Young Research & Publishing Inc.

Investment Research Since 1978

Bitcoin the Right Idea

By

The only way the U.S. government is going to pay down its mountain of debt is to inflate away the U.S. dollar. With that in mind, it’s thievery that the IRS has ruled that Bitcoin transactions, with net gains, will be taxed as capital gains. The government hates any alternative to the smoke and mirrors trick they play with the U.S. dollar. A replacement currency would hinder the government’s profligate spending and prevent them from sticking it to their creditors. A replacement currency is exactly what we need. Here’s more on the cap gains issue from the Tax Foundation:

 

The price of the virtual currency Bitcoin has fallen to about $461 from a closing price of $586 last Monday. This decline of about 21% came in the wake of an IRS ruling that net gains from Bitcoin transactions will be taxed as capital gains.

The IRS ruling made it substantially more difficult to use Bitcoin as a currency. Given that this is the use for which Bitcoin was designed, any threat to Bitcoin’s utility as a currency is a substantial threat to its value.

The main issue with the ruling may be the compliance costs. Imagine, for a moment, that you had to keep track of the value – in yen – of each individual dollar that you received, at the time you received it. Then, upon using the dollar, you had to record its value in yen at the time you purchased something. After doing this, you would compare the numbers, and report the gain or loss on your tax forms. It would turn any sort of economic activity into a bureaucratic ordeal. This is the sort of difficulty that Bitcoin users will be legally required to take on when they make transactions.

Since Bitcoin is virtual, it will be possible to design software that tracks this sort of thing for you. Nonetheless, this administrative burden throws a monkey wrench in the Bitcoin economy.

The following two tabs change content below.

E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.