Bitcoin, Ethereum, and Litecoin – these crypto-currencies, once the fringe domain of esoteric geeks and hardcore anarchists, have thundered to the forefront of technology and financial news in 2017. After years of muddling along in the 3-digit range, Bitcoin has now surged past $15,000 in juts a few months. Other crypto-currencies have absorbed the shockwave from Bitcoin’s spiking price, and seen their own skyrocketing prices as well. It seems like you can’t create a crypto-currency right now and not have it shoot up in price.
But how to tax revenue made from overnight Bitcoin fortunes? That’s the question working its way through legislation in the United States right now. So far one representative has proposed the “Cryptocurrency Tax Fairness Act,” but hasn’t gotten it to the House floor yet in light of other budget and tax matters getting priority.
The larger question is how to regulate crypto-currencies in the future. The Securities and Exchange Commission (SEC), is the likely jurisdiction for Bitcoin and its peers. Treating crypto-currencies as a commodity seems the best course, similar to how stocks and bonds are traded. But one snag is the “FIFO accounting mechanism,” which says that gains from trading goods have to be considered on a “first in first out” basis. But there is no difference between the first Bitcoin you bought and the last one; they’re kept in a pool, just numbers stored on a hard drive. Furthermore, crypto-currencies can be traded in fractional amounts, and traded for other crypto-currencies.
One thing we can be sure of is that Uncle Sam will figure out a way to tax crypto-currency profits soon enough. They don’t dare delay when the market cap is becoming a sizable fraction of the US’s GDP.