I really liked this post at Fisher Investments on taxes and cryptocurrencies:
When you buy something with normal money, like dollars or pounds, the only tax you pay is sales tax. When you pay with bitcoin, it is quite different. A payment is a disposition—aka, selling your bitcoins. That means—you guessed it—your transaction is subject to capital gains taxes. It wouldn’t surprise us if this, not environmental concerns, were really behind Tesla chief Elon Musk’s widely discussed decision to stop accepting bitcoin as payment for cars. Not just because it would add tax headaches for customers, but because every transaction would complicate the company’s own taxes—each one would add a new lot with a different cost basis to Tesla’s own bitcoin stake. Have fun calculating that tax bill.
Considering one of the most prominent questions on IRS Form 1040 aims to discover all taxable crypto transactions, you might think we are stating the obvious. But the IRS still wins the gold medal for unnecessary confusion, so the relevant question reads: “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?†We can kinda see how someone who bought a car with bitcoin would see that question and think, “Does this apply to me? I didn’t sell my bitcoins on an exchange. I didn’t swap them for dogecoins. I didn’t send one to my aunt for her birthday.†If the form actually, clearly stipulated that paying for goods or services was a taxable transaction, we reckon there would be a lot less confusion—both in the world of tax compliance and about cryptocurrencies themselves. Then again, that could create a scramble to comply.
I expect much tighter regulation of cryptocurrencies in the coming years even if it has the predicted consequences of taking the luster from them.
I’m still trying to figure out what luster?
Fundementally, crypto still seems like a “greater fool” game to me. Unlike other assets, crypto has no useful utility yet — fiat can be used to pay taxes and its other uses as legal tender, gold can be used as jewelry or various industrial uses, land can be lived on or grow food, art can be enjoyed for aesthetics, stocks can be used to raise funds for an enterprise, etc etc.
What is an actual use of cryptocurrency outside of speculation? The ones I know is to evade capital controls, money laundering, or narcotics trade.
I agree with that completely. There’s too much money chasing not enough investments perceived as worthwhile.
I would say that cryptocurrency provides a way of not leaving a paper trail that can be followed by the government and taxed or regulated. Its underlying concept is providing a way for people who don’t trust each other to trust each other enough to barter goods and services.
“I expect much tighter regulation of cryptocurrencies in the coming years even if it has the predicted consequences of taking the luster from them.â€
Yes, including cybersecurity regulation. Crypto is infrastructure. Its covered in the fine print, along with the oldest profession.