Bitcoin is taking the financial world by storm.
But because it’s so new, regulating the world’s most recognized cryptocurrency is a challenge for governments around the globe. Some, like Russia, want to ban it altogether for consumers. Others, like China, jump back and forth between encouraging and banning cryptocurrencies. Then you have the U.S. Our federal government has more or less ignored Bitcoin, with one notable exception: classification.
Since 2014, The U.S. government has classified Bitcoin and other cryptocurrencies as property. That means Bitcoin is subject to a capital gains tax.
While that may not seem like a huge deal, this tax is one of the largest hurdles in using cryptocurrency as legal tender. Because of this tax, if you wanted to buy a cup of coffee with Bitcoin, you’d trigger a capital gain tax on your cup of coffee—as high as 28%.
But that’s about to change.
Lawmakers are currently working on passing the Cryptocurrency Tax Fairness Act, which would create a tax exemption for Bitcoin transactions below $600.
While this bill wouldn’t eliminate gains tax altogether, it would allow people to actually utilize Bitcoin and other cryptocurrencies offline in the real world. Instead of cash, credit, Apple Pay, or Samsung Pay, consumers could pay with Bitcoin for their purchases. And for consumers, that makes the goods cheaper. If you invest in Bitcoin and it soars up 10%, your $200 investment netted you $20. That covers lunch right there—without the gains tax.
But will it pass?
That remains to be seen. So long as cryptocurrency is classified as property, the IRS stands to make significantly more in taxes. However, as cryptocurrencies take on a more prominent role in mainstream society, pressure mounts on the government to regulate it so that consumers can actually use cryptocurrencies as a form of payment.
When the CTFA passes, cryptocurrencies will be treated the same as other currencies, meaning that businesses are far more likely to see more transactions involving Bitcoin.
That also means Bitcoin could go head to head with the dollar.
As of last year, over 100,000 stores in the U.S. accept Bitcoin, including Microsoft, Expedia, Dell, and Subway. With the classification of cryptocurrency as a foreign currency rather than property, traders can expect Bitcoin to surge. By empowering consumers to utilize Bitcoin in daily life, and businesses to accept BTC as payment, the government would take a big step towards launching cryptocurrency as a legitimate currency, regulating crypto, and boosting the U.S. economy all in one move, with passage of the Cryptocurrency Tax Fairness Act.
Cryptocurrencies are volatile and unpredictable, as evidenced by $1,000 swings (in each direction!) for Bitcoin in just the last 72 hours. But by analyzing ongoing news and events, identifying support and resistance bands, and staying on top of cryptocurrency developments, we can identify high-probability trades within the Bitcoin and cryptocurrency markets.