 € and thus limiting the offset to my Stop Loss Price to -50 €. However, in the scenario described above, where the next best buy price in the order book it at 19,800 €, my order might not be executed at all if the price continues to decrease and I wouldn’t have stopped my losses at all.
The consideration where to set the Stop Loss Price is also not trivial: I don’t want to set the Stop Loss Price too low, because that means giving up more value (getting less Euros for my Bitcoin). However, I have also had situations in which I set my Stop Loss Price too close to the Market Price resulting in an execution from a short price anomaly that contrasted the actual upward trend. We should never forget that up until now, crypto currencies are highly volatile assets.

In the Advanced trading view, you can also delay the publication/execution of your order to a future point in time and set it to expire if it hasn’t executed by a specified time and you can leverage your deal up to a factor of 5. You can select to which of the currencies of your trade pair your trading fees will be applied and specify whether your limit order should be posted (which guarantees that you will be charged with the Maker fee instead of the higher Taker fee).
What is an interesting option in the Advanced trading view is that you can already specify a conditional close. This will create the specified order to close your deal when your original order has been fully executed.
In the example from above I might decide that I would like to buy back one Bitcoin should the price fall further to 15,000 €.

Can there be arbitrage between crypto exchanges?

The no-arbitrage theorem of economic theory dictates that in a perfect market, there can be no profit without risk. In real markets, however, we do not have perfect information so different prices for the same good may exist at different market places. If you check different crypto exchanges, you will notice that the prices often differ slightly — at least in the lower decimals. An imperfect but functioning market will always quickly exploit such price differences, adjusting the price in the process until there is no price difference anymore. I have never seen a significant price difference that existed over a longer period of time but I have heard that people have greatly profited from cross-platform operations.

I heard that I shouldn’t store my crypto currencies on a crypto exchange, so what can I do instead?

Crypto exchanges have been known to be the targets of cyber attacks (hacks, phishing, …). It would be a very sad thing to successfully trade and generate profits but then lose them when your crypto exchange get’s hacked. There is broad agreement that crypto funds should not be held in exchange depots on a long-term basis and Kraken also recommends this.
As described at the very top of the article, a wallet is the “native” way to store your crypto currencies. There are software wallets that you can install on your PC/Mac but it is generally acknowledged that you achieve the best trade-off between security and convenience with a so-called hardware wallet. That’s a little hardware device that you can keep separately from your internet-connected devices and that keeps your private keys on an encrypted chip.
There are multiple hardware wallet solutions on the market. The best-known ones are probably Trezor and Ledger (affiliate link). Ledger has recently caused a lot of controversy because one of their databases holding customer data was hacked. While such a hack cannot endanger the funds held in a hardware wallet (Ledger doesn’t have access to your private keys), it’s of course a bad feeling to know that criminals might now know the names and addresses of Ledger owners and attempt to get hold of the devices in a serious of physical break-ins. I always tell myself that a hack is an event that draws a company’s attention to its own weak-spots which then get closed, making the set-up safer in the process and that customers whose data has not been affected by the hack (e.g. because they weren’t customers yet) thus actually profit from greater security — but that’s probably only lying to myself.

So do I need a hardware wallet?

I’d say it depends. E.g., a Ledger Nano X currently costs 119 €. If you’re a beginner and only want to buy an experimental 100 € worth of crypto currency, it probably doesn’t make sense to buy a hardware wallet that is more expensive than what you want to keep safe. But if over time you wish to invest more, a hardware wallet might quickly become a very important investment (and there are also cheaper alternatives than the Ledger Nano X).

How does a hardware wallet work?

