Investors have had years to get used to accounting for tax on traditional asset classes such as equities and bonds. But the soaring popularity of cryptocurrencies and related assets brings new challenges for both retail and professional investors. Enter Binocs, a fintech start-up that is today announcing the successful completion of a $4 million seed fundraising as it launches a tax and compliance solution for crypto investors.
The focus of regulatory and tax authorities on crypto is growing worldwide, argues Tonmoy Shingal, CEO and co-founder of Binocs. “We’ve already seen more than 20 countries make changes to tax and regulation in response to crypto and I expect another 50 to do the same over the next few years,” Shingal says. “This is something investors are going to have to manage very carefully.”
The problem for investors – in both the retail and the institutional space – is that tracking crypto requires different skills and technologies to those deployed in the administration of other asset classes. In particular, the data on transactions is held in blockchain ledgers that can be difficult to access and decipher for those unfamiliar with how the systems work.
Binocs believes its technology provides a solution to this issue. Investors plug their crypto accounts into Binocs’ app and it pulls in a read-only view of the underlying data in order to produce the reports required for tax and compliance purposes. The app can be used to track multiple crypto accounts simultaneously, which also makes it a convenient way for investors to get a unified view of their holdings and positions.
“Tax and compliance firms are trying to manually build solutions to do this sort of work,” adds Shingal. “But it’s difficult – you need to be able to read the ledgers and to be able to interpret potentially thousands of data points to identify relevant transactions and the exact nature of them.”
The challenge for Binocs is to ensure the outputs from its tools fit the needs of investors in the country where they pay tax and must manage compliance, even though systems vary from one country to another. So far, Binocs is tax compliant in the US, the UK, Australia, South Africa and India, though it expects to launch in other major markets in the next few months.
The target audience is a global one – and growing fast. The total market capitalisation of the crypto sector has increased from $325 billion two years ago to more than $1 trillion today. More than 300 investors globally now hold some form of crypto asset and the number is expected to double by 2025.
So far, Binocs has focused on building out and testing its tools, working primarily with around 2,000 retail investors to fine-tune its product. They’ve been given the tool for free, but Binocs is about to start charging, with tiered levels of service depending on investors’ transaction volumes and the functionality they require. Those tiers start at $49 a year and then increase, with Binocs promising institutional investors a more bespoke pricing model, built around their individual usage.
Shingal believes that Binocs can not only ensure existing crypto investors stay on top of their tax and compliance work, but that it can also help new investors become more comfortable with the asset class. “There is huge interest in crypto, but it feels very complex to some investors,” he says. “We’re trying to make it as simple as possible.”
Indeed, Binoc says its app will be able to compute most investors’ tax liabilities in less than 30 minutes. And for investors running multiple accounts, the ability to access unified portfolio monitoring, as well as a consolidated account of their tax positions, could prove very valuable.
The next step for Binocs is to prove that investors will pay for its service in large numbers. Shingal says today’s seed finance round will help in this regard, giving the business additional firepower to invest in its products, as well resources to put into go-to-market initiatives.
The $4 million round is led by BEENEXT and Arkam, with participation from Accel, Saison Capital, Premji Invest, Blume and Better Capital. “Crypto native organisations will need solutions such as Binocs to help them with their compliance, accounting and bookkeeping,” says Anirudh Garg, an investor at BEENEXT. “This is a great market opportunity to build an easy-to-use, yet powerful, system early on.”