The IRS issued a ruling on this. Can't remember if it was a Rev Rul, Proc, or (don't have time to look it up). They said it was a capital asset and gain or loss was recognized when it was converted to something else. It made for a LOT of bookkeeping and effort to file your tax return if you used bitcoin on a regular basis for day-to-day transactions. For example, suppose you took BTC as payment when you sold a used car. Then 6 mo later say the BTC has dropped in value against the dollar, and you buy a men's suit with some of those BTC. First you have to determine your reason for holding the BTC for those 6 mo. Convenience? Probably. You now have a short-term capital loss on the BTC used to buy the suit and you can't take the loss on your tax return because it's a personal loss. But if the BTC had increased against the dollar in those 6 mo, you would have to declare the gain at ordinary income tax rates for the increase in value of the BTC used to buy the suit. Sounds like a lose-lose situation! If you held the BTC for more than 12 mo you could have received l-t capital gains rates. If you can prove you held the BTC for investment (not as a substitute currency) or a legitimate business purpose then you can take losses when you buy something with BTC after it drops in value. The result is that every transaction using bitcoin requires that you keep track of your gain or loss, the nature of that gain or loss (long, short, personal, etc) and new basis in addition to the normal consequences of the transaction as if you had paid or received cash. Do you have a headache yet?
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Bitcoins, anyone?
- Thread starter stealthology
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The IRS issued a ruling on this. Can't remember if it was a Rev Rul, Proc, or (don't have time to look it up). They said it was a capital asset and gain or loss was recognized when it was converted to something else. It made for a LOT of bookkeeping and effort to file your tax return if you used bitcoin on a regular basis for day-to-day transactions. For example, suppose you took BTC as payment when you sold a used car. Then 6 mo later say the BTC has dropped in value against the dollar, and you buy a men's suit with some of those BTC. First you have to determine your reason for holding the BTC for those 6 mo. Convenience? Probably. You now have a short-term capital loss on the BTC used to buy the suit and you can't take the loss on your tax return because it's a personal loss. But if the BTC had increased against the dollar in those 6 mo, you would have to declare the gain at ordinary income tax rates for the increase in value of the BTC used to buy the suit. Sounds like a lose-lose situation! If you held the BTC for more than 12 mo you could have received l-t capital gains rates. If you can prove you held the BTC for investment (not as a substitute currency) or a legitimate business purpose then you can take losses when you buy something with BTC after it drops in value. The result is that every transaction using bitcoin requires that you keep track of your gain or loss, the nature of that gain or loss (long, short, personal, etc) and new basis in addition to the normal consequences of the transaction as if you had paid or received cash. Do you have a headache yet?
cpa
Active Member
You illustrate my point precisely. Some people "mine" bitcoins, so I would presume that they would report any bitcoins harvested and exchanged as business income, with corresponding expenses incurred. Others just sell and purchase items for personal use, like your car-for-a-suit example. Yet others operate a business and take any medium of payment--including bitcoins--and will use bitcoins to purchase business property or will convert to cash. Then, there are those who are "investing" in bitcoins. And you are equally correct in that this is a bookkeeping nightmare. This situation is roughly analogous to those who claim to be day traders. The IRS has issued rules for this, and I still don't think the average taxpayer truly understands the differences. At least there are a few court cases floating around out there on this matter.
Proving just what sort of enterprise a person is undertaking is a facts-and-circumstances test, and frankly, most taxpayers cannot be bothered with the details behind what they are doing, until it is too late. I am curious to see the first couple of tax court cases coming down the pike with regard to bitcoins! Fortunately for me, none of my clients have pursued this endeavor.
Causalien
Prime 8 ball Oracle
The tax treatment is different in different country. And depending on how you acquired it and what year you did. The treatment is different too. Since the digital currency is moving towards being categorized as currency, I am expecting the tax treatment to be in constant flux. Once one country declares it as currency, others will have to slowly follow.
I currently don't recommend using it to pay for stuff if it is treated as badly as Australia where you have to pay GST to buy and sell it. So the most general recommendation is to buy and hold until the tax issue is clarified, or it has been categorized as currency in your country.
SpykeDaddy
Member
An ASIC miner myself, I just hold the coins. My plan is that things will stabilize as soon as the ecosystem around bitcoins becomes very easy to engage. (Like ApplePay) It's too challenging for the average person to transact in Bitcoin, but I'm convinced we just need a few more years.
Congrats to those of you on the first couple pages of this thread that invested in BTC ~$100 in August 2013, this weekend BTC crossed $4000.
Chief Executive Abigail Johnson who know runs Fidelity Investments (started by her father) is a big supporter of BTC & Ethereum & this week allowed clients to link Coinbase to thier Fidelity accounts, so this news got me "off the pot" & I bought my first BTC at $3982. I don't know if this is a sign of a top or still early in the game...I do find it fascinating.
