Bitcoin may be thought of as an alternative currency – but just don't say that to the IRS.
The US Internal Revenue Service says that Bitcoin is property, not currency. That means profits in Bitcoin get taxed at the lower capital gains rate rather than income rate. But, it also means that losses in Bitcoin are also at the capital gains tax rate. That helped Bitcoin's value to drop 20% in just the past week.
CNBC contributor Gina Sanchez, founder of Chantico Global, this is yet another bad headline in a long stream of bad news.
"It's a terrible thing," says Sanchez of Bitcoin's IRS categorization. "This is already a really negative story, in my opinion. What this says is every time you make a transaction, you basically have to keep track of your capital gains – every transaction."
In general, Sanchez sees no reason for investors to trade their dollars for Bitcoin. "Bitcoin as a currency doesn’t make any sense," she says. "You basically have a whole bunch of cyber geeks trying to tout themselves as a monetary authority. That's just not going to fly."
Talking Numbers contributor Richard Ross, Global Technical Strategist at Auerbach Grayson, was once fairly bullish on the future of Bitcoin. But, after a few scandals – from the MtGox collaps to the arrest of BitInstant founder Charlie Shrem – and a huge drop in value, Ross is now very bearish.
"It hasn't completely collapsed – yet," says Ross. "This has transitioned from a trade into a scandal, which is like a duck transitioning to a l'orange; it's not a good thing."
Ross sees Bitcoin trading in a descending triangle with a base at the $500 level. Given that its peak was around $1,100, the triangle would project a downside of equal magnitude in the opposite direction. In this case, that would be negative $100.
"Now, that doesn't really make sense," says Ross. "But, given the recent history – given the MtGox scandal – I could see this thing at negative. It could actually cost you money to own this thing at the end of the day. It could just disappear that quickly."
"I don't know what good could really come of it at this point."
To see the full discussion on Bitcoin with Sanchez on the fundamentals and Ross on the technicals, watch the video above.
- capital gains rate