IRS treats Bitcoin as property. The IRS recently issued guidance stating that it will treat virtual currencies, such as Bitcoin, as property for federal tax purposes. As a result, general tax principles that apply to property transactions apply to transactions using virtual currency.
Several countries this month have announced new rules and regulations regarding Bitcoin and other virtual currency. California, the Swiss Government, Canada, Bolivia, Russia and Sweden have all issued new laws.
Sources tell the Wall Street Globe that there is a slew of activity that both slows and speeds up the use of such payment systems.
Brasil coin 1 real (Photo credit: Wikipedia)
Investments involving Bitcoin present unique risks.
Consider these risks when evaluating investments involving Bitcoin:
- Not insured. While securities accounts at U.S. brokerage firms are often insured by the Securities Investor Protection Corporation (SIPC) and bank accounts at U.S. banks are often insured by the Federal Deposit Insurance Corporation (FDIC), bitcoins held in a digital wallet or Bitcoin exchange currently do not have similar protections.
- History of volatility. The exchange rate of Bitcoin historically has been very volatile and the exchange rate of Bitcoin could drastically decline. For example, the exchange rate of Bitcoin has dropped more than 50% in a single day. Bitcoin-related investments may be affected by such volatility.
- Government regulation. Bitcoins are not legal tender. Federal, state or foreign governments may restrict the use and exchange of Bitcoin.
- Security concerns. Bitcoin exchanges may stop operating or permanently shut down due to fraud, technical glitches, hackers or malware. Bitcoins also may be stolen by hackers.
- New and developing. As a recent invention, Bitcoin does not have an established track record of credibility and trust. Bitcoin and other virtual currencies are evolving.