Bitcoin Price Could Exceed $100,000 by 2021: Harvard Academic
Fidelity to allow clients to see digital currencies on website
Chief Executive Abigail Johnson who know runs Fidelity Investments (started by her father) is a big supporter of BTC & Ethereum & this week allowed clients to link Coinbase to thier Fidelity accounts, so this news got me "off the pot" & I bought my first BTC at $3982. I don't know if this is a sign of a top or still early in the game...I do find it fascinating.
Bitcoin Price Could Exceed $100,000 by 2021: Harvard Academic
Fidelity to allow clients to see digital currencies on website
I tried to figure out how to buy Bitcoin around $200, couldn't get comfortable with it given the Mt. Gox fiasco, and thus have completely missed this boat. I still don't think this is anything close to resembling the "stable currency" it was touted as in the beginning, but it's fascinating anyway.
Incidentally, Charlie Bilello is often a fountain of good analysis. An excellent follow on Finance Twitter.
deonb
Active Member
I bought a 100 bitcoin when they were at $75, and was very happy when it hit $150, so I sold it again.
Sigh...
deonb
Active Member
Bitcoin is not the greatest thing environmentally...
Keep in mind the price of bitcoin reflects the approximate electricity cost to mine it.
At $4000 it implies that it uses $7m of electricity per DAY worldwide to mine.
That's enough to fully charge a half million Teslas every day.
Keep in mind the price of bitcoin reflects the approximate electricity cost to mine it.
At $4000 it implies that it uses $7m of electricity per DAY worldwide to mine.
That's enough to fully charge a half million Teslas every day.
bkp_duke
Well-Known Member
So not true. BTC price is all purely speculative at this point and not "cost driven" like it was 3-4 years ago.
deonb
Active Member
Miners very quickly pile themselves unto the pools when BTC becomes profitable to mine.
e.g. an Antminer S7 uses 1.3kw of electricity and gives you 4730gh/s.
With BTC at $2000 that conversion is unprofitable everywhere except if you steal electricity. At $4000 it's profitable for now if you have cheap enough electricity, but this is a vacuum thing - people will jump in more and more until it becomes unprofitable again.
bkp_duke
Well-Known Member
That still doesn't mean ELECTRICITY is the cost. It's one cost, but having mined several thousand coins myself, I can tell you the up-front cost of the miners is as much (usually more) than electricity costs over their lifetimes. Especially when you mine in cheap power locations like WA state.
deonb
Active Member
That doesn't make it better. Bitcoin is unprofitable at $2000 mining 4370gh/s at 1.3kW even if your electricity costs 9c and your rig is somehow free.
At $4000 it's profitable for now but we know that will rapidly change.
bkp_duke
Well-Known Member
BTC is profitable for me at even 30c/kWh, and in bulk through a WA-based datacenter, power is closer to 5-6c/kWh.
Again, the major cost is NOT power over the lifetime of a miner, it is the up-front hardware cost.
deonb
Active Member
You're thinking net profit (is it profitable for you to buy a miner and mine). I'm talking gross profit - is it profitable to keep a miner turned on. Nobody is going to turn off a miner that is currently able to mine at a positive rate. Doesn't matter if you paid $1 for a miner, or $1m - if it earns more than the electrical costs, it will keep being turned on, and if it doesn't it will be turned off.
Of course there's the cost of the rig itself, but that basically reflects an arbitrage opportunity for the rig manufacturers when there is a gap between the price of BTC and the gross profitability of a miner. At which point they sell a rig at a price that tracks the value of the gap. As with all arbitrage opportunities however, this eventually fills up until that gap is 0, at which point the rig becomes worthless.
So basically:
* Gross profitability determines how many miners are turned on.
* Net profitability determines the value of an individual mining rig.
But let's calculate this from the opposite side - the total GHs on the network is currently:
6,608,860,569 gh/s.
Using a 4730 gh/s miner (most common right now), you need 1.4million of them to mine that rate, each using 1.3kW of electricity. That means: 1.816 TW of electricity, or 43.5 TWh per day.
43.5 TWh can be used to fully charge 500'000 Model S's every day, which was my original point.
And if miners become 10 times as efficient, the total GHs of the network would just go up by 10 times.
PS: I've had hundreds of miners over the years. Even found me a 25 block once without a pool.
Direct BTC mining (sha256) isn't profitable unless you're solo mining with a few PHs worth of mining power. You'll get a block every month or so, that way. It's magic when it happens, but it's not stable enough to invest that much in the hardware and electricity (for most).
The real money is in mining alt-coins such as scrypt and x11 algorithms using ASICs, and exchanging those coins for BTC. There's some great hardware and pools out there for doing so.
The real money is in mining alt-coins such as scrypt and x11 algorithms using ASICs, and exchanging those coins for BTC. There's some great hardware and pools out there for doing so.
nigelsilva
Member
I hope some of the people on page one kept the BTC they bought. I thought it was total BS after seeing it crash to around $100 from it's previous high of ~1,200.
