Bitcoin, crypto currency and block chain...

JohnRoberts said:

I understand blockchain technology in general (robust ownership ledger embedded into it.). Bitcoin is different animal based on scarcity or finite supply with unlimited demand. A link to my personal thoughts? That link would be to my post in this thread.

That China is promoting a crypto yuan that they plan to distribute at the olympics was probably in a newspaper article (WSJ) that I read recently, on mentioned on financial news. Connecting the Chinese crypto currency to BTC was my own mental leap. 

JR

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OK. I know China is preparing their own CC, but I don't see how they would be able to 'occupy' Bitcoin. There's a theoretical risk of Bitcoin miners (many of whom are in China) compromising Bitcoin, but that is rather far fetched.

JohnRoberts said:

The more likely scenario is that it gets co-opted by a nation state (like China) who would love to unseat the dollar as the international reserve currency, while the excessive borrowing and spending in DC is already is rushing toward that ditch.

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this is why many players stand to lose and why there will be an effort to suppress it

volker said:

Wouldn't want to let everybody have access to an asset that outperforms every product they offer themselves.

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the top dogs can hedge their bets in the event the $ goes out of favor

In NFT news I hear somebody sold a NFT fart for $85.... Another company is making NFTP (blockchain toilet paper).

I appreciate their sense of humor, but this is more evidence of bubble liquidity.

JR

I don't get NFTs. But I wouldn't buy paintings for millions either if I were a billionaire...

NFTs are unique, while cryptocurrencies are owned by many people, who all have in interest in a rise in value (or at least value preservation).

But what causes rise in value? It's a supply demand thing. Demand is in part due to utility,  or to some perceived inherent value.  I would argue that art has some inherent value to humans,  especially at the master piece level.

My hope for bitcoin was that it would be a stable alternative currency. But lots of hodlers, it seems to be more a speculator thing and those fleeing depreciating fiat currencys. Yes there are many invested in value preservation, but the only way to accomplish that is if the demand side of the equation holds up.  Which at this point still relies on the greater fool thing,  certainly it could go much higher,  or implode and be replaced by something else.

there are many invested in value preservation

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Indeed, my understanding is it's a great tax shelter:  Realized gains are not taxed until owner converts away from coin-- and yet-- if yearly losses are incurred as a result of coin price, that can be tax deducted. 

Are you sure boji?  I don't know crypto specifics, but would be very surprised if you could deduct unrealized losses but put off unrealized gains.

Usually taxes are figured out on realized gains or losses. Active investors can instead elect mark to market accounting,  then both unrealized gains and unrealized losses are reported yearly. I don't see how you could split this up and do one of each.

You can realize losses by selling and rebuying within a fiscal year. In Germany, these losses can be offset against gains from the same asset class (but not other income).

Yes, art has an inherent value, but why do you need the "original" with an NFT? It's not like a canvas that was actually touched and painted on by Picasso. And it's not so much about the art per se right now, but really more of a hype IMO.

I'm sure there's money to be made, but IMO it is far more risky to buy NFTs than hodl BTC.

BTC can become a stable currency once it has grown enough. But I still think of it more as a store of value, which you use as collateral to borrow other (actual) currencies. Right now there are ways to borrow against your BTC and stake the borrowed funds at a higher rate than the interest you pay.

It might very well be that we live in a truly rare age of rapid technological change and opportunity right now.

I don't get the NFT craze either,  seems a lot of money for what frankly looks like crap.

When I make a billion, art will be on the shopping list,  but fine art,  oil paintings,  sculptures,  bring a bit of the museum home.

In the US there are wash sale rules for some investments like stocks. You can't sell and re-buy in order to realize a loss.  Not sure the rules for crypto.

I first considered bitcoin when it was about 100x cheaper,  certainly a poor decision not buying then. Am considering it again,  despite reservations,  mainly as a hedge because it seems uncorrrlated to other assets and the future of western fiat currencys looks very bleak. It's a decent sized psychological hurdle though,  buying in at 50k knowing you passed on it at 500.

boji said:

Indeed, my understanding is it's a great tax shelter:  Realized gains are not taxed until owner converts away from coin-- and yet-- if yearly losses are incurred as a result of coin price, that can be tax deducted.

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IRS considers BTC property, so capital gains tax and likely wash rules just like stocks.

I am not sure how Paypal, Square, or other BTC merchant accounts deal with conversions when you use BTC to buy something real but I suspect they will keep an accounting and issue a tax statement to use when filing your tax returns, to account for the appreciation or loss from a fractional conversion since you acquired the BTC.

Not my problem...

JR 

JohnRoberts said:

I am not sure how Paypal, Square, or other BTC merchant accounts deal with conversions when you use BTC to buy something real but I suspect they will keep an accounting and issue a tax statement to use when filing your tax returns, to account for the appreciation or loss from a fractional conversion since you acquired the BTC.

Not my problem...

