Three years ago, when bitcoin was just starting its bubble phase on the way to $20,000 per coin (before crashing to around $3,000 in early 2018), I pointed out a long list of problems with bitcoin including nonscalability (due to electricity usage), nonsustainability (due to a deflationary cap on issuance), governance problems, rampant fraud in trading, theft of bitcoin and many other deficiencies.
There has never been a good use case for bitcoin (except criminality) and its main application has been for gambling. Bitcoin is just a way for promoters and fraudsters to take money from naïve newbies. It’s not good for anything else.
One other problem I highlighted was that when you buy and sell bitcoin at a profit (common in 2016–17), you are required to report the gain on your tax return and pay tax accordingly. I also ventured that most traders were not doing this. They had a “catch me if you can” mentality toward the IRS.
Well, the IRS may move slowly, but they move relentlessly and now the day of reckoning has arrived. According to this article, the IRS has sent over 10,000 letters to U.S. taxpayers notifying them that they must declare and pay taxes on bitcoin gains.
A mailing list of this type was not compiled randomly. You can be sure that the IRS got its information from crypto exchange records and other reliable sources. So much for the “anonymity” of bitcoin trading.
The best advice for bitcoin traders who got the letters (and any others who might owe taxes) is to settle up quickly. The IRS assesses fines, penalties and interest on late payments, which can easily double the taxes due. Beyond that, the IRS will seize assets, freeze accounts and puts liens on income until it is fully satisfied.
This is just one more reason why the bitcoin ecosystem is not quite the libertarian paradise it is made out to be.
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