The taxman “will be hovering with palms out” should American customers decide to take up Elon Musk’s offer of buying one of Tesla’s cars using bitcoin (BTC), observers have pointed out – with capital gains and income tax levies a possible deterrent for would-be crypto-paying customers.
CNBC reported that there was a “twist” to the tale of Telsa’s ground-breaking move – in the shape of the Internal Revenue Service (IRS).
As a reminder, when an individual uses bitcoin to buy goods or services, they “are in effect selling that cryptocurrency.”
The IRS, per the report, “treats bitcoin and its brethren as property whose sale comes with either a gain or loss depending on whether it is worth more or less than when you acquired it.”
This fact has already led many BTC users to debate whether – theoretically speaking in many cases – it would be advantageous to buy a new Tesla now or wait in the hope that BTC prices climb higher, perhaps reaching the USD 100,000 mark.
The same media outlet quoted Garrett Watson, a senior policy analyst at the Tax Foundation, as stating,
“It’s really important to know the cost basis of any cryptocurrency – the value when you bought it – and the timing of that. That’s going to determine how much is subject to tax and what tax rate you’re paying.”
Watson added that capital losses elsewhere could provide “a way to minimize your net tax bill” for concerned potential bitcoin-paying buyers.
However, timing appears to be everything when it comes to spending BTC on cars without the taxman throwing a spanner into the works.
If an American buyer wanted to use bitcoin holdings they had been in possession of for under a year, “any increase between its value when you bought it and when you use it to make a purchase is considered a short-term gain and would be taxed at ordinary income tax rates,” CNBC explained.
Those rates currently vary and can be as low as 10% and as high as 37%, depending on a person’s total income.
The problem is that other income and the size of short-term gains could suddenly move people into a higher tax bracket.
Bloomberg, meanwhile, gave the following example:
“Say you bought into crypto a year ago, when bitcoin was trading at about USD 6,500. Spending around USD 38,000 to buy the new Tesla Model 3 would mean cashing in a gain of USD 31,500 – and that’s on the cheaper end of the spectrum for the electric vehicle. At the current rate on capital gains, that’s a USD 4,750 or so tax bill you’ll have to foot – or almost as much as the amount you paid for your original bitcoin.”
On Twitter, Coin Tracker’s Head of Tax Strategy Shehan Chandrasekera had an (unwelcome) three-letter answer in the affirmative to a Bloomberg contributor who had asked:
“So if someone bought a bitcoin last year and is sitting on a 10x return, and then buys a Tesla with it, do they have to pay short-term capital gains taxes on that transaction?”
Chandrasekera also responded to Musk’s tweet yesterday that made note of the fact that Tesla would not seek to convert any BTC payments it receives into cash, opining,
“Retaining BTC without converting it into cash has no benefit to the buyer. If you spend BTC to buy a Tesla, you will have to pay capital gains taxes on the difference between how much you paid for the coin and the market value at the time of spending.”
And the Coin Tracker executive suggested Tesla should have gone a step further to prove its true commitment to the crypto space, writing, that “What would be really cool [would be Musk] pricing Teslas in BTC. No matter how much the USD price of BTC, you always pay X amount of coins. This is the real adoption.”
On Reddit, meanwhile, multiple threads devoted to the news saw users debate the virtues or otherwise of spending BTC on a Tesla.
One suggested that buying a Tesla “with bitcoin instead of cash” would “ensure the bitcoin is off the market.”
However, not everyone agreed with this strategy, with one answering sarcastically,
“Give away the best performing asset of the 21st Century to buy a car that depreciates the minute I drive it off the dealership lot. Great advice my friend.”
Others suggested that it would be “dumb” to take up Musk’s offer as “someone buying a Tesla with bitcoin could overpay by 50% within a few days of the purchase” considering the sort of price volatility the token has experienced of late.
One Redditor came up with an innovative, tongue-in-cheek solution, writing:
“I’m gonna sell a duct-taped banana NFT for USD 100k and buy a Tesla with that.”
Whether this strategy would throw the IRS off the scent or not, however, appears to be up for debate, as Chandrasekera told CNBC earlier this month.
At the time of writing (09:05 UTC), BTC trades at USD 52,620 and is down by almost 7% in a day and 11% in a week. It’s also down by 3% in a month, trimming its gains over the past 12 months to 684%.
El Salvador President Looking to Buy the Bitcoin Dip, But Wants a Better Discount
Bitcoin ($BTC) price recorded a minor correction over the past 24-hours, falling to a daily low of $60,122. The retrace comes just days after $BTC posted a new ATH of $66,973 on Wednesday. The price correction is now being seen as an opportunity by many to stack more $BTC.
