Bitcoin on the rise

Ask your investment, budget, and other money related questions here
Gilberto de Piento
Posts: 1660
Joined: Tue Nov 12, 2013 10:23 pm

Re: Bitcoin on the rise

Post by Gilberto de Piento »

To make sure I'm not missing something I have some very basic questions:
If you buy cryptocurrency and don't sell it then there is no impact to your taxes, right?
If you buy cryptocurrency and sell for a profit after one year then long term capitol gains tax applies?
If you buy cryptocurrency and sell for a profit before one year then short term capitol gains tax applies?

No need to discuss selling for a loss, that can't happen, right? :lol:

Note: I pay taxes in the US.

User avatar
Alphaville
Posts: 3457
Joined: Thu Oct 03, 2019 10:50 am
Location: Quarantined

Re: Bitcoin on the rise

Post by Alphaville »

i got a 1099 with:

SHORT TERM TRANSACTIONS FOR NONCOVERED TAX LOTS
Report on Form 8949, Part I with Box B checked.
Box 2: Type of Gain or Loss - Short-Term (unless indicated as Ordinary in Additional Notes Column)
Box 5: Box Checked (Noncovered Security) Box 6: Gross (unless indicated as Net in Additional Notes Column) Box 12: Basis Not Reported to the IRS
The 1099-B data referenced by a Box Number is reported to the IRS. The additional information not referenced by a Box Number is not reported to the IRS but may be helpful to complete your return.


[data follows]

bostonimproper
Posts: 308
Joined: Sun Jul 01, 2018 11:45 am

Re: Bitcoin on the rise

Post by bostonimproper »

@Gilberto de Piento: Yes on all counts. You may also have to pay taxes if you claim airdropped tokens, earn staking rewards (CoinBase does this for you automatically with some tokens), or get some other yield from your crypto, e.g. through lending. You’d know if any of these apply to you. IRS tax guidance on crypto (“virtual currency transactions”).

Gilberto de Piento
Posts: 1660
Joined: Tue Nov 12, 2013 10:23 pm

Re: Bitcoin on the rise

Post by Gilberto de Piento »

Thanks! That is very helpful.

Another basic question: I am interested in buying (monthly dollar cost averaging) very small amounts into a basket of cryptocurrencies to hold long term. This would primarily be for the purpose of diversification since everything I have is in index funds. Am I right in my understanding that I would need to open a trading account at an exchange, use that account to buy crypto, and then withdraw it to cold storage of some sort so that it is protected from hacking / exchange failure / etc.? Are fees going to make this a bad plan?

I thought about doing this through paypal since I have an account there but as far as I can tell they won't allow you to withdraw the crypto from their account: https://www.paypal.com/us/webapps/mpp/u ... encies-tnc

User avatar
Alphaville
Posts: 3457
Joined: Thu Oct 03, 2019 10:50 am
Location: Quarantined

Re: Bitcoin on the rise

Post by Alphaville »

paypal sucks, even if converting to dollars, you can't do advanced orders or anything. terrible. i was able to cash out profitably but just all by hand.

robin hood is also crap, i tried. didn't have stop loss, gtfo.

look for a better broker. i've heard coinbase but have not tried.

SavingWithBabies
Posts: 715
Joined: Mon Aug 31, 2015 2:50 pm
Location: Midwest, USA

Re: Bitcoin on the rise

Post by SavingWithBabies »

@GdP The Coinbase fees are explained here:

https://help.coinbase.com/en/coinbase/t ... /fees.html

I haven't bought anything with real money yet on their platform.

edit: The fees on Pro (after reading WB's post below) look a lot better. I only used Coinbase as an easy to use wallet and didn't know about Pro.

Pro fees: https://help.coinbase.com/en/pro/tradin ... -fees/fees
Last edited by SavingWithBabies on Mon Apr 19, 2021 9:49 pm, edited 3 times in total.

white belt
Posts: 639
Joined: Sat May 21, 2011 12:15 am

Re: Bitcoin on the rise

Post by white belt »

@Gilberto

I use Coinbase Pro. It is a pretty straightforward platform to use especially if you are familiar with conventional trading platforms for stocks and bonds. It also has lower fees compared to regular Coinbase and the impression I got is that regular Coinbase caters to customers that may be uncomfortable with terms like Market, Limit, and Stop.

