Figuring out crypto taxes: An interview with Chandan Lodha, co-founder of CoinTracker
Why crypto, common crypto tax issues, intrinsic value of BTC, remote work, and much more!
Chandan, thanks for taking some time to do a Q&A! Can you tell us a little bit about your career journey to starting CoinTracker?
Sure, thanks for reading! My background before CoinTracker was in product management, most recently at Alphabet. I went through Google’s Associate Product Manager (APM) program, and worked on the Google Search, Android, and Project Loon teams. Eventually I got more interested in entrepreneurship and left Google behind with my co-founder (also a Googler) and eventually dove deeper into fintech and cryptocurrency.
What does CoinTracker do and what is its business model?
At CoinTracker, we build software for cryptocurrency portfolio tracking and tax compliance. Essentially users can connect all their cryptocurrency wallets & exchanges, and we’ll seamlessly integrate all their transactions retroactively and continuously going forward. The output is a simple unified dashboard of their portfolio & performance metrics, as well as tax reports.
Our business model is a fairly standard SaaS model. Once a year cost for tax reports (free tier for beginners), and monthly subscription for more advanced portfolio tracking features.
How did you get interested in crypto? There’s clearly been a lot of retail interest in crypto recently; what are the primary use cases you see for cryptocurrency in the next 5-10 years?
Serendipitously in 2014, I worked on a small integration between Coinbase and Google Now, and their team gifted me a small amount of bitcoin to play around with.
I didn’t think of it much at the time but faster forward to early 2017 and that small amount of bitcoin had significantly increased in value. This piqued my initial interest in the space, but it was actually building a fintech app that had nothing to do with crypto that really captured my interest (I was honestly skeptical of cryptocurrency at the time). It was seeing how slow, inefficient, and non-user friendly the legacy financial system was that got me interested. Specifically, I recall my first automated ACH bank transfer from my own checking account to my own savings account taking eleven days to settle and costing $1 in fees for a $5 transfer. Can you imagine if that’s how we treated email?
There had to be a better way and that’s what convinced me to give cryptocurrency another look.
Looking to the future, I expect bitcoin will become the global digital store of value (replacing other types of assets like gold). It will also be interesting to see if Ethereum will continue to burgeon as the decentralized global computer, and what types of use cases will make sense there. Currently the most well known products on Ethereum are for decentralized trading (e.g. Uniswap) and digital collectibles (non-fungible tokens AKA NFTs). We’ll see what happens in 10 years.
What has most surprised you about the nature and composition of your customer base as your business has grown over the last few years?
Probably the cyclical nature of the space. Even in mid-2017, it was a big bet as to whether cryptocurrency was here to stay or just a fad as has been predicted countless times. What has been really surprising is the pace at which adoption has picked up. These cycles don’t happen linearly. Instead, there was a huge “crypto winter” from 2018 – 2020 where the industry was largely flat in terms of growth, and then 2021 has gone vertical. Crypto.com now estimates there are over 100 million cryptocurrency holders as of January 2021.
What are the most significant challenges crypto investors should keep in mind when filing their taxes? What are common mistakes they might make doing their taxes that they should be aware of?
There are some great bull market crypto tax strategies. At a high-level, the most important thing for cryptocurrency investors to remember is to keep detailed records of their cryptocurrency transactions. Many exchanges have been hacked or shutdown, and you don’t want to be scrambling to find records when you get an IRS crypto tax notice at the end of the year. Instead, use a tool (like CoinTracker) to automatically and seamlessly track these transactions for you. For those curious, here’s a comprehensive cryptocurrency tax guide with more information.
One question that’s puzzled me as a crypto “outsider” is why there are so many different crypto wallets and exchanges. Do they all offer different value props to their consumers? How do you explain the profusion of exchanges and wallets in the space, rather than concentration in a few providers?
Why are there so many brands of shampoo, some many stock brokerages, or so many different airlines? It’s basically competition at work!
Various exchanges do also offer tradeoffs in terms of liquidity, coin pairs, KYC rules, geographic support, UX, security, risk, fees, etc. We probably will see some consolidation over time as a few strong players emerge, but a healthy industry will always have various options for different people.
Having an economics and fintech background, I’ve been intrigued by crypto from a payments processing and store of value perspective, but have wondered how to think about determining an intrinsic value for a currency like BTC or ETH - do you have any thoughts on this?
I often find explaining the value proposition of bitcoin to economists the most difficult 😛
If you take a step back though, what is “intrinsic value?” What gives a $100 bill intrinsic value? It’s just a rectangular piece of cotton. It doesn’t really have much intrinsic value. What it actually has is extrinsic value: the backing of the full force of the US government & military, and therefore the network effect of people believing it has value. If the government decided tomorrow that we were going to ditch dollar bills and switch to using silver coins as currency, we’d soon totally stop using dollar bills. If they had intrinsic value, then that wouldn’t happen.
The value of the dollar actually fluctuates constantly, we just don’t think about it much because it’s also our unit of account (how all our goods and services are priced). In reality, there are FX traders who make an entire living by speculating on currency markets. So ultimately, the dollar’s value is based on supply & demand.
Bitcoin is no different.
Ending on a different note, from looking at your Careers page, CoinTracker appears to be fully remote. Do you plan to stay fully remote after the pandemic ends? How do you work to build a healthy and social workplace environment in a fully remote setting?
We are indeed fully and permanently distributed! I was honestly incredibly skeptical of distributed work pre-COVID, but our team has adapted amazingly well and we are more productive than ever. We’ve taken several steps to really lean into an effective remote working environment by significantly limiting synchronous meetings, embracing remote-working tools (e.g. Linear, Notion, Slack, Zoom), and heavily emphasizing asynchronous collaboration + written communication. I could go on for hours about the many benefits this has had for us.
That said, I’m an introvert and this style of working naturally appeals to me. We also have weekly team all hands and socials to ensure that everyone on the team gets facetime. We also started using a Slack App called Donut to setup a rotating set of informal “coffee chats” between various cross functional teammates.
The social activities vary from team presentations on topics that interest the presenter (e.g. everything from bicycle trips to linguistic relativity), playing games (e.g. Among Us), and more. We also plan on getting the whole team together in person at least once or twice a year post-COVID.