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There may be a fundamental disconnect between what the currencies are (or how they are used) and how they are taxed. This issue of lots and being taxed as prop

There may be a fundamental disconnect between what the currencies are (or how they are used) and how they are taxed. This issue of lots and being taxed as property: >For example, say that someone sold bitcoins at $22,000 each in December 2020 and had coins bought 2016 for $600 and 2017 for $16,000. Selling the 2016 coins would mean a taxable gain of $21,400 each, while selling the 2017 coins would mean a gain of $6,000 each—a big difference. This is not like a currency, where if I had a stack of Euros from an old holiday and then exchanged them for USD or even bought something with them, there is no concept of "lot" price in a currency. This US law definition appears to in effect destroy the fungibility property of cryptocurrencies by pinning the non-fungible identity of the coin to its spot price at the time of transaction. If US law doesn't treat it as currency, it's basically not currency. I sat on the sidelines on cryptocurrency from the beginning because of specific scenarios like this because of these very inevitable problems. What they really are is an exotic asset for getting portfolio exposure to the trillions of dollars in black and grey market economic activity and associated volatility properties, but with only arms length participation. Basically a way to particpate in a distributed bank that launders money while turning a blind eye just like the real banks. However, remote tech has changed work so much that if I were a betting man, I would be looking at real estate in non-extradition countries as thousands of new crypto millionaires weigh their options and just leave.

gruez 5y ago
>This is not like a currency, where if I had a stack of Euros from an old holiday and then exchanged them for USD or even bought something with them, there is no concept of "lot" price in a currency. But are they taxed? ie. if you sold your euros now, you'd probably realize a modest profit since USD went down recently. Are those gains tax-free?
- xphilter 5y ago
  Effectively yes they are tax free because there’s no easy way for irs to enforce. By law though you need to pay taxes on those gains. If you use a trading platform for trading, there’s probably a better chance of getting caught if you don’t pay taxes. There’s really nothing different here.
- lbotos 5y ago
  I was looking for an IRS page, but it appears that there are reasonably low limits ($200 gain) before taxes trigger: https://johnschachter.com/international-taxpayers/holding-a-foreign-currency-you-may-owe-tax-or-get-a-valuable-write-off/ https://johnschachter.com/international-taxpayers/holding-a-...
- efficax 5y ago
  No, forex trading is taxed as capital gains, like any other asset. It also opens up an interesting loophole for companies with cash streams in other currencies, if those currencies are falling in value relative to the dollar. They can cover their local costs in local currency but then convert profits to USD and declare a loss for a tax writeoff.
  - the_optimist 5y ago
    Can you reference the formal accounting and financial mechanisms under which this activity supposedly generates a tax write-off? Specifically: a tax write-off that is not also an actual economic loss.
- motohagiography 5y ago
  If instead of "selling" or "exchanging" those Euros, the purchasing power of those Euros may have changed as the result of inflation, PPP, used lamborghini prices, etc. The change in value depends on the change in value of what you have marked it to. Direct USD exchange, there's huge profits/loses because of the volatility of cryptocurrencies vs. USD. But NFTs...these become a kind of volatility cold storage. I'm not trying to mentally hack tax law, I'm suggesting that the law as described in an example by a journalist would show cryptocurrencies are not currencies, and now that the US is making enforcement a priority, they are collapsing the uncertainty bubble in which the whole market has operated. The invention of cryptocurrencies was a tax revolt to begin with, and it probably makes more sense to look at policy through this lens than any other.
Pfhreak 5y ago
What you describe is how assets are typically taxed. And as far as I know, this includes currency you purchase and later sell for a profit. It's called a cost basis. Unless you are suggesting purchases made with Bitcoin (that aren't converted to fiat currency first) are taxed, which I'm not sure is the case.
- motohagiography 5y ago
  But given the cash side is unenforcable because of this property of fungibility, it's more like casino chips where you pay taxes on them when you cash them in?
  - Pfhreak 5y ago
    Well, you've recorded the cash transactions in a public ledger, so it may be more enforceable than one thinks.
  - gruez 5y ago
    >it's more like casino chips where you pay taxes on them when you cash them in? I'm not sure whether the IRS would buy that argument. If you won $1M (in chips) at a poker tournament I doubt the IRS would let you report your winnings across 10 separate years to reduce your marginal rate. The tax is on income, which is earned when you won the tournament, not when you cash out the chips.
    - secabeen 5y ago
      The IRS would however probably allow you to treat the entire thing as a zero-cost basis and pay extra tax to not have to deal with the paperwork. Depending on the scale of the profits and the scale of the paperwork, that might be worth it.
  - TheCoelacanth 5y ago
    I believe this is the same as any other fungible assets, e.g. if I buy a share of Google for $1000 and then a year later buy another share of Google for $2000, then sell one share.
user-the-name 5y ago
Where the disconnect is is between "currencies" and "cryptocurrencies". The latter are "currencies" basically in name only, and share almost none of the properties of the former.
notyourwork 5y ago
> However, remote tech has changed work so much that if I were a betting man, I would be looking at real estate in non-extradition countries as thousands of new crypto millionaires weigh their options and just leave. Taxes are there to support the infrastructure that powers a country. If someone opts to not pay their share of taxes and leave, they are also not using the infrastructure paid for by taxes. Effectively, if you want to drive on nice roads, have consistent access to clean water and power you can pay taxes.
- smeej 5y ago
  The part that makes it force is that even if I were willing to go without those things, I can't _not_ pay taxes.
  - notyourwork 5y ago
    I think you're being disingenuous with this reply. You cannot physically live in a country and not use their infrastructure. If you don't like ALL the things taxes are used for you are welcome to leave and go elsewhere.
    - tomc1985 5y ago
      > If you don't like ALL the things taxes are used for you are welcome to leave and go elsewhere. Yes because customs and immigration will just welcome you with open arms.... /s
      - notyourwork 5y ago
        It is simple: Country X isn't willingly keeping people because countries Y and Z won't welcome a person in. If you want to live in a country you have to abide by that country's rules. This includes paying taxes as defined by that country's tax laws.
        tomc1985 5y ago
graeme 5y ago
My accountant calculates the cost basis for my USD/CAD exchanges in Xero. Pretty sure that’s a thing. And if you were doing large volumes of cash exchanges as a business you’d be in trouble if you didn’t account for the cost basis.

