Bitcoin Slips In The Wake Of The IRS’s Tax Decision
techcrunch.com
techcrunch.com
The article briefly mentions a much more plausible reason for the sizable price drop, which occurred later: China cracking down on bank to exchange deposits. The writer just sort of handwaves it away.
There's no evidence that the IRS ruling pushed the price down, in fact there's plenty of evidence that it did not: the fact that the price did not move.
Meanwhile, there's plenty of evidence that China's action did affect the price. As soon as rumors began to spread, trades on the Chinese exchanges were happening at prices far below those on outside exchanges.
The Chinese exchanges led the market down every step of the way. (Naturally a price fall in China soon began to pull down prices everywhere, due to arbitrage, and an understanding that the probable withdrawal of Chinese money was very bad news for anyone speculating on the short term price).
Chart showing price remaining flat for 2 days following the IRS announcement on 3/25, and then falling sharply on firm news from China (Caixin report 3/27): http://bitcoincharts.com/charts/bitstampUSD#rg60zczsg2014-03...
It doesn't seem to make much difference. In its current form, Bitcoin already suffers from a lot of friction when used as a means of exchange. For the average consumer, buying it is difficult, storing it is difficult, the value isn't stable, using it for physical retail purchases can be very clunky.
It's a beta. A lot of things would need to work better for it to really succeed. In that context, the rather clumsy reporting requirements of the IRS ruling are yet another minor speedbump, which needs to be either ironed out or worked around.
it's also REALLY important to note that the way currency is defined in the tax code is different than how currency is defined for other parts of government, be it another arm for the treasury department (fincen for instance) or even the SEC. so even though bitcoin is not considered a currency in the tax code specifically, doesn't mean that it should be considered less of a currency. am i just talking in circles now?
i hope this answers your question.
There's one huge problem with your example: you have a short-term capital gain, not a long-term capital gain. Short-term capital gains are taxed at the same rate as your ordinary income.
but if you understand tax, then instead of, "the next day," my example should say, "a year and a day later."
Since the IRS is now imposing a capital gains tax, that penalizes speculators. One of the issues with Bitcoin right now is that so many people are speculating (myself included) that it probably increases the volatility. If people are encouraged to spend, invest, or convert BTC into fiat currency ASAP, the price of a BTC should go down and remain very stable. In this scenario BTC becomes a decentralized money transfer network, for the most part.
The only issue is going to be doing all the accounting for the government, but that seems eminently doable since every transaction is perfectly recorded.
I'm not very experienced with financial matters, so perhaps someone can correct me.
People will gamble on anything, as long as the price isn't fixed (and it will never be), there will always be those willing to throw money at it and dream big.
Keep in mind: Big players haven't really yet bought in yet, Bitcoin is currently inflationary, and so on. Bitcoin certainly has little hope to become stable any time soon.
The major impact of this decision will be on consumer adoption. Now, every time I want to make a transaction, I need to keep track of my taxes. I know that some wallet services are already developing ways to keep track of this automatically, but that's just an extra headache for the average consumer. This in essence will force consumers to think of bitcoin more as an investment, rather than a "currency" they can spend, and that will impede adoption.
I know nobody here likes to hear it, and I feel like a lot here in SV are tuning this out, but bitcoin is really, really struggling to find a relevant use case with consumers. Regular consumers have absolutely no reason to use bitcoin. The "1-click" payment and 1% price discount are not appealing enough to the average Joe who already gets 1-2% cash back, airline miles, and consumer protection on his credit card (and 1-click checkouts on many e-commerce platforms). And more regulation isn't helping the "crypto-anarchist" decentralization angle either. Add price volatility to that and it kills the consumer use case.
But... micro-payments? Consumers have always hated them. http://www.openp2p.com/pub/a/p2p/2000/12/19/micropayments.ht... (Shirky, 2000)
But... international transactions? Hard to beat the fees at https://transferwise.com.
Bitcoin is great, FOR MERCHANTS. But consumer adoption is going to determine whether or not it succeeds on a grander scale. Unfortunately, Bitcoin does not solve a problem for consumers. Especially with tap-tap mobile payments around the corner.
When it comes to money, consumers want to be insured and cuddled and protected and not run the risk (however small) of being criminally liable for transactions and have someone to speak with if they make an erroneous transaction or have their card stolen. And they can already do all that, which makes it tremendously difficult to compel them to change the habits they've had for in forever to adopt a system that does not provide them with significant advantages.
I've been in bitcoin since 2011 and used to be a big believer, but I don't see bitcoin gaining traction with consumers, in part because of the huge regulatory risk. Any significant threat to the banks' business will be met with harmful regulatory control (friendly reminder: Wall Street banks fund the largest political lobbies in Washington). It could be destined to eternally remain an investment instrument (like gold) or find very targeted applications (like machine-to-machine payments). The underlying blockchain technology could be of more use (if adopted by the banking system, for example) but that is still far in the future.