JR

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Mine neither. I don't see the point in paying with it as a consumer (just like I wouldn't pay with gold or stocks), unless it is for the rare really big transactions.

https://cryptonews.com/exclusives/why-would-anyone-buy-nft-a-link-to-a-jpeg-file-9620.htm

I don't see the point in paying with [crypto] as a consumer

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Think Visa is happily sorting that out for us. 

https://www.forbes.com/sites/billybambrough/2021/02/03/visa-reveals-bitcoin-and-crypto-banking-roadmap-amid-race-to-reach-network-of-70-million/?sh=405ae5d7401c

living sounds said:

You realize losses by selling and rebuying within a fiscal year[...]

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Yes, common for reducing taxes on gains. However, a loss still remains a loss, meaning less money in the pocket than previously. What asset class is BTC in Germany? A currency?

Script said:

Yes, common for reducing taxes on gains. However, a loss still remains a loss, meaning less money in the pocket than previously. What asset class is BTC in Germany? A currency?

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It depends on how the BTC were aquired and if this happened in a personal or commercial manner. Buying BTC personally for speculation purposes will result in a classification as an 'ordinary' immaterial asset. In this case is dealed with the same as buying and selling gold for personal purposes. Income deriving from crypto currencies is deemed as other income and not as capital gains. Hence, crypto gains will be tax-free if a minimum holding period of 12 months between the acquisition and sale of each coin is fulfilled. Otherwise, it is taxable. Lending/staking/liquidity mining of coins will extend the minimum holding period to 10 years.

Fed Chief Jerome Powell warned public that BTC is not a reliable store of value because it isn't backed by anything...

news said:

Powell also addressed the potential for the Federal Reserve to institute its own central bank digital coin. He said the Fed is "exploring" the issue, but that it is "not in a mode of trying to make a decision at this point."

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This may not mean anything other than messaging in response to Chinese crypto effort. I think I heard a sound bite, of Powell being dismissive of Chinese crypto.

This could get interesting... Blockchain is a tidal shift in managing economic transactions, BTC not so much as a store of value, but opinions vary.

JR

living sounds said:

It depends on how the BTC were aquired and if this happened in a personal or commercial manner. Buying BTC personally for speculation purposes will result in a classification as an 'ordinary' immaterial asset. In this case is dealed with the same as buying and selling gold for personal purposes. Income deriving from crypto currencies is deemed as other income and not as capital gains. Hence, crypto gains will be tax-free if a minimum holding period of 12 months between the acquisition and sale of each coin is fulfilled. Otherwise, it is taxable. Lending/staking/liquidity mining of coins will extend the minimum holding period to 10 years.

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I see. So under certain income circumstances (such as a lot of tax owed for previous gains in same year, or low income expected in next fiscal year, or...), selling BTC as a private person before the end of the year can make sense. Do BTC portfolios follow the First-In-First-Out rule ? Well, if so one'd need a variety of pockets.

Script said:

I see. So under certain income circumstances (such as a lot of tax owed for previous gains in same year, or low income expected in next fiscal year, or...), selling BTC as a private person before the end of the year can make sense. Do BTC portfolios follow the First-In-First-Out rule ? Well, if so one'd need a variety of pockets.

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Tax loss harvesting is a common practice for stock investors. Unprofitable stock positions can be sold to offset profitable stock sales, reducing the taxes due. Sometimes you don't really want to sell the stock but "wash" rules in the US require that you must sell and not own the stock for something like 60 days, otherwise the IRS will ignore the wash sale and not subtract the loss.

Interesting question about how the different BTC accounts treat cost basis for capital gains/losses.

https://cryptotrader.tax/blog/how-to-calculate-your-bitcoin-taxes-the-complete-guide

This may have some answers... Still not my problem.

JR

JohnRoberts said:

Fed Chief Jerome Powell warned public that BTC is not a reliable store of value because it isn't backed by anything...

This may not mean anything other than messaging in response to Chinese crypto effort. I think I heard a sound bite, of Powell being dismissive of Chinese crypto.

This could get interesting... Blockchain is a tidal shift in managing economic transactions, BTC not so much as a store of value, but opinions vary.

JR

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I was thinking and saying similar things not long ago... But I don't think this is the right way to look at it.

As long as people believe in Bitcoins current and future value, that's what it is. It's backed by a strong narrative and believe in its scarcity, transferability, storeability etc.

The longer it is here and the more difficulties it sucessfully overcomes, the stronger that believe gets.

And gold does not have a lot of inherent value, but it's got a great story, too.

Script said:

I see. So under certain income circumstances (such as a lot of tax owed for previous gains in same year, or low income expected in next fiscal year, or...), selling BTC as a private person before the end of the year can make sense. Do BTC portfolios follow the First-In-First-Out rule ? Well, if so one'd need a variety of pockets.

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You can opt for FIFO in Germany. But a lot of it hasn't been definitively settled, it's way to new.