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Since most users store their money in wallets with exchanges like Coinbase, how trivial would it be to write trading algorithms that minimize shifts in capital
by exelius 13y ago
Since most users store their money in wallets with exchanges like Coinbase, how trivial would it be to write trading algorithms that minimize shifts in capital gains? E.g. Coinbase would try to balance capital losses and gains on a continuous basis, then come tax time they sell off an appropriate number of BTC to pay the tax bill on the net appreciation of their coins over that time.
I think this will accelerate the shift towards Bitcoin exchanges operating as banks under the law. If you, as a consumer, deposit $1000 with Coinbase, they could store this as $1000 USD if they were a bank. Then, upon you actually wanting to spend the Bitcoin, they perform the transaction to another bank. It all happens so fast that the price of BTC doesn't change so the consumer pays no capital gains taxes.
Likewise, if you choose to maintain your BTC wallet yourself, TurboTax could write a module where you provide them your wallet address and they let you know your tax burden by comparing your transactions over the last year with the spot price of BTC when they were performed. It's not obvious from looking at the blockchain, but if you have the blockchain plus the addresses of all the various wallets owned by a person, you could do it. Transactions within that set of wallets are non-taxable, transactions outside of it are. If you don't provide all your wallet addresses, that's effectively tax fraud and is no different than keeping a Swiss bank account. At the end of the day, the government has the power to throw you in jail if you don't pay your taxes, and that gives them the power to regulate the economy.
This is all predicated on the assumption that Bitcoin will never serve as a true currency; which I think all signs are that it won't because governments just aren't willing to give up enough control over the economy to make it possible. But Bitcoin can still be useful as a method of transaction, which is why I think we're seeing regulation pop up around it.
- maxerickson 13y agoIf Coinbase is holding dollars because bitcoin have scary tax implications, why is the receiving party going to want bitcoin (instead of dollars)? It's sort of an obnoxious way to put it, but you are essentially saying that it will be like payments today, except with some bitcoin sprinkled on it to make it exciting or cheaper or something. (I do understand that bitcoin might enable international transactions where some sort of technological escrow takes the place of contracts and trust, I just haven't seen any real compelling explanations as to why the technological escrow will end up cheaper.)
- exelius 13y agoI don't think Bitcoin really have scary tax implications if you're an exchange -- you're moving Bitcoin in and out of your wallets so often you can just choose the most advantageous coins. An exchange is necessarily going to have better record keeping than an individual because the executives of the exchange can go to jail if things go wrong and proper safeguards weren't in place. This is really no different than how most commercial banks work -- your balance is used to buy stocks, bonds and financial derivatives (obviously subject to certain portfolio risk management requirements). It used to be illegal to do this with non-government securities (aka bonds) until Glass-Steagall was repealed, but now everyone does it. They trade these securities on a regular basis, and then at the end of the quarter they book capital gains and losses.