CoinTracker Streamlines Tax Filing for CryptocurrencyBy Dasmer Singh
CoinTracker Streamlines Tax Filing for Cryptocurrency
The Context: Crypto Craze Creating New Needs
Cryptocurrency has had quite a run since early 2017. As prices have skyrocketed, so has the number of retail investors trying to profit on the bull market. The number of wallets have grown more than 100% since Jan 2017 to 25.3M.
Like gold or stock in the public markets, cryptocurrencies (like Bitcoin) are considered capital assets according to the IRS. This means that when they sell their cryptocurrency, US taxpayers must pay taxes on their gains. With cryptocurrency, this can become very complicated. Investors can have accounts on multiple exchanges and may have purchased and sold the same cryptocurrency on different dates for various prices.
CoinTracker, a website that syncs with 15 of the most popular cryptocurrency exchanges including Binance, Bitfinex, and Coinbase, launched September 2017. The platform consolidates all of a user’s cryptocurrency transactions at the appropriate cost-bases across exchanges with a user experience focused on simplicity.
How They Discovered the Pain Point
In early 2017, Chandan Lodha, a Harvard ’13 alum, and his then Google co-worker Jon Lerner found themselves building extremely complicated spreadsheets to track their cryptocurrencies across various wallets and exchanges. Their spreadsheets included timestamps and cost basis for each transaction and recorded the times and values at which they swapped coins or moved their coins to different wallets. These manually managed spreadsheets quickly were becoming complicated behemoths, and there was no accurate and easy to use automated solution.
Chandan Lodha, Co-Founder of CoinTracker
Jon Lerner, Co-Founder of CoinTracker
They noticed that their friends also were struggling to maintain consolidated ledgers or their transactions. Chandan and Jon saw an opportunity to solve this problem for underserved investors by creating a unified dashboard like Mint for cryptocurrencies. They applied and were accepted into the Winter 2018 class of Y Combinator and wrote CoinTracker’s first line of code in September. While tax calculation was not originally the focus of the unified dashboard, during Y-Combinator Chandan and Jon identified it as the most demanded use case. According to Chandan, they also realized that it was “definitely a feature users were willing to pay for.”
Early Growth and Traction
Launched just in time for tax season, CoinTracker’s tax calculator went from having no paying users on February 15th to 32,000 user connected exchanges, tracking over $200,000,000 on March 19th. Users pay a varying annual amount from $49 for hobbyists that have 100 or fewer transactions to upwards of $1000 for very active traders and hedge funds. As a result of the company’s immediate user growth and desire to expand, it closed a $1.5 million seed round in April led by Initialized Capital, a venture capital firm that was an early investor in Coinbase.
Over the next few months, CoinTracker will focus on building features that will make the platform more engaging and usable for a broader set of users to facilitate growth. For example, the company is expanding to support the specific tax rules of other countries. The founders recently turned on Canada as a country in which users can utilize CoinTracker to generate tax reports. Longer term, CoinTracker will add new features beyond tracking and tax such as portfolio rebalancing and wallets.
Competition and Differentiation
“CoinTracker just works,” says Lodha. “You connect your exchanges just once and you would never have to manually enter anything again. It handles cost-basis accounting really well. If you move coins from one place to another or rebalance, it all syncs nicely.” Compared to their competitors, CoinTracker’s founders are painstakingly focused on creating the simplest user experience. Although Chandan and Jon built the entire platform in only a few months, they paid a lot of attention and built strong relationships with the API teams of the top cryptocurrency exchanges to ensure that they integrated each API correctly. This had led to CoinTracker becoming the world’s most accurate cryptocurrency tracker, a critical competitive advantage for a platform that calculates the amounts its users pay in taxes.
Competing services such as Blockfolio, Delta, CoinTracking.info, and Bitcoin.tax either lack the auto-sync functionality or deliver inaccurate reports because the APIs of each exchange are so new and nuanced, and thus require deep understanding and robust testing. The founders are determined to maintain their competitive advantage by growing their user-base and delivering the best possible experience as CoinTracker becomes the world’s leading crypto-tax platform.