In 2020, the Austrian crypto-exchange Bitpanda announced that they now offer tokenized precious metals, aside from all common cryptocurrencies, for trading and hodling. What exactly tokenized gold, silver, palladium and co. entail for us and how they are legally treated and taxed can be found in this blogpost.
What exactly are tokenized precious metals?
Basically, tokenized precious metals are digitalized securities or bonds. For example, your bank can give you a gold certificate in return for cash. This certificate entitles its owner to sell their claim of the gold for the current gold rate at any time they want to. This is exactly how it works for tokenized gold as well, except for the fact that the certificate is not just a piece of paper but, instead, on the blockchain. This sounds quite simple in theory, but the regulatory framework does not acknowledge every claim or certificate to be of equal status. Any security or certificate can have different legal consequences even though its main aim and intention are exactly the same.
Depending on the exact intention and aim of the financial instrument, the tokenized metal can fall into the following categories:
- The classic security or certificate describes a contract between two parties for an asset, in this case a precious metal. The owner of the certificate is guaranteed to be entitled to sell their certificate in exchange for the current rate at any time they wish to do so. Just like with a regular certificate, you can sell and buy the tokens of metals at any time.
- A future or forward is a type of contract that is similar to the class certificate, however, it has a set price when the precious metal is meant to be sold. For example, when gold hits a certain value, the metal is automatically sold. Similarly, you can use your token to bet on a specific price of the metal and sell it when it is reached.
- Aside from that, there is also a claim on backed gold. In case someone wants to exchange their token for actual gold, they are also entitled to do that.
What are the pros and cons of tokenized metals?
The biggest advantage of tokenized metals is that they can be traded on online platforms at any time and from any place in the world. With regular securities and certificates, the owner has to rely on the opening hours of banks and stock exchanges. Also, on these platforms they can easily be exchanged for other assets, e.g. Bitcoin.
Another big advantage is the reduced cost of buying precious metals. Gold traders can easily charge you 50% of the price just for selling you a gram of gold. The more you buy the less they charge you in fees. Tokenized metals, on the other hand, offer a steady fee no matter how much or little you buy.
A controversial aspect of tokenized metals, however, is that most people who buy metals do so because they want a physically backed asset. Many people view gold and other metals as something that will always hold value and cannot just be frozen like a bank account. This argument is often found in debates concerning cryptocurrencies and especially for older generations has a lot of importance.
How are tokenized metals taxed in Austria and Germany?
There’s three options of how to tax tokenized metals in Austria and they depend on the exact circumstances and intentions of the asset:
- A security or certificate is subject to capital gains tax, which is at a constant rate of 27,5% in Austria and 25% in Germany (as of 2020).
- With futures and forwards the progressive income tax rate comes into effect (up to 55% in Austria and 45% in Germany, depending on the amount of the total annual income). It is important to note that a forward or future is not automatically tax free after a year, as it is basically a contract that starts and ends every single day.
- Speculative trading (i.e. physically backed gold) is subject to the progressive income tax rates as well. This type, however, is tax-free if it is held for longer than a year.
We highly recommend to contact a certified accountant or legal advisor in your country for further guidance on tokenized metals.