The IRS is killing Bitcoin

last updated 8 January 2015

Megan McArdle

BloombergView.com

Uncle Sam just took “a bite out of Bitcoin,” said Megan McArdle. I’ve never been a big believer in the virtual currency, but even if Bitcoin “meets the fondest hopes and dreams of its early adopters,” the government has just made it much harder for it to go mainstream. Last week, the IRS ruled that it would treat Bitcoins as property, which means that the digital dollars will now be “subject to capital gains tax” when sold. In practice, that means Bitcoin owners “will need to track the price at which each one is acquired, and the price at which” each one is sold, and pay a tax on the difference. As a result, turning Bitcoins into cash will be quite a headache. Sure, die-hards could find a way to keep their transactions off the books, but that would require “rather elaborate money-laundering operations.” And if you get caught, “Bitcoin’s public block chain will provide law enforcement with a nice ledger of all your illegal activity.” Whether or not the government is trying to diminish its appeal, the IRS’s ruling could be the nail in Bitcoin’s coffin as a viable alternative to fiat currencies, potentially reducing dealing in it to a mere hobby. After all, a currency in which each individual unit has a different value “is likely to be more trouble than it’s worth.”