Bitcoin being accepted by what is undoubtedly the foremost coffee business should be a net win for cryptocurrency. In the early days, the vision of spending coins in a range of establishments as actual currency was the life force of the movement.
Bakkt is expected to launch later this year, providing merchants with a simple crypto-to-fiat solution to accept cryptocurrency payments without the hassle of dealing with them directly. Rolled out by market heavyweight and New York Stock Exchange parent, Intercontinental Exchange (ICE), and with a Starbucks partnership, there’s little doubt that Bakkt will make significant strides in pushing cryptocurrencies to the masses.
Ten years on, the realisation of this milestone has been somewhat anticlimactic. As Bitcoin evolved, it became subject to unclear tax regulations that slowed adoption of its use as daily currency. As it stands, the IRS treat cryptocurrencies as property, meaning that any disposal (trading for fiat, trading for other cryptocurrencies or spending) triggers a taxable event.
The tax rules would alone seem problematic for would-be Bakkt customers. Tracking every payment of a few dollars for a coffee to later calculate profits/losses would be inconvenient to a point where individuals would likely favor cash or card transactions.
On the Bright Side
Though the prospects for mass adoption of Bitcoin as currency seem slim in light of tax regulations, concerns may be preemptive. As an emergent network with little precedent to compare it to, it’s entirely possible that regulations soften to account for slight fluctuations in dollar value as a result of market volatility.
The de minimis exemption, as applied to foreign currencies, may be a viable way forward – simply put, it allows that money held in a foreign currency foregoes any capital gains tax if the exchange rate of said currency rises slightly before being spent (under a certain threshold). The idea that this kind of exemption may be applied to bitcoin used to purchase goods or services is championed by cryptocurrency advocacy organization Coin Center, who work to educate and lobby regulators where digital money is concerned.
Another development worth following in this vein is the Token Taxonomy Act, initially proposed in December and currently gaining traction. Put forward by Congressmen Darren Soto (D) and Warren Davidson (R) in a bill in late 2018, it would amend both the Securities Act of 1933 and the Securities Exchange Act of 1994 for a more cogent treatment of blockchain-based tokens and cryptocurrencies.
Like a possible de minimis exemption, “other than cash” equivalent transactions would be excluded from taxation, provided they do not exceed $600 – unless an individual intends to purchase 100+ coffees at Starbucks, they wouldn’t trigger a taxable event.
It’s important to keep these developments in perspective. New regulatory treatment of cryptocurrencies would be a blessing for mainstream adoption, but it doesn’t tackle the problem at its core.
Irrespective of exemptions, an audit trail is still of paramount importance – after all, one would still need to prove that their coins were disposed of in a manner that doesn’t incur taxes. The easiest way to produce a transparent record of transactions is by relying on software solutions to automate the headache-inducing process of logging, aggregating and calculating dues at the end of the tax year.
Cryptocurrency is creeping towards an explosion in mainstream interest with each passing day. As regulations adapt to recognize this, the digital currency promise espoused by Satoshi Nakamoto over a decade ago is steadily reaching critical mass.
About The Authors
Sean Ryan and Perry Woodin, are the Founders of NODE40. NODE40 Balance is a robust cryptocurrency reporting software that integrates directly with major cryptocurrency exchanges. Members of the blockchain community transacting in, trading, or mining digital currency, have likely triggered a taxable event and can be unaware of how to properly disclose these transactions to the government.