Author: Adam Ghahramani / Source: VentureBeat
Last year, Congress passed a law treating every crypto-to-crypto trade as a taxable event. That’s a mistake. Cryptocurrencies are too novel, fraught, and susceptible to unintended consequences to be taxed the same way as stocks and precious metals are.
Here are 15 reasons why these trades shouldn’t be taxed.1. Scam coins abound
A ponzi scheme, Bitconnect, once commanded a market cap of $2.8 billion; then it vanished overnight. Our tax policy rewards long-term holding, which is great when you’re hoarding Apple stock, but ruinous if you’re invested in a fly-by-night.
2. New blockchain tech emerges every week
The pace is blazing, and we need to give investors the flexibility to exit out of the laggards and move their investments into the disruptors. That’s how the mega-rich are minted, and we don’t want them all in Asia.
3. Tracking trades is a headache
There are dozens of exchanges and proprietary wallets, with more launching daily. Unlike bank accounts, which are static, traders need to actively shuffle their wallet addresses to stay secure. Logging this movement is a logistical nightmare, and some traders would rather risk an audit than bother.
4. We need more American exchanges
Why trade on an American exchange when you can hide your activity in Asia? Asian exchanges like Binance, Huobi, and OKEx are dominating American exchanges like GDAX and Bittrex in trade volume. And many new, promising entrants, like CoinSuper, are also based in Asia. Exchanges are a lucrative business; we should fight for their tax dollars.
5. A new type of exchange will elude the IRS
At this year’s Battle of the Cryptos event in NYC, a consensus trend prediction was the decentralized exchange. With an Asian exchange, the IRS might eventually gain access to their trading records. With a decentralized exchange, there’s no one to petition. Taxing exchange trades won’t work if there’s no way to audit them.
6. The future won’t have a paper trail
We can track most cryptocurrency movement today on public blockchains, but soon that won’t be the case. Privacy coins like Monero, ZCash, Dash, and Zen Cash obfuscate transactions by design. And Zen Cash is building the infrastructure for privacy-based, decentralized apps. Harsh tax treatment promotes a future with absolute privacy; we may even see Bitcoin or Ethereum add private transactions as a native feature. Combine private transactions with decentralized exchanges, and our tax policy operates on the honor system.
7. Many cryptocurrencies are…
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