The Corporate Law Group

Bitcoin Redux

Overstock announced it would accept Bitcoin and took in $130,000 in 840 Bitcoin purchases the first day from primarily new customers. We aren’t really going out on a ledge here but we think Bitcoin is here to stay and we applaud it because it is a currency not controlled by a central bank. An interesting Chicago Fed letter dated December 2013 concerning Bitcoin stated, after identifying Bitcoin as a fiduciary or fiat currency that, “A currency that has value only because of the belief that it will have value may have no value at all.” True but ironic coming from a central bank that is facilitating money printing at a rate of $75 billion each month. I won’t bore you with Bitcoin “mining” here but Bitcoin’s creator has acknowledged that the absolute number of Bitcoins will be limited to a finite number. With its increases in value its usefulness is based on its divisibility into eight decimal places. As usual most governments are playing catch-up. The only one so far to recognize Bitcoin as money is Germany. The IRS hasn’t even clarified whether it sees Bitcoin as a capital asset or a currency. If a capital asset its gains would be capital gains, if a currency ordinary income (the possible difference between a 15% tax rate and as high as a 43% tax rate). The Facebook famous Winklevoss twins are publicly saying that they will treat Bitcoin as a capital asset. Overstock’s acceptance of Bitcoin makes it look more like a currency since they don’t accept fine art, silver, or comic books at checkout. Singapore treats Bitcoin like a product subject to a sales tax, neither currency nor capital asset; Germany considers Bitcoin as “personal money”; and Slovenia says that money is money no matter what its form.

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