And a new system would have to figure out a way to mitigate the regulatory risk.
Yes! The credit card is an amazing tool for consumers, and I won't be giving mine up unless I get something significantly more amazing in return (Merchants would need to offer 5-10% discounts on purchases with bitcoin, for me to begin to be interested).
But thanks for that, I wasn't aware.
Fortunately we have machines that are really good at keeping track of numbers and adding them up.
I expect Bitcoin wallets will just calculate your taxes for you automatically.
If anything, using bitcoin that have appreciated in value probably reduces the perceived cost of the item.
No. The cost of goods isn't affected by your taxes. You simply have to realize that your Bitcoin stash is pre-tax just as your 401k is pre-tax; spending it incurs a taxable event that means it's time to pay taxes on your gain, those taxes were always going to be due, the good didn't cost more, you're just paying your income taxes late since you haven't paid them yet.
That's not true. It took a while to convince my friends, but now we normally use bitcoin to settle restaurant bills and other debts that used to be difficult to keep track of and error-prone. It's not a godsend from heaven, but it works and is much better than what we used to do.
And there are plenty of other situations where you might owe each other money.
My credit union lets my transfer money to any other member of the credit union instantly with no fees. As it happens, nearly all my friends are members of this credit union (it's local and offers a much better deal than the banks) - and they have a mobile app so you can do it from your phone.
They've just added a general ACH function to it, to transfer to any account, but I haven't used it so I don't know if there are any associated fees. It doesn't mention any, but I associate the word ACH with some kind of fee.
So to me, this isn't a "find a new currency and financial system" problem, it's a "find a better bank" problem.
For the application in question (settling restaurant bills among a group of friends), Venmo looks ideal. No transaction fees, easy to use and flexible, no exchange rate issues, it's operated by a company that is actually licensed as a money transmitter in every state of the US, and no tax collection or reporting issues.
There are plenty of minor reasons to prefer Bitcoin, like how nobody can prevent you from accessing your funds for something like "suspicious activity".
But there are a some bigger reasons - if you're good with your security, you don't have to do things like check another statement every month to see if someone stole your account information.
Splitwise appears to be just a web2.0 accounting type app? I didn't see any mention of actually moving money around. Bitcoin isn't actually that great for splitting bills at the moment because wallets don't have Splitwise type features. But in theory once added it should be quite convenient, assuming you can tolerate the usual Bitcoin downsides.
I think you're right that currently there's not a whole lot of incentive for people to use Bitcoin in the USA, especially for local transactions. But the system is still very new. It's hard to know how things will work out in future. All we do know is that the payments market, especially the American payments market, is extremely stagnant. The USA is stuck in a timewarp from most of the worlds perspective despite a proliferation of little startups that try and do something hip with magstripe cards. I mean, this is a country where people still routinely use cheques. So it may well be that Bitcoin, as it matures and adds features, finds a way to be competitive against credit cards, especially now the rules forbidding price differentials are being struck down.
The IRS decision is a problem for sure, but it's also specific to one geography. The UK tax authority decided the same thing (Bitcoin is not a currency) and then changed their mind shortly afterwards. Bitcoin quite clearly IS currency by any reasonable definition that doesn't boil down to "a currency is whatever the government says a currency is", and so hopefully at some point the IRS decision would be changed in favour of common sense.
Or... you can be like everyone else and just have a guy go to the bank and grab a bunch of $5 and $1 bills when you know your group is getting together. CASH is the easiest way to settle debts and keep track of payments.
> I know nobody here likes to hear it,
For what it's worth, I do like to hear it! I have a very small amount of Bitcoin but just for fun, really.
That said, I'm not sure that "machine to machine payments" is all that small of a market, in the world that we're apparently hurtling towards.
The smarter thing would have been to sell the BTC and then put away X% in a savings account (or a stable investment) with a plan to pay that money to the IRS. Then the (100-X)% could be spent freely without issue.
There were only two choices: Tax BTC as property, or Tax BTC as currency. In both cases, you owe somewhere between 15% to 30% of your earnings to the IRS.
Also -1 for disabling zoom on mobile devices.
http://www.coindesk.com/price/#2013-01-01,2014-03-31,close,b...
Edit: Or it would have been if the link worked.. But put the start date at 2013-jan-01.
And, if they enforce wash sale laws, you could be liable for totally innocent trades. That probably won't happen though.
It might discourage users from using their own wallets for transactions, but that's all.
And you don't have to do it at all for payments tendered for merchandise, or almost any payment to corporations.
who is living in the United States.
This was the expected outcome, if you didn't see this from the beginning, maybe you shouldn't be investing to begin with. I mean seriously, what did you think, that the IRS would allow untaxed gains to be kept?
Don't be an ass.
No one could have seriously thought the government would treat crypto-currencies like real currencies. The same people who all think cryto is going to displace fiat are all up in arms about crypto not being treated like fiat; it's a joke.