For years, investors had to get used to accounting for taxes on traditional asset classes such as stocks and bonds. But the rising popularity of cryptocurrencies and related assets brings new challenges for both retail and professional investors. Enter Binocs, a fintech startup that today announces the successful completion of a $4 million seed capital raise as it launches a tax and compliance solution for crypto investors.
The focus of regulators and tax authorities on crypto is growing worldwide, argues Tonmoy Shingal, CEO and co-founder of Binocs. “We have already seen more than 20 countries make changes to taxes and regulations in response to crypto, and I expect another 50 will do the same over the next few years,” says Shingal. “This is something that investors need to be very careful about.”
The problem for investors — both retail and institutional — is that tracking crypto requires different skills and technology than those used in managing other asset classes. In particular, the data related to transactions is stored in blockchain ledgers, which can be difficult to access and decipher for those unfamiliar with how the systems work.
Binocs believes its technology offers a solution to this problem. Investors plug their crypto accounts into Binocs’ app and it pulls a read-only view of the underlying data to generate the reports required for tax and compliance purposes. The app can be used to track multiple crypto accounts at once, which also makes it a convenient way for investors to get a unified view of their holdings and positions.
“Tax and compliance firms try to manually develop solutions for this type of work,” Shingal adds. “But it’s difficult — you need to be able to read the ledgers and interpret potentially thousands of data points to identify relevant transactions and their precise nature.”
The challenge for Binocs is to ensure that the results of its tools meet the needs of investors in the country where they pay taxes and need to manage compliance, even if the systems differ from country to country. So far, Binocs is tax compliant in the US, UK, Australia, South Africa and India, but expects to launch it in other key markets over the next few months.
The target group is global – and growing fast. The total market cap of the crypto sector has grown from $325 billion two years ago to more than $1 trillion today. More than 300 investors worldwide now hold some form of crypto assets and the number is expected to double by 2025.
So far, Binocs has focused on building and testing its tools, mostly working with around 2,000 retail investors to fine-tune its product. You got the tool for free, but Binocs is on the verge of charging, with tiered service levels dependent on investors’ transaction volumes and the functionality they need. These levels start at $49 per year and then increase, with Binocs promising institutional investors a more customized pricing model based on their individual usage.
Shingal believes that not only can Binocs ensure that existing crypto investors stay on top of their tax and compliance work, but it can also help new investors become familiar with the asset class. “There’s huge interest in crypto, but it feels very complex for some investors,” he says. “We try to make it as easy as possible.”
In fact, Binoc says its app will be able to calculate most investors’ tax liabilities in less than 30 minutes. And for investors with multiple accounts, the ability to access unified portfolio monitoring as well as a consolidated account of their tax positions could prove invaluable.
The next step for Binocs is to prove that investors will pay for its service in large numbers. According to Shingal, today’s seed funding round will help in that regard, giving the company additional firepower to invest in its products, as well as resources to channel 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 organizations will need solutions like Binocs to help them with their compliance, accounting and bookkeeping,” says Anirudh Garg, investor at BEENEXT. “This is a great market opportunity to build an easy-to-use yet powerful system early on.”