That news was trumped by the IRS announcing that, as far as taxation is concerned, Bitcoins are property, not currency, and can be taxed like any other investment. The ruling means that Bitcoin trades would be subject to capital gains taxes, just like a stock or mutual fund. What’s less clear is exactly how that would work for businesses accepting Bitcoin as payment. Under this technical definition, if a buyer purchased a $2 used comic book with Bitcoin purchased for $1, that would mean a $1 in capital gains taxes for the buyer and $2 in capital gains for the used book store. Trying to apply those taxes to every Bitcoin transaction is going to rewrite the definition of burdensome regulation. The IRS announcement further eroded Bitcoin prices on global markets, with prices gradually sliding to the $580 range on lower than normal volume.
If it’s not Iceland, some small country or island nation is going to get the wild idea of giving cryptocurrency a try.
In another bizarre incident, all 320,000 residents of Iceland, who already had a reputation as mavericks in global financial circles, woke up to discover they were deeded a stash of Auroracoin. The Icelandic branded cousin of Bitcoin is intended to take a shot at the country’s strict currency controls, put in place in 2008 after the Icelandic krona got hammered in world markets during the recession.
In a larger country, such a move would simply be swept away with aggressive enforcement action — but in a population the size of Iceland everyone knows everyone else, and such a heavy-handed move is neither advisable nor necessary. It’s equally likely that the Icelandic parliament could end up embracing Auroracoin, as the country has a history of setting monetary policy with little regard for the rules followed by the rest of the world. If someone in the Icelandic government gets the wild idea to back a cryptocurrency with a real commodity, like gold or silver, that’s going to open up a new medium of global exchange virtually overnight. If it’s not Iceland, some small country or island nation is going to get the wild idea of giving cryptocurrency a try, if nothing else as a cost-saving measure.
What’s more certain is that Bitcoin is starting to attract serious startup capital from people who were early players in the electronic payment business. While Bitcoin earns the same type of scorn and ridicule as email received in the early 1990s, it does represent the latest undiscovered country in both technology and finance. Yet, despite some very public growing pains that seemed to prove the naysayers correct, Bitcoin has managed to come through with a healthy market still in operation.
It remains to be seen what effect the IRS ruling will have on the Bitcoin trade, but my sense is the impact will be minimal. There are certainly many Bitcoin traders in the US, but cryptocurrency recognizes no borders; and when Bitcoin stumbled in the US, prices barely budged in overseas exchanges. It’s apparent that trying to regulate Bitcoin would be like trying to nail Jello to the wall — apply pressure in one place, and the supporting system simply flows to a country where there is less pressure.
As digital currency moves ahead, look for regulators to be constantly stymied by the fluid nature of transactions. Ultimately, when it comes to technology, it’s always safe to bet on convenience and efficiency to win out — and Bitcoin offers both.
Sources:
http://redteanews.com/2014/03/26/bankrupt-bitcoin-exchange-finds-117-million-in-old-shoe-box/#.UzNH6_ldXfI
-Redtea
Independent News for the Right-Minded American
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