Crypto is an enormous rabbithole and I'm sure there are countless good reasons to not use a platform like Coinbase, but I still think it is one of the smoothest transitions for those new to the space who already have familiarity with investing concepts.

See here for more info: https://www.investopedia.com/coinbase-v ... ro-5120704

bostonimproper
Posts: 308
Joined: Sun Jul 01, 2018 11:45 am

Re: Bitcoin on the rise

Post by bostonimproper »

@Gilberto de Piento +1 to what others have said on CoinBase Pro - fees are in the 0.2-0.5% range. If you don’t want to pay *any* fees, you could use a service like Robinhood, but on those you can’t take custody of the underlying coins yourself.

I personally am comfortable leaving my tokens on CoinBase. They keep 98% of tokens in cold storage and insure the rest. They also allow for all the user login security you’d expect from a financial institution (e.g. 2-factor, whitelisting external wallets for transactions, etc.). At the end of the day, I believe I am more likely to bork a HW wallet / lose my seed phrase if I self-custody than I am to lose a significant amount of money on the exchange.

That said, there are folks who feel very strongly about self-custodying (“not my keys, not my crypto”). Those people tend to go two routes:
1. Using a software wallet (such as MetaMask or Argent). These store your private keys on your local device, which can get hacked, but is less of a honeypot than a large exchange. These wallets allow you to use your crypto on various DeFi apps relatively easily if you want to play around in that space.
2. Putting your keys on a hardware wallet (such as Ledger or Trezor). These store your private keys on a difficult-to-hack external hard drive, which you need to plug in when you want to make a transaction. You can use hardware wallets with some software wallet apps (e.g. keep your keys on Ledger, but use the MetaMask interface to do DeFi things).

Gilberto de Piento
Posts: 1660
Joined: Tue Nov 12, 2013 10:23 pm

Re: Bitcoin on the rise

Post by Gilberto de Piento »

That is what I needed to know. Thanks everyone!

Humanofearth
Posts: 5
Joined: Sun Mar 28, 2021 3:32 am

Re: Bitcoin on the rise

Post by Humanofearth »

Don’t use Trezor. It lacks a secure element, it can be hacked via a simple glitch on the device with under $100 of hardware. Use a Cold Card for serious money and something like crypto tags or like cold yeti for even more security.

Kraken is better than Coinbase Pro but a decentralized exchange is even better and actually gives you privacy.

Metamask is also sketchy af, permission to change all data you copy/type? Better than some alternatives but that’s a lot of trust in an app.

User avatar
Ego
Posts: 5194
Joined: Wed Nov 23, 2011 12:42 am

Re: Bitcoin on the rise

Post by Ego »

Ebay is working on a bitcoin payment option. I am guessing they are going to keep the bitcoin and pass on dollars to sellers, profiting on the exchange, but I hope not.

https://finance.yahoo.com/news/ebay-loo ... 31149.html

jacob
Site Admin
Posts: 13243
Joined: Fri Jun 28, 2013 8:38 pm
Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 73
Contact:

Re: Bitcoin on the rise

Post by jacob »

One wonders whether the increasing acceptance of bitcoin by forward thinking corporations is
a) getting ahead of the curve and installing a new twin-currency payment system, like e.g. quoting prices in both "gold" and "dollars.
b) a way to monetize bitcoin "lottery winners" who might be induced to by a Tesla Cybertruck or a nyan cat NFT as long as don't have to deal with converting back into dollars to make the transaction.

In the former case, corporations would become traders of "currency" futures to reduce transaction risk which seems rather very high given daily moves of 0-15%... in the latter case, the corporation would flip the transaction immediately and thus not need to keep any hedges/futures positions.

