- Cryptocurrency adoption is undoubtedly growing, but the issue of tax is a key factor holding it back
- With crypto generally considered a capital asset, any sale of it is seen as a taxable event
- Recording and reporting tax on every transaction will remain an unwelcome burden for many
Cryptocurrency adoption is something that anyone with a vested interest in the technology wants to see, more so than the arrival of institutional money in many cases. Bitcoin for your beer, DOGE for your Dominoes… paying for everyday items with cryptocurrency is the dream for many crypto evangelists. There are many factors why this adoption is taking longer than crypto advocates had hoped, but there is one that lurks in the background, barely discussed and yet crucial to overcome: tax.
Crypto Capital Gains Headache
In most countries, cryptocurrencies are treated like assets, meaning they are no different from company shares, your car, or the gold stashed under your bed. Whether you agree with this or not is moot; this is the letter of the law in most countries. This means that tax must be paid on profits made on cryptocurrencies in line with local capital gains guidelines.
In the US and other countries, this means that disposing of a cryptocurrency, whether you are selling it for another crypto or back to local currency, triggers a taxable event which you must record. Those getting into crypto for the first time are often surprised to learn that profits and losses are calculated not just when coins are sold back to fiat, but with any transaction, even swapping one NFT for another.
But That’s Not the Worst News…
The practical impact of this is that if you were to take your Coinbase card and go on a shopping spree, every time you buy something, the cryptocurrencies are converted to fiat currency, which is then used to buy the items. This is the same as swapping crypto for fiat on an exchange and is a taxable event; ergo, you need to record it and, if you’ve made a profit, pay tax on it.
If you’re only spending a few hundred dollars a year or buying the odd coffee now and again, it doesn’t really matter, but it’s the principle that’s the problem—in most countries, you can’t spend cryptocurrency without having to play the accountant afterwards. Of course, software to help you with that, but you still have to take the time to keep it up to date and check it for accuracy.
This tax issue is a massive obstacle in the potential adoption of cryptocurrencies, and until they are afforded the same privileges as standard currencies, or if purchases under a certain amount are waived, many people are going to be put off buying anything with them once they know what’s involved.
Calculators at the ready…
