Crypto assets

Crypto assets are a form of digital money that has proven to be a popular complement to “real” money. Another characteristic of crypto assets is that they can be used for payment without a need for intermediaries such as banks. This means that anyone can send money via the Internet to anyone without a central intermediary. The best known decentralized crypto asset is currently Bitcoin. Crypto assets are based on blockchains. A blockchain is a decentralized database where the data are updated through algorithms. This data is kept safe and interlinked using cryptography.

You can buy crypto assets in the LHV mobile app and in the internet bank. In the mobile app, go to the “Investment” screen (third icon from the left at the bottom), select “+” at the top right and then "Buy Crypto Assets”. Then enter the crypto asset you want to purchase and the amount.

In the internet bank, go to “Investing” → “Buy-sell” and choose “Crypto assets”. Enter the desired amount and crypto asset you wish to buy.

You can purchase crypto assets if you have agreed to the conditions of provision of crypto assets and completed the appropriateness questionnaire.

If you have purchased crypto assets in your LHV account, you can sell them via the mobile app or in the internet bank. In the mobile app, tap on the crypto asset and select “Sell”. In the internet bank, go to “Investing” → “Buy-sell” and choose “Crypto assets”. From there, choose the transaction type as “Sell” and enter the crypto asset you wish to sell and the amount.

No, you cannot pay with the crypto assets that you have acquired through LHV. They can only be traded.

No, you will not receive a separate crypto wallet address when buying crypto address through LHV

Crypto assets are high-risk financial instruments. The value of cryptocurrency has been known to increase or decrease 20 or 30 percent in a single day. There is no guarantee that crypto assets will retain value or increase in value. The crypto sector is also less regulated and may not offer the investor protection measures that are common for securities.

Before making a transaction with a crypto asset, we recommend a thorough analysis of the nature of the specific crypto asset and the financial, legal and tax issues related to the prospective transaction.

Among other things, crypto assets are exposed to risks that may result from changes in the national legal environment, cyber security, and various fraudulent schemes that increase the risk of loss of the entire value of crypto assets.

The client’s order will be completed on the following terms:

• The order is always sent to the crypto exchange immediately, without the broker’s manual intervention.
• LHV does not gather or divide clients’ orders, meaning that the order inserted by the client is sent to the market directly in the set amount.
• The maximum transaction sum is 100,000 euros to avoid transactions that would affect the liquidity of the market.
• When using the market order type the order is filled immediately, with the best available price.
• Orders with a price limit are filled according to the chosen limit and the market situation.
• The orders on the exchange will be filled using the of first in, first out method, i.e. the orders that have come through first will be filled first in case of equal price point.

The list of crypto assets tradable in LHV with their description can be found on the product page.

The crypto exchange is open 24 hours a day, seven days a week. So you can buy crypto assets at LHV at any time. The transaction is executed immediately.

It is currently not possible to transfer other crypto assets to LHV.

You can buy crypto assets as an individual and as a company. Keep in mind that the tax rules on gains are different for individuals and companies.

No, crypto assets cannot be gifted. They can only be purchased or sold on one’s own LHV individual or business account.

Yes, you can. To do this, select a child account and enter a crypto asset purchase order.

No, they are not. Income tax is payable on capital gains on crypto trading made by individuals. Losses do not offset the taxable amount. Example: If you buy Bitcoin for €100 and sell it later for €150, your taxable gains will be €50. A loss of, say, 60 euros on a subsequent Bitcoin trade will not reduce your tax liability on the €50 capital gain. Read more about taxation here.

The crypto assets will appear on your LHV account immediately after the transaction.

Since crypto assets are not currently part of the investment account system, yes, we do recommend opening a separate account for trading crypto assets.

Transfers between accounts cannot be made. The only option would be to sell the crypto assets purchased on the wrong account and then re-purchase the assets on the correct account. Investment account system principles do not apply to crypto assets. Therefore, we recommend that you open a new account for trading crypto assets.

The external custodians with whom the LHV clients’ crypto assets are held will decide on the crypto assets held by them when the split occurs. External custodians do not guarantee that every split is also supported on their platform, but they are analysed on an individual level, taking into account their security in particular.

LHV’s role in ensuring the security of its clients’ crypto assets is mainly through the selection of partners with a high level of security. LHV’s partners are Bitstamp, a licenced crypto exchange in Europe, BitGo, a licenced custody service provider in the US. Additionally, both the custody and the trading service is provided by a US company Bitstamp.

The crypto assets of all LHV clients are protected in accordance with our partners’ security processes:

• The majority of clients’ assets are stored in a cold wallet, a location that is not connected to the Internet, meaning that these assets cannot be stolen virtually. The keys to these wallets are stored in a physical form in a secure location.
• To a lesser extent, clients’ assets are held in a hot wallet, a place connected to the internet, which is used to carry out stock exchange transactions on an ongoing basis. These assets have a higher risk of falling victim to cybercrime.

All in all, the vast majority of clients’ assets are kept in a wallet that is not electronically accessible. Additionally, both types of wallets are insured, providing protection in the event of theft. The final impact on a client’s assets in the event of a cyber-attack will depend on a number of factors, but mainly on which of our foreign broker’s hot wallets is attacked (which crypto assets) and the value of that wallet. A cold wallet attack is supposed to be a physical attack, so it is less likely to happen. However, should this happen, clients will also be protected by higher insurance.