Qazwer
Posts: 183
Joined: Thu May 16, 2019 6:51 pm

Re: Bitcoin on the rise

Post by Qazwer »

How could a corporation hedge Bitcoin even if they wanted to? If Bitcoin collapses, the contra party risk in any hedge would be huge (I think)

7Wannabe5
Posts: 7235
Joined: Fri Oct 18, 2013 9:03 am

Re: Bitcoin on the rise

Post by 7Wannabe5 »

Isn’t investing in Bitcoin itself a way to monetize those who might buy Tesla? Like how I once sold a book on the topic of golf course secrets for $1500?

jacob
Site Admin
Posts: 13243
Joined: Fri Jun 28, 2013 8:38 pm
Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 73
Contact:

Re: Bitcoin on the rise

Post by jacob »

Qazwer wrote:
Mon May 03, 2021 12:42 pm
How could a corporation hedge Bitcoin even if they wanted to? If Bitcoin collapses, the contra party risk in any hedge would be huge (I think)
Bitcoin futures already trade on the CME, so they could/would be hedged the same way that farmers, oil companies, etc. hedge their production. Selling a future locks in the current price for future delivery. Margin calls would cover the counterparty risk.

E.g. corporation sells car for BTC. Corporation keeps BTC in account but immediately sells futures contract for dollars now and delivery of BTC in e.g. September or whatever. From the corp side, the corp just got dollars for car, just like usual. In September, corp delivers the BTC (which is still sitting in their account) to the exchange (whoever bought/is still holding the future contract at expiry).

This way the car dealer removes all currency risk from the transaction ... while they might increase volume because they're now taking business in two currencies instead of one. In particular, the customer base of bitcoin hodlers.

This currency risk is adopted by the futures speculators which from this point on turns into a zero-sum game... at least to a first-order approximation.

Qazwer
Posts: 183
Joined: Thu May 16, 2019 6:51 pm

Re: Bitcoin on the rise

Post by Qazwer »

This is coming from someone trying to understand but relatively clueless. CME allows 37% levarage. It has a clearing house that can accept margin liquidation. I get how that works with commodities that are relatively stable. I do not understand how this works for Bitcoin where no one would be surprised at a 90% loss. Does CME merge all the liquidation functions of all commodities so that it could support a crash? Does this introduce a systemic risk to all commodities? How does a company carrying Bitcoin evaluate this risk?
It seems like trading real goods produced in the US with countries with really high currency risk. Forex though have really deep pockets and are really well capitalized.
Is there a good source to read about this?

jacob
Site Admin
Posts: 13243
Joined: Fri Jun 28, 2013 8:38 pm
Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 73
Contact:

Re: Bitcoin on the rise

Post by jacob »

Stability is relative. The financial system continuously adjusts. All numbers can be changed. For example, the 37% is much higher than it is for equity (more like 3-5%). The CME would offer some legalese docs. Cascading counterparty risk is always a possibility, last seen in 2009. At this point "the system" expects that the government/central banks will bail them out. Good luck!

Qazwer
Posts: 183
Joined: Thu May 16, 2019 6:51 pm

Re: Bitcoin on the rise

Post by Qazwer »

@Jacob Thank you

MegaRigger
Posts: 15
Joined: Fri Feb 09, 2018 5:43 am

Re: Bitcoin on the rise

Post by MegaRigger »

jacob wrote:
Mon May 03, 2021 12:25 pm
One wonders whether the increasing acceptance of bitcoin by forward thinking corporations is
1. Marketing.
2. Maybe tax reason? I wonder if exchanging your bitcoin for a tesla is considered a taxable event?

jacob
Site Admin
Posts: 13243
Joined: Fri Jun 28, 2013 8:38 pm
Location: USA, Zone 5b, Koppen Dfa, Elev. 620ft, Walkscore 73
Contact:

Re: Bitcoin on the rise

Post by jacob »

MegaRigger wrote:
Tue May 11, 2021 7:01 am
2. Maybe tax reason? I wonder if exchanging your bitcoin for a tesla is considered a taxable event?
It is.

Post Reply