Nayib Bukele, the president of El Salvador, the world’s first country with Bitcoin as its legal tender is also among many who wants to buy the Bitcoin dip. However, he thinks the correction is too small and might need a better discount to make the purchase.
Bukele’s interest in Bitcoin has been known the world over as he is seen as the main architect behind El Salvador’s BTC adoption. The small central American nation started buying $BTC right after it was formally inducted in September this year. They made a total of 700 BTC purchases throughout September when the top cryptocurrency was trading under $45K. At the time Bukele was criticized as their purchase value was on the decline.
As $BTC touched new ATH, El Salvador’s Bitcoin holding got into millions of profit which is now being used for building hospitals and other national projects. He also shared a photo of himself sitting on the throne depicting him as the king after BTC ATH.
El Salvador is Reaping the Benefits of Bitcoin Adoption Already
International media continues to show El Salvador’s BTC adoption in a bad light, focusing more on the protests and less on the benefits that Bitcoin adoption has given to the country. The national Chivo wallet is already being used by two-thirds of Salvadorans while the Bitcoin ATMs have been a great success too receiving millions in daily remittance.
El Salvador has also invested in clean Bitcoin mining using abundant geothermal energy available in the country. The country has already set up the infrastructure and has mined its first Bitcoin as well, thus the adoption has proven to be a great win for the financially challenged nation, despite skepticism from all around.
One Ethereum Competitor Is Showing Strength As Bitcoin Loses Ground, According to Crypto Trader Benjamin Cowen
Crypto analyst Benjamin Cowen says an Ethereum rival is showing strength as Bitcoin pulls back from its all-time high.
Cowen tells his 576,000 YouTube subscribers that AVAX, the native token for the smart contract platform Avalanche, is “weathering the storm relatively well.”ADVERTISEMENT
The 12th-ranked asset by market cap is trading at $68.28 at time of writing, up over 5% in the past 24 hours and more than 20% in the past week, according to CoinGecko.
Cowen notes that AVAX is trading well above both its 20-week simple moving average (SMA) and 21-week exponential moving average (EMA). Taken together, the two metrics are what Cowen refers to as the “bull market support band.”
“We also have some wiggle room in the sense that we are above the bull market support band of the AVAX/USD valuation. The 20-week SMA is at $35.85 and the 21-week EMA is at $43.47. What that tells you is that Avalanche has been performing pretty well for the last several weeks.
A lot of coins are right above their bull market support band, and they haven’t been performing as well recently. A lot of these things can have some type of seasonality as the money ball just jumps around from project to project, and right now, clearly, AVAX is showing a decent amount of strength.”
Cowen doesn’t predict that AVAX will have a strong move against Bitcoin “in the next month or so,” but he does say that Avalanche can increase in value in terms of its relationship to the US dollar in the short term.
This ransomware gang moved $6.8 million in Bitcoin amid regulatory overhaul
Ransomware groups, Darkside and BlackMatter recently moved multi-million dollars worth of Bitcoin upon getting the news of REvil’s servers getting hacked by a global coalition of law enforcement agencies. According to the authorities, 107 BTC, which amounts to $6.8 million were moved earlier today by splitting the amount into several different wallets.
Furthermore, officials revealed that the gangs were already aware of regulators’ oversight and therefore had prepared the mentioned balance to be laundered or cashed out. According to The Record, officials noted that the breakdown of funds into smaller portions is usually used for money laundering operations as the regulators directly transfer the entire amount of confiscated funds instead of splitting them up.
“Basically, since 2AM UTC whoever controlled the wallet started to break the BTC into small chunks… At the time of this writing, the attackers split the funds into 7 wallets of 7-8 BTC and the rest (38BTC) is stored in the following wallet: bc1q9jy4pq5su9slh56gryydwkk0qjnqxvfwzm7xl6”, Omri Segev Moyal, CEO and co-founder of security firm Profero shared this data with The Record.
It is obvious that the Darkside and BlackMatter were next on the regulatory hitlist as Darkside was the ransomware strain developed by REvil associates that were used earlier this year in the infamous Colonial Pipeline incident of May. This attack indirectly led to fuel supply outages across the US East Coast.
REvil ransomware group’s website went offline
Yesterday, the Reuters’ report about REvil’s servers being hijacked by the regulators went viral and threw other ransomware groups in a fit of panic. A multi-nation operation against cybercrime group, REvil was implemented and took down the group’s “Happy Blog” website, which was formerly used to leak victim data and extort companies.
“The FBI, in conjunction with Cyber Command, the Secret Service and like-minded countries, have truly engaged in significant disruptive actions against these groups,” said Tom Kellermann, an adviser to the U.S. Secret Service on cybercrime investigations and VMWare head of cybersecurity strategy. “REvil was top of the list.”, he added.