Forming an LLC for Crypto Trading

It's official: Bitcoin is back on the rise. Despite a general economic downturn over the course of this year, Bitcoin is back in the news as its value started to increase in the latter half of 2020. Although experts will stress that cryptocurrency is still very volatile, its growing acceptance and integration into many payment platforms like PayPal prove that crypto is definitely here to stay.

Bitcoin in particular has seen several ups and downs in the decade since its inception. And many are now asking, given the recent rise in investment, is Bitcoin going to be worth it? While prospective investors shouldn't expect constant windfalls from investing in Bitcoin, Jibrel Network's Talal Tabbaa recommends at least 1 to 2% of your wealth should be invested in Bitcoin, as part of a broader portfolio. And if you're looking into investing in crypto, one of the best ways to do it may be through an LLC.​

Keep reading for many of the benefits of LLCs. But keep in mind that none of this is official legal advice. Rather, we're just sharing a rough outline of how some people may use LLCs.

Casualty Losses

Perhaps one of the defining cryptocurrency features of trading is its volatility. As a relatively new currency, crypto is prone to soaring highs and massive crashes - often within the span of a year. Any investment is sure to incur losses through time, but currencies like Bitcoin don't always match up to expectations.​

Cryptocurrency is particularly notable because of security concerns. Although initially touted as unhackable, Bitcoin is now infamous for several major hacks. The recent KuCoin hack is a prime example of this. The losses cannot unfortunately be written off, except by corporations, which is why many people choose to set up LLCs instead.


An LLC, short for Limited Liability Company, is different from a corporation because it offers more flexible and 'forgiving' terms. In an LLC, business owners have more liability protection, creating a more conducive environment for businesses. A ZenBusiness guide to forming an LLC details how you can avoid issues like double taxation. Rather than paying both corporate and personal taxes, you can file an LLC's taxes through your income tax returns.​

While casualty losses can't be written off by individuals who invest in cryptocurrency, they can be written off by businesses. That's one of the many taxation benefits that come from registering an LLC for cryptocurrency trading. Additionally, income through mining and investment can be offset by capital losses. This means you won't have to pay taxes on all of your income gained through mining and investment despite losses, which would not have been the case if you were an individual investor.

Other Benefits​

Put simply, registering as an LLC for cryptocurrency trading offers the best asset protection, at least when compared to trading as an individual. As an LLC, you'll have more allowances and more flexibility from trading. Although this structure does add new layers of complexity, such as annual fees and more paperwork, the benefits are certainly worth the extra work.​

According to Investopedia, incorporating your trading activity through an LLC or otherwise is especially important if you expect to do long-term trading, or foresee success.​

You can take advantages of certain tax allowances like deductible salaries or educational expenses by "employing" family members, for example. You can also create medical reimbursement funds, or transfer your pension payments into a 401a pension fund that allows annual contributions.​

While figuring out the ins and outs of incorporation can be daunting, it's essential for serious investors in Bitcoin and other currencies. Cryptocurrency investment is already complex enough on its own. However, registering as an LLC can not only lighten the load in terms of payments and taxes, it'll also make it easier for you to adapt to growth and future success. If you haven't looked into the process of LLC registration in your state, now may be the time to do it.

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