Posted by: Dirk | April 6, 2018

Capital gains from rise of Bitcoin trigger tax liabilities – in USD!

Reuters has published an interesting article on Bitcoin. Here is the end:

Fundstrat also said crypto exchanges posted record profit in November and December and are expected to have huge tax liabilities, which should add to further selling in crypto-currencies. Many of the exchanges have net income exceeding $1 billion in 2017 and keep their working capital in bitcoin and ether, the research firm added.

To meet these tax liabilities, exchanges need to sell bitcoin and ether.

This is very interesting. The more successful Bitcoin is as a speculative investment, the higher the pressure is to get out of Bitcoin and into US dollar because of the rising tax liabilities.

This reminds me of the bigger picture. The more the private sector borrows, the hotter the economy runs. The hotter the economy runs, the more taxes citizens and corporations pay. The more they pay in taxes, the less they spend on everything else. However, in the real world inflation usually ends the boom since the central bank hikes up interest rates before inflation goes through the roof. Nevertheless, the effect of public surpluses as a result of a private-debt financed boom is real. The Clinton surpluses in the 1990s belong in this category.

Seems like the Bitcoin story could be stopped by the fact that tax liabilities are payable in USD. Those that doubted the sustainability of the value (exchange rate to USD/purchasing power) of Bitcoin from the start probably nod their heads in agreement.

Back in 2013 I wrote on this blog: “I believe that Bitcoins are on overpriced worthless token, not a currency. That status can be changed, but I can’t see what any sovereign country would gain from that.” I still stand by my statement.

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