Why The Price Of Steem Dollars Is Way Up While All Other Cyrpto Prices Are Crashing
You already know the answer to this if you read my post from last week Why It Makes Sense To Pay A Premium For Steem Dollars.
But, if you didn't read that post, the short version of the story is this: A big player thinks this correction might be the beginning of a significant crash. They want to stay in crypto, but they want to minimize their losses, so they can buy back other coins when they're cheaper.
Why wouldn't they just sell the crypto for fiat?
Depending on how long they've owned their position and where they live, if they sell for fiat, they could face a tax bill of more than 50% of their profits.
This doesn't make sense to me, how does this trade work?
Consider this set of circumstances:
- You believe the price of your crypto holdings will fall by 80%. (In this example, I'll be using "Bitcoin" to represent all your crypto holdings)
- SBDs are trading for $1.50
- You won't be taxed if you buy SBD with your Bitcoin
- You believe you will always be able to get $1.00 of STEEM for each SBD
- You don't trust Tether
You take 10 Bitcoin and buy SBD for $1.50. It turns out you're correct, and the Bitcoin price falls by 80%. You then take your SBD and convert it into STEEM. You take that STEEM and rebuy Bitcoin. You just turned your 10 BTC into about 33.33 BTC without having a taxable event.
disclaimer: don't take this as tax or investment advice
Sorry but that's BS, SBD is high on POLO because there is no supply of it coming in.
Bittrex is somewhat following Polo but not for long.
Just short BTC if you want to store USD
Thanks for your reply, I really value your opinions.
This is a BTC/SBD chart from today on bittrex. If the problem was a shortage of supply, I would think the price of SBD would increase in more of a straight line as the BTC price falls? In this chart, we see huge ups & downs. It seems to me that it's showing some significant buy orders for SBD. What do you think?
I think that bittrex is a low liquidity market and pretty erratic and irrational.
In the evening of yesterday I was buying steem on polo and selling it on bittrex at about 7% difference, I can't explain that. I guess eventually it's going to depend of the long term intent of the people holding steem on poloniex. Unlike most currencies, Steem is much more valuable as SP than Stuck tokens on poloniex.
I should say that, for Americans at least, trading bitcoin for SBD would almost certainly be a taxable event. In general its not possible to legally avoid taxes just by avoiding fiat.
I was told by a CPA that it's not a taxable event; it's only a taxable event when you sell it for fiat.
I'm a CPA. And an attorney. I have a mater's degree in taxation.
It's very clear that barter transactions (swapping one good or thing for another) are taxable. If I swap my AT&T stock for your Google stock, that's a taxable transaction even though we never used any fiat. Just google "is barter taxable" and you'll find that the answer really isn't in doubt.
Swapping one crypto for another is barter and, in the absence of some provision of the tax code that says otherwise, would generally be taxable.
The only potential exception that I can think of is the section that exempts "like kind" exchanges from taxation. When you swap out one type of property for another, no tax is due provided that the two properties are sufficiently similar. For instance, swapping one piece of commercial real estate for another piece of commercial real estate would generally be considered a "like kind exchange" provided that certain formalities are observed. But swapping commercial property for residential propoerty would generally not be considered "like kind". Likewise, because companies are so different, swapping one stock for another woudl not be considered "like kind".
I'd go back to your CPA for clarification. The penalties for getting this wrong are potentially enourmous.
I appreciate your input and thoughtful response. I'm not personally making this trade because I don't have the enormous gains that some people have. But I'm sure other people will probably find it valuable to find a CPA of their own.
I have a couple question for you if you don't mind:
Here's the IRS's published guidance to date: https://www.irs.gov/pub/irs-drop/n-14-21.pdf
Notice that is says that the general rules regard taxation of property apply to crypto. This would include the barter rules. Also, see the answer to question 6.
Swapping one bitcoin for another bitcoin would almost certainly be considered a like kind exchange, IHMO. Swapping a bitcoin for a litecoin might be considered a like kind exchange (but I doubt it) since litecoin is essentially just a fork of bitcoin and has no unique use cases that can't be replicated by bitcoin. Swapping bitcoin for Ether is likely not a like kind exchange becasue the Ethereum blockchain can do many things that the Bitcoin blockchain cannot, hence they are not like kind. Likewise for swapping bitcoin for steem.
I honestly don't think there is much disagreement among CPA's who have actually researched the issue. Some CPA's, not realizing that the IRS has issued guidance, make off the cuff statements contrary to that guidance, but those statements are a function of lack of familiarity rather than a considered opinion.
None of this should be construed as tax advice. Readers should consult their own tax advisor.
That's what I understood as well. I've been trading for a while under that impression.
Is there a CPA on linkedin calling themselves Cryptocurrency CPA?
Wrong. You have to trade for USD to be taxable. I will gladly pay my taxes when I convert. But until then, neither bitcoin or Steem SBD are recognized currency with rules on collections.
Care to offer up a citation for that position? You are wrong. I'm a CPA and an attorney. I have a Master's degree in accounting with a concentration.
I don't care what kind of paper you have on your wall. As of right now, there is no legal interpretation on how to collect on steem or bitcoin and the official position of the United States goverment right now is that bitcoin is not currency. It would be like if you and I decided that popcorn kernels were worth $1000 each. And we started trading each other goods for those popcorn kernels. No way is the IRS going to come in and demand their share of popcorn kernels. Not trying to get you riled up, but it is what it is.
