Last but not least, it's also possible to invest in cryptocurrencies with the expectation that their price will rise in the future. If this happens and we sell the purchased cryptocurrency after some time, we will have a profit. Let's again consider that at the beginning of 2021, we invested 1000 euros in Bitcoin, and after a year, we sold this cryptocurrency. However, compared to investing in stocks, there is one difference regarding the taxation of returns. When trading in cryptocurrencies, the one-year time test is not applied in Slovakia, so profits from cryptocurrency trading are always taxed. If the profit does not exceed the amount of 37,981.94 euros, it is taxed at a 19 percent rate. The part of the tax base (profit) that exceeds this threshold is taxed at a 25 percent rate. Additionally, the profit is also affected by health insurance contributions, where the rate is 14 percent.
Example:
At the beginning of 2021, we invested 1000 euros in Bitcoin. For this amount, we could buy 0.0413 Bitcoin. At the end of 2021, the value of Bitcoin was 61.7 percent higher.
Calculation:
Nominal return before taxation = 1000 x 0.617 = 617 euros
Tax = 617 x 0.19 = 117.23 euros
Health insurance = 617 x 0.14 = 86.38 euros
Nominal return after taxation and health insurance contribution = 617 – 117.23 – 86.38 = 413.39 euros
Nominal rate of return after taxation = (413.39/1000)x100 = 41.339 percent
Real rate of return after taxation (and after accounting for 3.2 percent inflation for the year 2021) = 41.339 – 3.2 = 38.139
The actual change in purchasing power for an investment of 1000 euros in Bitcoin, which lasted throughout the year 2021, is 381.39 euros. Cryptocurrencies, including Bitcoin, are highly volatile assets. In practice, this means that they can change their value sharply even in a short period. The high growth of Bitcoin's value in 2021 does not necessarily indicate that the situation will repeat itself, for instance, in 2022. On the contrary, this year, we witnessed a sharp decline in the cryptocurrency market.