It is important that crypto wallets put you in charge of your own money. That is a good thing in most cases but you need to be aware that there is no bank that can help you to regain access to your funds, if you somehow lose it. There are reports of very unhappy people that have lost fortunes in cryptos because they lost their hardware wallets or private keys.
If you set-up a hardware wallet like the Ledger Nano X, you will need to take note of 24 words that represent your only means of recovering access to your funds should your hardware wallet get damaged or lost. They should thus be kept equally safe (a thief could access your funds with the recovery phrase) and physically separate from the actual hardware wallet. Both for the wallet and the recovery phrase (which you may want to also keep redundantly) you should consider hazards such as thieves, fires, water damage and so forth (keeping them at home on your kitchen counter is probably not the best idea — bank safe deposit boxes, fireproof envelopes, etc. can provide a level of security that may be adequate depending on the amount of funds in your wallet).
Once you have initiated your hardware wallet, you can install wallet apps for the crypto currencies that you wish to hold (you can find listings of which crypto currencies are supported by the respective hardware wallet on the manufacturers’ websites). The number of different wallet apps that you can install is limited by the device’s disk space and of course you can have multiple addresses (“accounts”) for the same crypto currencies.
Now you can send crypto currency that you have acquired at an exchange to your wallet’s address (and of course someone else can send you crypto currency, if you tell them your address, i.e. the public key). Your funds are not somehow “physically” held “in” your hardware wallet. The distributed ledger just maintains the information about the transaction that sent the money to your wallet’s address and as long as there is no transaction sending it from there to another address, it obviously must still be in your possession. Now in order to access the funds and authorizing a transaction that removes them from your wallet’s address, you need to “sign” it with your private key.
Ledger offers a smartphone and PC/Mac app called Ledger Live that provides a practical user interface to enter all transaction details. To finalize the transaction you authorize it by connecting your hardware wallet and entering a six-digit numerical pin that you had to choose as part of the set-up. The hardware wallet then signs the transaction by means of your private key which it maintains on its encrypted chip.
The Ledger Live interface adds convenience by allowing you to check your balances, the development of their values, etc.

Can I buy Bitcoin in a savings plan?

Yes, you actually can. The only provider that I know so far (but I guess there’s bound to be more out there) is the Swiss company Relai. For now, you can only buy Bitcoin there, so no savings plans on ETH, XTZ or any of your over favourite coins.
Setting up the savings plan is actually quite simple and doesn’t require setting up an account. You just download the app to your smartphone (Android/iOS) and it instantly comes with a Bitcoin wallet (first thing you should do is to set a pin and create a “backup” of that wallet’s seed words by writing them down).
You can then specify a savings plan in the simple UI displayed below: Just set an amount of EUR or CHF (no other currencies are supported at the moment) that you want to spend and an interval (weekly or monthly). On the next screen, you enter the IBAN of your “classic” bank account from which you will be investing and optionally enter a referral code (if you do enter my referral code REL2951, you will get a 0.5% discount on your fees and I will participate with 0.5% as well).
On the final screen, you get the account information of Relai’s bank account. You have to transfer the money used by Relai to buy your Bitcoins and send them to your wallet yourself, so if you are creating a savings plan, it’s probably best to create a standing order (otherwise the whole point of creating a savings plan is lost).
Just like you had to with the funding transactions at Kraken, you have to include an individual code for Relai to be able to associate your payment with your savings plan and wallet (which I redacted in the screenshot so you don’t actually send money to me).

Screenshots from the RELAI app showing how to set up a Bitcoin savings plan

No do I think the whole thing is a good idea?

Let me be honest with you: I myself do not have a Bitcoin savings plan at Relai so far (and I will elaborate a litte on that further down). But some people asked me, if you can buy Bitcoin as part of a savings plan, so I thought I should include the information I have and amended my article to cover this topic as well.

Why is is not for me (so far)?:

1. Well, first an foremost I just lecture you on security a bit further up and that you should keep your money on a hardware wallet. If you are engaging in a savings plan, you probably don’t have a huge investment coming into your wallet every week/month. Yet the clear goal of a savings plan is to accumulate a larger sum over a longer stretch of time. So eventually, there should be quite some money in your wallet on Relai (or at least quite some money considering your individual financial situation). However, it’s only a software (hot) wallet, so it might be hacked (and your wallet’s seed words don’t actually get deleted once you confirm taking a note of them but stay in the app!).
   One possibility to counter this threat would be to transfer the money to a hardware (cold) wallet yourself…but again: this would take all the fun out of a savings plan. A compromise might be to do the transfer on a bi-annual basis or something, thereby both limiting your manual effort but also your exposure.
   Another possibility would be if you could just register your hardware wallet’s adress in Relai and they sent the money that. But either that is not possible (yet) or I am just too dumb to find the feature.
2. As I have stressed multiple times in this article, Bitcoin (and all cryptos for that matter) are extremely volatile. While with savings plans, “cost-averaging” is part of the plan, I personally, think that with Bitcoin & Co. you are better off just trying to buy at a fortunate time yourself. A savings plan buying on a fixed interval might get you some extremely unfavorable prices (to be fair: you might also get lucky and profit from an extreme dip). So it’s basically the same logic as with savings plans on stocks and funds but with even more volatility and that is just not my taste (so far).
3. With 3%, I consider the fees charged by Relai (1.8%) and it’s associated broker Bity (1.2%) to be comparatively high: On Kraken, trading fees range between 0.00 and 0.26% depending on the trading pair, your trading volume within the past 30 days and whether you are maker or taker of the trade. So Relai fees are more than 10x of those you get on a standard crypto exchange (though you don’t get the savings plan service there).
4. As we will see further down, taxes are an issues with crypto trading. To be able to use the service of a professional crypto tax advisory, I need to be able to provide them with all my transaction information. Yet in Relai, I have not yet found an option to export transaction history.