Article on legality of Bitcoin: https://www.forbes.com/sites/kashmirhill/2014/01/31/bitcoins-legality-around-the-world/#5deb7e143ccd
NOT TO MENTION, if my digital wallet is based in China, and that is where my bitcoin is, that makes it far more difficult for the IRS to get at it...I can get to it whenever I want with my password. IRS be damned. But like I said, when I cash out, I'm happy to pay uncle sammy.
Here's the IRS guidance indicating that crypto is to be treated as PROPERTY for federal income tax purposes: https://www.irs.gov/pub/irs-drop/n-14-21.pdf
From that guidance:
Q-6: Does a taxpayer have gain or loss upon an exchange of virtual currency for other property?
A-6: Yes. If the fair market value of property received in exchange for virtual currency exceeds the taxpayer’s adjusted basis of the virtual currency, the taxpayer has taxable gain. The taxpayer has a loss if the fair market value of the property received is less than the adjusted basis of the virtual currency. See Publication 544, Sales and Other Dispositions of Assets, for information about the tax treatment of sales and exchanges, such as whether a loss is deductible.
LOL, until I buy property with it...its nothing....a popcorn kernel. It's zilch! Now, If I go buy a car with my bitcoins or pop corn kernels...then yeah. But trading 1's and 0's back and forth is not worth anything tangible. Nor is it withing their banking system to grab hold of it anyway.
I'm not a tax dodger, when I cash out, I will pay taxes...happily..but moving 1's and 0s back and forth is not taxable.
Good luck, friend.
Ok seriously, let me ask you this. All of my crypto (BCC BTC SBD ETH) is all from converting Steem that I earned through blogging on steemit. It's an earned income. Work had to be done in order to earn those funds.
Wouldn't that better be translated as earned taxable income and not capitol gains or taxable trade if I cash it out?
There is, in fact, a legal interpretation. The IRS has explicitly ruled that bitcoin and other cryptocurrencies are PROPERTY and are to be taxed as such. Swapping one piece of property for another is BARTER. Barter transactions are generally TAXABLE unless an exception applies. Google it yourself. There is NO DOUBT that barter is taxable.
As regards crypto, no exception applies. The only one that might apply that I can think of is the exception that exempts "like kind" exchanges from taxation. But I don't think that swapping one crypt for another is a "like kind" exchange for the same reason that swapping one stock for another is not a like kind exchange.
So, yes, if you barter popcorn kernels for other goods or services, that would in fact be a taxable transaction. AGain, the taxability of barter is not in doubt. No, the IRS would not seek payment in popcorn kernels. They would instead demand payment in dollars, with the amount of dollars owed being a function of the agreed upon value of the kernels at the time of the transaction in question.
You are correct that not converting to fiat makes it harder for the IRS to learn about the transaction. So, if you want to engage in tax evasion (which is a punishable crime), then please do avoid fiat at all cost. But I don't think OP was suggesting that people should engage in tax evasion.
Great answers and info Sean. Nobody loves paying taxes, but wishing for a different result doesn't change the tax rules. Seems like record-keeping for our steemit rewards for tax purposes is going to be kind of a nightmare.
Yeah and plenty of lawyers will be happy to make some money on those tax evasion cases. I'm sure you will be there with your hand held out. I knew no one from steemit would upvote your post, so I was wondering how you got upvoted. Seems about right a lawyer upvoting his own drivel!
I upvoted it (only with 1% of my total voting weight, btw) only b/c i wanted it to appear at the top of the comments so that readers are not mislead by the misrepresentations of the ignorant.
Im curious to hear what you think about the info in this post? https://steemit.com/tax/@lpfaust/us-tax-considerations-crypto-to-crypto-trades-trading-bitcoin-and-altcoins
I think its very well written. I upvoted it.
just move to canada. boom untaxable
I like your thought process!
I was trying to come at it from a new angle. This is the only explanation that makes sense to me.
very informative post. Thanks for the lesson!
Thanks for checking it out!
Great post. I actually used to this way back when SBD was actually pegged to the dollar. Due to Poloniex's Steem/SBD deposits being disabled, the only coins available for trading are those on the market prior to them being disabled. I'm seriously tempted to pick up some SBD on Bittrex because it is trading well under what I think it could go to once deposits are enabled once again. I have been using Tether recently, but I think I may seriously look at holding a portion of my excess funds in SBD. Thanks for the post!
I could see people holding a portion in Tether. But Tether is issued by Bitfinex and I'm sure you're aware of their history. If you trust Tether, you also trust Bitfinex.
Furthermore, with Tether, we're supposed to trust that they have this big pile of cash to back up the coin. They even say something like they're not responsible for the secure storage of the cash, and they aren't required to give you cash or something along those lines.
I completely agree that for holding long term Tether is an awful option, and I really don't trust that there is actually an adequate amount of holdings to support the total capitalization of tether,. I have used it less and less as time has gone on, and really never hold tether for more than a few days. Thanks for the info
wow, best explanation I have seen so far! Thanks!
Thanks for reading! I think this makes more sense than any other explanation I've seen or come up with.
Even if the trades aren't being done for tax purposes, it can still make sense. These large purchasers of SBD may just want to stay in crypto.
I was able to convert 580 SBD to BTC at a price equivelence of $1.87 late last night on Bittrex. I got lucky. Now it has sunk back down.
Nice! So much for it only being worth $1.
Yeah i know right!!!! LOL
I need to get on the stick and study this further. Thanks.
You're welcome
Steem is such a solid community and crypto!
Completely agree!