tax-law cryptocurrency securities irs federal-tax-law
Why can&#39;t a cryptocurrency be classified the same way as airline points or store rewards?
<p>According to an article I read on <a href="https://www.law360.com/tax-authority/federal/articles/1183606/facebook-digital-currency-faces-potential-tax-woes" rel="nofollow noreferrer">Law360</a> (paywalled), Facebook's Libra could never be successful as envisioned because the tax reporting burden on it will be too high. Essentially, users will constantly need to track the value of their Libra vs the US dollar to report their taxes accurately in US dollars.</p>

<p>Here's an excerpt:</p>

<blockquote>
  <p>Users hoping to pay for everyday transactions with Facebook Inc.'s
  planned cryptocurrency could be required to keep near-constant tax
  records, a major impediment to the company's dream of establishing a
  convenient worldwide digital currency.</p>
  
  <p>If tax authorities were to consider Facebook's Libra an asset — as
  most do digital currencies now — then they would likely consider any
  exchange to be a realization of gain or loss, requiring taxpayers to
  keep records and potentially pay capital gains tax. To create a
  cryptocurrency “as widely accepted and as easy to use as possible”
  that “people can use with confidence and convenience in their everyday
  lives,” as Facebook has promised, the company would need either to
  create an unprecedented tax compliance program for its users, or to
  persuade tax authorities around the globe to change how they treat
  cryptocurrencies.</p>
</blockquote>

<p>My question is, why can't Libra just be classified like any "points" offered by a company or group of companies? For example, I earn Starbucks points and I don't calculate the value of a Starbucks point in US dollars every time I get a coffee.</p>

<p>It's always amazing to me why some people find it so difficult to understand, just because the word "crypto" is involved. It goes like this:</p>

<p>Cryptocurrency is an asset, like any other asset. It's also a currency, but that part can be ignored for this purpose.</p>

<p>Buying an asset, any asset, is (usually) not a taxable event. "Buying" in this case consists of exchanging US$ for the asset, just to be clear.</p>

<p>Selling an asset, any asset, is (usually) a taxable event. Exchanging an asset for another asset is (usually) also a taxable event. So exchanging a cow for two sheep is a taxable event.</p>

<p>The taxable event consist of being deemed to have sold the cow for an "amount realized" equal to the value of two sheep. That amount, less the cost of the cow (the "adjusted basis") is taxable gain (or loss), short or long term - depending on how long the cow was held before the exchange.</p>

<p>The outcome is the same if you replace the two sheep with several hundred cups of coffee or several hundred hamburgers; the outcome is still the same if you replace the cow with any currency (other than the US$), crypto- or otherwise. </p>

<p>And that's (almost) all there is to it...</p>

<p>Market liquidity.</p>

<p>Starbucks points and the like are not currency: they won't be accepted by sellers of goods and services, let alone you won't be able to transfer them.</p>

<p>Libra is currency.</p>

<p>By the way, Libra is not cryptocurrency as it is not truly decentralised, neither is it based on blockchain.</p>
