Cryptocurrencies - Something to Think About

As a disclaimer: I am not a tax or financial expert and do not claim to have knowledge of the various tax laws pertaining to trading any market. This article is written as an opinion only and is not intended as profession advice.

As a relative newbie to the cryptocurrency world, it doesn't surprise me that most people are not really involved with cryptocurrencies. I have been following the space for a few years but was extremely reluctant to dabble in the space for many reasons. The main reason for the reluctance is that I saw no difference between bitcoin and fiat currency because both are back by only one thing. Faith in the fact that someone will accept them in exchange for goods or services. And while this can and will be debated endlessly - the bottom line is - it appeared to be too risky of a proposition for me.

But like many people, I eventually (like 2 months ago) decided that cryptocurrencies were here to stay and it was better to get in sooner than later. Considering that they are here to stay and that most people still have very little knowledge of them, I decided to test the waters. I figured all cryptocurrencies are still in the early innings since everyone I ask still has little to no knowledge of them. For that reason I decided to buy some bitcoin. I bought about 1.25 BTC at a price of about $1190 USD. My intent in purchasing bitcoin was that I would hold it and see what happens. That was about 2 months ago.

Now here we are today, 27 May 2017 and the price of BTC has exploded higher. The price hit a high of around $2730 in the USA recently, according to http://coinmarketcap.com/currencies/bitcoin/#charts. This was very exciting but I knew it also presented a problem. Having invested in the Stock Market and Precious Metals for many years, it is common knowledge that when the price of any asset increases suddenly and significantly, it will pull back. At least - it should! And sure enough - BTC (bitcoin) did in fact pull back to around $2100 from the $2700 high. Is there more pullback to come? Possibly. No one will know for sure, but considering that BTC will become more commonplace (if only because of the hype), I am sure it will do what is has done for the past 8 years. It will decline, find a bottom, then resume it's march to an even higher level. Quite possibly the next stop will be around the $5,000 level. Yes - a round number simply because markets LIKE ROUND NUMBERS.

With all that in mind and the frenzy that is happening in trading these "alt coins", there seems to be one thing that people trading the space may forget. YES - your friend - The IRS. But rest assure - they have not forgotten you. I am certain that will expect their cut of YOUR profits if you are trading in and out of these "currencies". After all - that's what they do.

The point here is - REMEMBER that while these cryptocurrencies are supposedly decentralized, you may still be required to report any profits or gains on your tax returns. Best of luck whatever you decide to do.