Some people might have a full-time job in the real world and have Hive as their secondary income or a hobby income. They might think that they don't have to take this income to their real-world unless there is a dire need which in most cases can be true. The main income that they get from their primary job can mostly take care of their real-world income needs. In such cases, people might think that having emergency funds on Hive or other crypto-related platforms can be good. I would like to clarify the good and bad aspects of this decision.
Not easily accessible
The first problem with funds on Hive is that the funds are not easily accessible when there is an emergency need. The definition of an emergency fund is that it should be easily accessible and should be withdrawable when there is a need for it.
- Most of the time the funds are either locked in HBD or as Hive Power. This way the funds cannot be taken to the real world.
- The second problem is that even if the funds are liquid, we cannot immediately take the funds to the real world. The reason is that we have to do conversions and find a seller who would be able to exchange it for a good price.
- The third problem is that we have to also consider taxation and stuff like that and only based on the amount of tax, we will be able to calculate the remaining funds that would be available for spending.
Value of the holdings can vary
Based on what we are holding the value of the crypto we are holding can vary. Sometimes the value can be high and sometimes the value can be low based on the market conditions. We might have brought the amount to the crypto world when the value was very good and when there is an emergency need for us and if the value is down because of market conditions, it may not be very useful for us and we would be hesitant to take the money out because it is anyways a loss for us.
In such cases we cannot be free the money we are holding in crypto can be our safe funds or emergency funds. But in a way, we can say that the money we hold as HBD inside the Hive ecosystem is somewhat safe because the price of HBD has been stable for a few years already after the stability was introduced. There have been instances where the entire market had problems but the HBD price was stable. So in a way, we can consider holding some money as emergency funds inside HBD but there again, when we withdraw it, it will initially take 3 days to withdraw and later it would take some more time to go through all the conversions and reach our hand.
Crypto taxes needs to be handled
When we keep this as an emergency fund, we have to also consider taxes when we take the funds out. Different countries have different policies. Every transaction we do is all taxable and when there is a gain for us, we have to pay the taxes accordingly. No matter how many times we get the gain, we have to pay the taxes collectively based on the rules.
Most governments are very clear in saying that the profits are to be shared with them and the loss is all ours. In other investments, there is a consideration for loss. For example, if we are doing an agriculture-based investment, we can submit a loss and we can get some tax amount reduced. This is not the case with crypto-based taxes. I'm not sure about the other countries but at least that is not the case in India. We cannot disclose loss in crypto and reduce the tax.
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