gruez 5y ago

>This is not like a currency, where if I had a stack of Euros from an old holiday and then exchanged them for USD or even bought something with them, there is no concept of "lot" price in a currency. But are they taxed? ie. if you sold your euros now, you'd probably realize a modest profit since USD went down recently. Are those gains tax-free?

xphilter 5y ago
Effectively yes they are tax free because there’s no easy way for irs to enforce. By law though you need to pay taxes on those gains. If you use a trading platform for trading, there’s probably a better chance of getting caught if you don’t pay taxes. There’s really nothing different here.
lbotos 5y ago
I was looking for an IRS page, but it appears that there are reasonably low limits ($200 gain) before taxes trigger: https://johnschachter.com/international-taxpayers/holding-a-foreign-currency-you-may-owe-tax-or-get-a-valuable-write-off/ https://johnschachter.com/international-taxpayers/holding-a-...
efficax 5y ago
No, forex trading is taxed as capital gains, like any other asset. It also opens up an interesting loophole for companies with cash streams in other currencies, if those currencies are falling in value relative to the dollar. They can cover their local costs in local currency but then convert profits to USD and declare a loss for a tax writeoff.
- the_optimist 5y ago
  Can you reference the formal accounting and financial mechanisms under which this activity supposedly generates a tax write-off? Specifically: a tax write-off that is not also an actual economic loss.
motohagiography 5y ago
If instead of "selling" or "exchanging" those Euros, the purchasing power of those Euros may have changed as the result of inflation, PPP, used lamborghini prices, etc. The change in value depends on the change in value of what you have marked it to. Direct USD exchange, there's huge profits/loses because of the volatility of cryptocurrencies vs. USD. But NFTs...these become a kind of volatility cold storage. I'm not trying to mentally hack tax law, I'm suggesting that the law as described in an example by a journalist would show cryptocurrencies are not currencies, and now that the US is making enforcement a priority, they are collapsing the uncertainty bubble in which the whole market has operated. The invention of cryptocurrencies was a tax revolt to begin with, and it probably makes more sense to look at policy through this lens than any other.

Pfhreak 5y ago

What you describe is how assets are typically taxed. And as far as I know, this includes currency you purchase and later sell for a profit. It's called a cost basis. Unless you are suggesting purchases made with Bitcoin (that aren't converted to fiat currency first) are taxed, which I'm not sure is the case.

motohagiography 5y ago
But given the cash side is unenforcable because of this property of fungibility, it's more like casino chips where you pay taxes on them when you cash them in?
- Pfhreak 5y ago
  Well, you've recorded the cash transactions in a public ledger, so it may be more enforceable than one thinks.
- gruez 5y ago
  >it's more like casino chips where you pay taxes on them when you cash them in? I'm not sure whether the IRS would buy that argument. If you won $1M (in chips) at a poker tournament I doubt the IRS would let you report your winnings across 10 separate years to reduce your marginal rate. The tax is on income, which is earned when you won the tournament, not when you cash out the chips.
  - secabeen 5y ago
    The IRS would however probably allow you to treat the entire thing as a zero-cost basis and pay extra tax to not have to deal with the paperwork. Depending on the scale of the profits and the scale of the paperwork, that might be worth it.
- TheCoelacanth 5y ago
  I believe this is the same as any other fungible assets, e.g. if I buy a share of Google for $1000 and then a year later buy another share of Google for $2000, then sell one share.

user-the-name 5y ago

Where the disconnect is is between "currencies" and "cryptocurrencies". The latter are "currencies" basically in name only, and share almost none of the properties of the former.

notyourwork 5y ago

> However, remote tech has changed work so much that if I were a betting man, I would be looking at real estate in non-extradition countries as thousands of new crypto millionaires weigh their options and just leave. Taxes are there to support the infrastructure that powers a country. If someone opts to not pay their share of taxes and leave, they are also not using the infrastructure paid for by taxes. Effectively, if you want to drive on nice roads, have consistent access to clean water and power you can pay taxes.

smeej 5y ago
The part that makes it force is that even if I were willing to go without those things, I can't _not_ pay taxes.
- notyourwork 5y ago
  I think you're being disingenuous with this reply. You cannot physically live in a country and not use their infrastructure. If you don't like ALL the things taxes are used for you are welcome to leave and go elsewhere.
  - tomc1985 5y ago
    > If you don't like ALL the things taxes are used for you are welcome to leave and go elsewhere. Yes because customs and immigration will just welcome you with open arms.... /s
    - notyourwork 5y ago
      It is simple: Country X isn't willingly keeping people because countries Y and Z won't welcome a person in. If you want to live in a country you have to abide by that country's rules. This includes paying taxes as defined by that country's tax laws.
      - tomc1985 5y ago

graeme 5y ago

My accountant calculates the cost basis for my USD/CAD exchanges in Xero. Pretty sure that’s a thing. And if you were doing large volumes of cash exchanges as a business you’d be in trouble if you didn’t account for the cost basis.