We recommend that you buy crypto assets in a separate crypto account (which you can open in both your mobile and Internet Bank), as crypto assets are not part of the investment account system. If you buy crypto assets for an investment account, they will appear as withdrawals in the investment account statement. Sales are recorded as contributions to the investment account. This means that when it is time to file your income tax return, all purchases of crypto transactions will be counted as withdrawals and you may incur a tax liability (if the withdrawals exceed the contributions to the investment account system).

To open a new account in the Internet Bank, go to “Settings“ → “Add an account“. On the mobile app, go to the home icon and click the “+“ sign on the top right corner.

As crypto assets are not considered as securities, they are taxed under similar rules as other assets (e.g., real estate, physical gold). This means, among other things, that the investment account system may not be used to trade crypto assets. Read more about the taxation of private crypto assets.

Standard system
The only allowed form of declaration for crypto assets. Every profitable sales transaction is taxable, but loss-making transactions cannot be deducted from profitable transactions. For example: if you have sold Bitcoin twice during the year, and you made a profit of EUR 100 on one of the sales and made a loss of EUR 80 on the other, you will have to pay income tax on the entire EUR 100 gain.

You can find information for the declaration of crypto income in Table 6.3 of the LHV tax report. There we will show you all profitable crypto transactions made during the reporting period, grouped by instrument. It is up to you to review the entries and, if everything is correct, copy them manually into Table 6.3 (‘Transfer of other property’) of your income tax return.

Generally, it is sufficient to declare crypto gains on an instrument-by-instrument basis. For data verification purposes, the Estonian Tax and Customs Board may require you to provide a statement of all your crypto transactions. An overview of all transactions, including loss-making ones, can be found in the ‘Assets and liabilities’ → ‘Trade report’ section of the LHV Internet Bank.

Investment account system
As crypto assets do not fall under the definition of financial assets, they are not eligible for the investment account tax benefit. For this reason, it is a good idea to make transactions with crypto assets in another account that you do not use as an investment account.

However, if you have bought and sold crypto assets in your investment account, please do the following:

• In Part II of Table 6.5 of your income tax return, declare purchases of crypto assets as a cash withdrawal from an investment account. If, after the purchase transaction, the total amount withdrawn exceeds the balance of the contributions to the investment account, you will have to pay income tax on the difference. If you sell crypto assets from your investment account, declare the proceeds from the sale as a cash contribution to your investment account. You can automatically transfer the required data on investment account contributions and withdrawals to the Estonian Tax and Customs Board from the ‘Assets and liabilities’ → ‘Investment account report’ section of the LHV Internet Bank.
• If you made at least one profitable sales transaction of crypto assets during the year, then in addition to Table 6.5, you have to manually complete Table 6.3 (‘Transfer of other property’) and pay income tax on the gain. Please keep in mind, however, that unprofitable crypto transactions cannot be deducted from the profits, i.e. income tax has to be paid on each profitable transaction. You can find the necessary data for Table 6.3 in the ‘Assets and liabilities’ menu ‘Tax report’ in the LHV Internet Bank.

Market orders are used when certainty of execution is a priority over price of execution. This order type does not allow any control over the price received and your order will receive a price once it is executed. The order will be executed in full and you can access it under Pending transactions.

Limit orders are used when you wish to buy a security for less, or sell for more, than the market price. The order might, however, never be fully executed, if the market price does not match the limit order price. N.B. A buy limit order can only be below the market price and a sell limit order above the market price, otherwise the orders are executed at market price.

Valid until end of day – if the order is not executed before midnight UTC (2 am Estonian time or 3 am during daylight saving time) on the next trading day, the order is cancelled automatically, the reserved amount is released, and the money is transferred back to your account in the currency the order was supposed to be settled in.
Valid until cancelled – good until cancelled order is valid for one quarter. In the beginning of each quarter all orders which have not been filled and are older than one quarter will be cancelled.

Essentially, a ledger of all transactions. Unlike cash settlements, every cryptocurrency transaction is recorded. The blockchain is the complete record.

Decentralization means that there is no single person, agency or computer that manages and control payments or the operation of a currency. These responsibilities are shared globally between everyone looking to participate in these activities. For example, Bitcoin is a decentralized virtual currency, i.e., it does not belong to any specific institution, so anyone who wishes can participate.

Digital token – a crypto asset-based instrument which is presented in electronic form, which can be digitally transferred, stored or traded and registered in a distributed ledger or other secure system based on similar technology, or which is based on cryptography. The instrument entitles the owner to have a say in the development of the platform associated with the token or to use or provide any service or other similar privilege.

A wallet is a unique code where crypto investors’ assets are stored and which allows transactions to be made.

Allows transactions between two parties to be stored in the blockchain efficiently, controllably and permanently.

The creation of new crypto assets is also called mining. Mining requires large server farms that validate transactions and constantly crunch numbers. Miners receive new tokens in return. For example, if someone mines Bitcoin, they receive a reward for it, and acquire new bitcoin.

Smart contract – a digital algorithm or code, which is a set of functions and information located at a specific address in the blockchain. A computer network is responsible for the functioning and regulation of this code. While in the case of standard contracts, consent from a single central authority (e.g., a bank) has to be obtained, the smart contracts are autonomous and decisions can be made on the basis of the rules originally set out in the smart contract. Such a process makes the whole process more efficient and objective. Most smart contracts are created on decentralized platforms (e.g., Ethereum).