- 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, Monero for your motor, Doge for your Dominoes… paying for everyday items with cryptocurrency is the dream for many crypto evangelists. There are many factors why this is, and may continue to be, slow to happen, from the technological limitations to regulatory complications.
Crypto advocates want to see Bitcoin and the like accepted as currencies in their own right, but this is highly unlikely to happen in the near future. Cryptocurrency’s use case is not dependent on this eventuality, but the longer we go without it ensures that another key factor will remain in play that will stifle adoption around the world – 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 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 currencytriggers a taxable event which you must record, and then report all your taxable events at the end of the tax year, where your liabilities will be calculated. You can go the whole year without spending a satoshi and you’d still face a tax bill on the USD value of your crypto-crypto transactions, something that shocked quite a few people after the 2017/18 bull run.
But That’s Not the Worst News…
These rules may seem like they only apply to traders, but they also apply to anyone who ever buys anything in bitcoin, or any other cryptocurrency, which is the real kicker. Yes, it would be great to be able to go load up your crypto card and go on a shopping spree for the afternoon, but every time you buy something the crytpo is converted to fiat currency, which are then used to buy the items.
This means you’re selling an asset rather than just spending money, and selling assets could incur tax. So, when you get home after your shopping spree you’re going to have to sit down and work out the difference in value of the Bitcoin you’ve just spent compared to when you bought it. Kind of takes the fun out of it, doesn’t it? There is 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.
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 – right now you can’t spend cryptocurrency, any cryptocurrency, without having to play the accountant afterwards.
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…