US Tax Authority Prioritizes Issuing Guidance on Cryptocurrencies
The Internal Revenue Service (IRS) has prioritized issuing tax guidance on , according to a May 16 .
The letter from the IRS comes in response to a from 21 representatives in Congress, including Rep. Tom Emmer, to provide clarity on reporting taxes on holdings. In the letter to the tax authority, the representatives then claimed that there is still “substantial ambiguity on a number of important questions about the federal taxation” of the emerging type of asset.
In the new addressed to Emmer, IRS Commissioner Charles Rettig stated that the agency “made it a priority” to issue relevant guidance. The instruction will specifically cover issues such as acceptable methods for calculation cost basis, cost basis assignment; and tax treatment of forks.
Rettig also notes in the letter that virtual currency is treated as a property and existing tax principles applicable to property apply to transactions as well. The commissioner further reveals that the IRS has been working with industry players to define areas where guidance is needed.
Emmer previously three bills to support technology and . The bills would prompt the federal government to provide a “simple legal environment,” and restrict fines against individuals who report forked digital assets until the IRS presents formal guidance on the appropriate means of reporting. According to Emmer, “taxpayers can only comply with the law when the law is clear.”
In January, Emmer and Congressman Darren Soto a bill entitled to “provide a safe harbor from licensing and registration for certain non-controlling developers and providers of services.” The bill would exempt companies providing non-custodial crypto services from certain state money transmitting laws.
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In a recent report sent out to clients, Morgan Stanley analyst James Faucette that the “true” value of bitcoin might actually be zero.
Zero. Zip. Nada.
The report, titled bitcoin Decrypted, discussed the difficulty in ascribing value to the digital currency, noting that it behaves like neither a currency nor a store-of-value commodity like gold, silver, etc… Examining several key factors, Faucette points out:
bitcoin can’t be valued as a currency because it has no associated interest rate;
It may be likened to digital gold but, unlike gold itself, which is used in electronics, jewelry, etc.., bitcoin has no inherent use*;
While it is technically a payment network, bitcoin is difficult to scale and charges no transaction fee*;
bitcoin’s average daily trade volume over the last 30 days is only $3 billion* compared to $5.4 trillion in the FX market;
The estimated daily purchase volume for bitcoin is less than $300 million compared to Visa’s $17 billion
All of these facts, according to Faucette, underscore the fact that the digital currency has “virtually no acceptance, and shrinking.” In fact, he provides a handy chart (above) to illustrate his statement. Because of this, he maintains that “If nobody accepts the technology for payment then the value would be 0.”
Hold On There, Speed…
I hate to burst your bubble, Mr. Faucette, but some of your facts are…shall we say…less than factual. Mind you, I am no financial analyst, but then you don’t need to be to pick out these errors.
This one is a little tricky to refute, but I’ll give it a go. Playing devil’s advocate, let’s say that bitcoin as a cryptocurrency has no inherent use. It’s underlying architecture, the blockchain, has a wide range of applications. I know…”But blockchain and bitcoin are two separate things…” True, but without the blockchain, we wouldn’t have bitcoin to begin with, so one could conceivably argue that – in this instance – they are two sides of the same coin.
bitcoin has other uses too – especially in a socioeconomic sense. Consider the current economic conditions in . These people have been utterly failed by their respective governments. Inflation is through the roof, their native currency has about as much value as one-ply toilet paper, and people – families – are starving. So where are they turning? bitcoin. People are mining bitcoin and other cryptocurrencies so that they can survive. That’s pretty useful if you ask me.
Um…hello? There is absolutely a transaction fee, and right now, we’re paying it out the wazoo. It’s part of those “scalability issues” you mention in your research report. Now, if by transaction fee, you mean a centralized service provider collecting a fee that goes into its own coffers, then I guess maybe you’re technically correct, but you’ve still missed the point. Kind of like tech support at a software company whose name will not be mentioned here.
FACT 3 – bitcoin’s average trade volume over the last 30 days is only $3 billion
What rock have you been living under? Go look at the historical data for the last 30 days on . It’s okay. I’ll wait. Second column from the right. The one labeled Volume. If you take the average of all 30 days, as of this writing, it works out to $11.8 billion – just a wee bit more than your $3 billion estimate.
I respect your experience and your financial acumen, Mr. Faucette, and it even looks like we both believe in the same old adage, “Forewarned is forearmed,” but if you’re arming your clients with inaccurate information, what purpose does it serve?
What do you think of Faucette’s claims? Could the true value of bitcoin actually be zero or is this just more wharrgarbl? Let us know in the comments below.
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