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We can have the cake and eat it too: it's called stablecoin. 1. Park your ETH/WBTC/BAT (a whole bunch of other tokens) on a smart contract as collateral so tha

We can have the cake and eat it too: it's called stablecoin. 1. Park your ETH/WBTC/BAT (a whole bunch of other tokens) on a smart contract as collateral so that you can withdraw a token that is pegged to the USD, or just go to a regular exchange to buy the stablecoin. 2. Use this token to make transactions online. Tax advantages: you are not selling your volatile crypto, so you don't have to declare any sales or profits. On the other hand, if the crypto you place loses so much in value to the point where the smart contract liquidates you, you don't need to return the stable token and you can get a tax write-off.

davidcbc 5y ago
This isn't how tax laws work. Exchanging one cryptocurrency for another is a taxable event. You are committing tax fraud.
- kolinko 5y ago
  Depends on jurisdiction. In Poland the official government stance now is that only exchange into fiat is taxable. (which is absurd, but I won’t be the one to complain)
- rglullis 5y ago
  It's not an exchange. It's a loan with a collateral. It's only an "exchange" if you get liquidated, which means that you were forced to sell it at a loss.
  - davidcbc 5y ago
    Doesn't this assume you only get liquidated below your initial purchase price? With something as volatile as cryptocurrency it's not exactly a crazy idea that you'd buy at say $30k, take a loan at $60k and get liquidated at $50k and get stuck with a big tax bill
    - 55555 5y ago
      Yes but in that case you did enjoy 20k of capital gains and so it makes sense* to pay tax on the 20k gain. There is no issue.
- jkhdigital 5y ago
  Nope. It’s called a collateralized loan, and is one of the fun tricks that show how absurd and illogical income taxation really is.
  - jude- 5y ago
    You seem certain that the IRS has never considered this possibility before.
- alasdair_ 5y ago
  This is exactly how tax laws (ridiculously) work, at least in the USA. It uses the same “trick” billionaire CEOs use when they borrow against their shares to fund spending, instead of selling some shares and calling it “income”.
perl4ever 5y ago
My impression is stablecoins are still taxed as property, even if they don't fluctuate as much. Going through the same hassle but not having as much fluctuation seems like solving 20% of the problem. And if you peg your money to fiat, aren't you just ending up back where you started? What you're describing sounds essentially like being my own brokerage back office to provide cash services to myself. That's nice for people who enjoy that sort of thing, I guess.
- rglullis 5y ago
  > And if you peg your money to fiat, aren't you just ending up back where you started? Not if you are talking about the idea that only crypto allows you to transact without a middleman and without the risk of having your funds seized or your account canceled. But if you are simply talking about crypto as an way to invest: I can tell where I can park USDC and DAI and get 2% returns per month - and have gotten that consistently for the last 8 months. Can you tell me any traditional bank that can offer this good of a deal?
  - vineyardmike 5y ago
    > Can you tell me any traditional bank that can offer this good of a deal? Well banks offer lower rates of interest, but they're FDIC insured, they have nice (ish) apps, they have regulations to protect consumers, etc. I can tell you PLENTY of places i've parked my money (for the last 8 months) that have gotten much more than 2% return - but they don't have FDIC insurance (just like crypto).
  - staticman2 5y ago
    You don't get 2% a month unless there's a significant risk of losing your money. That's just basic economics- high returns only come with high risk. In other words it's nothing like a bank and should not be compared to one.
    - kobasa 5y ago
      That's under the presumption of efficient markets where there's perfect information across all market pariticipants which isn't the case currently with DeFi.

davidcbc 5y ago

This isn't how tax laws work. Exchanging one cryptocurrency for another is a taxable event. You are committing tax fraud.

kolinko 5y ago
Depends on jurisdiction. In Poland the official government stance now is that only exchange into fiat is taxable. (which is absurd, but I won’t be the one to complain)
rglullis 5y ago
It's not an exchange. It's a loan with a collateral. It's only an "exchange" if you get liquidated, which means that you were forced to sell it at a loss.
- davidcbc 5y ago
  Doesn't this assume you only get liquidated below your initial purchase price? With something as volatile as cryptocurrency it's not exactly a crazy idea that you'd buy at say $30k, take a loan at $60k and get liquidated at $50k and get stuck with a big tax bill
  - 55555 5y ago
    Yes but in that case you did enjoy 20k of capital gains and so it makes sense* to pay tax on the 20k gain. There is no issue.
jkhdigital 5y ago
Nope. It’s called a collateralized loan, and is one of the fun tricks that show how absurd and illogical income taxation really is.
- jude- 5y ago
  You seem certain that the IRS has never considered this possibility before.
alasdair_ 5y ago
This is exactly how tax laws (ridiculously) work, at least in the USA. It uses the same “trick” billionaire CEOs use when they borrow against their shares to fund spending, instead of selling some shares and calling it “income”.

perl4ever 5y ago

My impression is stablecoins are still taxed as property, even if they don't fluctuate as much. Going through the same hassle but not having as much fluctuation seems like solving 20% of the problem. And if you peg your money to fiat, aren't you just ending up back where you started? What you're describing sounds essentially like being my own brokerage back office to provide cash services to myself. That's nice for people who enjoy that sort of thing, I guess.

rglullis 5y ago
> And if you peg your money to fiat, aren't you just ending up back where you started? Not if you are talking about the idea that only crypto allows you to transact without a middleman and without the risk of having your funds seized or your account canceled. But if you are simply talking about crypto as an way to invest: I can tell where I can park USDC and DAI and get 2% returns per month - and have gotten that consistently for the last 8 months. Can you tell me any traditional bank that can offer this good of a deal?
- vineyardmike 5y ago
  > Can you tell me any traditional bank that can offer this good of a deal? Well banks offer lower rates of interest, but they're FDIC insured, they have nice (ish) apps, they have regulations to protect consumers, etc. I can tell you PLENTY of places i've parked my money (for the last 8 months) that have gotten much more than 2% return - but they don't have FDIC insurance (just like crypto).
- staticman2 5y ago
  You don't get 2% a month unless there's a significant risk of losing your money. That's just basic economics- high returns only come with high risk. In other words it's nothing like a bank and should not be compared to one.
  - kobasa 5y ago
    That's under the presumption of efficient markets where there's perfect information across all market pariticipants which isn't the case currently with DeFi.