All in all, I think Relai has set out with a good start but there’s still room for improvement. If Bitcoin savings plans are what you are after, they are probably a good choice at the moment and I expect they will further improve over time.

And what about taxes?

Well, most people don’t particularly like paying taxes but unfortunately, you have to. Legislation about the taxation of profits from crypto assets is still at its outset in most countries but I have decided to remain on the safe side and declare and pay taxes according to experts’ opinions on the interpretation of current tax laws.
The fear of being caught and punished for evading taxes probably shouldn’t be your motivation for paying them in the first place, but maybe it can serve as an additional motivation to consider that getting away with tax evasion in the crypto sector is highly unlikely in the long run: Transactions with crypto currencies that are maintained on a publicly available ledger can obviously be traced years after the transactions took place and as the US company Chainalysis has proven, the analysis of transaction data can often be used to identify the owner of an address. Following the use of Chainalysis’ software, many US citizens received some very interesting letters from the IRS.

Ok, I’ve accepted that I need to pay taxes on my crypto currency activities but I just don’t know how…

Yep, that’s a problem and I must admit that I didn’t really know which tax rules apply and how the applicable taxes need to be paid. Not wishing to become an “accidental tax criminal”, I have decided to seek professional advice.
I use the service provider CryptoTax (affiliate link) to determine how to declare my taxes properly. I guess there are other suitable providers out there but so far I have been happy with them and after their merger with Blockpit, they now are the largest service provider specializing in tax reports for cryptocurrencies in Europe. What’s important when selecting a provider in this context, is to make sure that it covers the taxation laws in your country (I believe CryptoTax covers a wide range, but haven’t checked further as only German regulation is relevant for me).
In order to compile the tax report, the service provider of course needs your transaction data. There are two ways for this:

1. Manual provision: You can download all your transaction data for a specified period as Excel or .csv files from your chosen crypto exchange(s) and then upload the export(s) to the tax report service provider.
2. APIs: You can grant the tax report service provider (restricted) API access to your accounts for automatic retrieval of the data. Note that you only need to provide reading access. Never let a third party have API access that allows the execution of trades.

Once all data for the fiscal year in question has been provided/retrieved, the tax report can be created. At CryptoTax this is a summary with an explanation where in your tax statement (which form fields) you have to enter which values. There is also a listing of every transaction that has been considered in the report. I don’t provide these listings as an attachment to my tax statement by default but it’s good to have them because once I was asked to provide them. After I did, my statement was accepted without further questions.

There’s one more thing I want to share: CryptoTax has a pricing scheme where you do not pay anything for their services as long as you have 50 or less transactions within a fiscal year (it then goes to 199.99 € for up to 10,000 transactions or 599.99 € for unlimited transactions). Especially as a beginner and/or if you start trading at the end of a fiscal year, you may stay below the 50 transactions…and that’s what I thought. But then I had just two or three transactions too many so since I still wanted my tax report, I had to pay 199.99 € (making my last transactions very expensive). They didn’t cheat me or anything, it’s just that I only thought of trades as transactions. But of course funding moves (bringing fiat money into your crypto exchange or moving crypto currency between your exchange and your wallet) are also transactions, so be aware of that if you wish to stay beneath 50 (or 10,000) transactions.

What’s left to say is that I, personally, haven’t gotten rich from crypto trading so far. So the dream of making heaps of money without much effort hasn’t worked out yet. But Bitcoin and other crypto currencies are on the rise again and I am still hoping ;)