Investors have had years to get used to accounting for taxes on traditional asset classes such as stocks and bonds. But the growing popularity of cryptocurrencies and related assets brings new challenges for both individual investors and professional investors. Enters Pinoxa fintech startup today announces the successful completion of an initial fundraising of $4 million as it launches a tax and compliance solution for crypto investors.
The focus of regulatory and tax authorities on cryptocurrencies around the world is growing, says Tunmoy Shengal, CEO and co-founder of Binocs. “We have already seen over 20 countries make tax and regulatory changes in response to cryptocurrency, and I expect 50 more countries to do the same over the next few years,” says Shingal. “This is something that investors will have to manage very carefully.”
The problem for investors – both in the retail and institutional sector – is that tracking cryptocurrencies requires different skills and techniques than those used in managing other asset classes. In particular, data related to transactions is kept in blockchain ledgers which can be difficult to access and decrypt for those unfamiliar with how the systems work.
Binocs believes that its technology provides a solution to this problem. Investors plug their crypto accounts into the Binocs app and pull 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 consolidated view of their holdings and positions.
“Tax and compliance companies try to manually create solutions to do this kind of work,” Shingal adds. “But it’s tough – you have to be able to read the ledgers and be able to interpret thousands of potential data points to identify the relevant transactions and the exact nature of them.”
The challenge for Binocs is to ensure that the output of its instruments fits the needs of investors in the country where they pay taxes and have to manage compliance, even though the regulations differ from country to country. So far, Binocs is tax compliant in the US, UK, Australia, South Africa and India, although it expects to launch in other major markets in the next few months.
The target audience is global – and growing fast. The total market capitalization of the crypto sector has increased from $325 billion two years ago to over $1 trillion today. More than 300 investors globally now own some form of crypto-asset and the number is expected to double by 2025.
So far, Binocs has focused on building and testing its tools, primarily working with around 2,000 retail investors to improve its product. They were given the tool for free, but Binocs is about to start charging fees, with tiered levels of service depending on the volume of investor transactions and the functionality they need. These levels start at $49 per year and then increase, with Binocs promising institutional investors a more tailored pricing model, built around their individual use.
Shingal believes that Binocs can not only ensure that existing crypto investors stay on top of their tax and compliance work, but can also help new investors become more comfortable with the asset class. “There is a lot of interest in cryptocurrencies, but it seems too complicated for some investors,” he says. “We try to make it as simple as possible.”
In fact, Binoc says that its application will be able to calculate the tax obligations of most investors in less than 30 minutes. And for investors who manage multiple accounts, the ability to access a unified portfolio monitoring, as well as a unified account of their tax positions, can be of great value.
The next step for Binocs is to prove that investors will pay for its services in droves. Shingal says that today’s seed funding round will help in this regard, giving the company additional firepower to invest in its products, as well as the resources to implement market entry initiatives.
BEENEXT and Arkam are leading the $4 million round with participation from Accel, Saison Capital, Premji Invest, Blume and Better Capital. “Crypto-origin institutions will need solutions like Binocs to help them with compliance, accounting and bookkeeping,” says Anirudh Garg, an investor in BEENEXT. “This is a great market opportunity to build an easy-to-use yet powerful system early on.”
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