Cathie Wood, the founder of Ark Investment Management, this week advised against Bitcoin investors using their holdings to transact.
According to the current US tax code, investors must pay capital gains taxes not only when they convert their cryptocurrency to fiat but also when they use cryptocurrencies to pay for goods or services. While it is now possible to buy a Tesla with Bitcoin, users need to be aware of the taxes they could potentially face doing so.
What To Do With Gains?
Earlier this week, Tesla founder Elon Musk announced that the electric car manufacturer would begin accepting Bitcoin as a method of payment for their vehicles. Billions of dollars have been made in the cryptocurrency space since Bitcoin’s most recent bull run, making many people very wealthy. Allowing those who scored big to buy real-world goods with their digital wealth may be a genius move on Elon’s part, but it comes with some concern for investors looking to buy the newest Tesla.
Cathie Wood spoke during a webcast with CBOE on Thursday, talking about Bitcoin investors using their gains for transactions. These comments came soon after the announcement from Tesla. While Bitcoin may have been originally conceived of as a peer-to-peer electronic cash system, it might not be the best idea to use it for transactions at the moment.
“The IRS has something to say about this, so if you have huge gains in your bitcoin, I don’t think I would bear much in the way of transactions until we get maybe some changes on the tax front,”
Bitcoin As Property
For the past few years, the IRS in the United States has considered Bitcoin as “property.” This means it falls in the same category as stocks or bonds, along with all the taxes and regulation that comes with.
Exactly in the same way as buying and selling stocks, cryptocurrency investors must pay capital gains taxes whenever they go to sell. The rates vary based on how long someone has held an asset, where assets held for longer periods of time are taxed at lower rates.
However, this tax code categorization does not fit very well with the concept of a crypto-currency. Bitcoin was originally meant to be transacted as a currency, used to purchase everyday goods and services. Having to factor in taxes whenever going to purchase something with Bitcoin is extremely tedious and is something that could turn most people away from using it in the first place.
Featured image courtesy of Bloomberg