Cryptocurrency: Security, Property, Currency or Commodity?
I read a lot of articles every week. Most of them have something to do with investing, and more specifically, with cryptocurrency. It seems to me the various levels of US government are confused on how to categorize cryptocurrency…is it a security, property, currency or a commodity?
First look at the SEC (Securities Exchange Commission), which treats crypto as a security. The SEC has published that “merely calling a token a “utility” token or structuring it to provide some utility does not prevent the token from being a security. Tokens and offerings that incorporate features and marketing efforts that emphasize the potential for profits based on the entrepreneurial or managerial efforts of others continue to contain the hallmarks of a security under U.S. law.” and that “to date no initial coin offerings have been registered with the SEC.” (1) Next, see how the IRS (Internal Revenue Service) views cryptocurrency as property: “… virtual currency is treated as property for U.S. federal tax purposes. General tax principles that apply to property transactions apply to transactions using virtual currency.” (2) Now if you travel to Arizona, crypto is regarded as currency. This state’s Senate recently passed a bill to let its residents pay their taxes with cryptocurrency. (3) Lastly, we move to Wyoming. Their House of Representatives just passed a couple of bills confirming they consider cryptocurrency to be a commodity and its people don’t have to pay taxes on it. (4)
Obviously there are several schools of thought on the subject of cryptocurrency, and some are at odds with each other. What is your opinion on how it should be defined and handled? I am inclined to think cryptocurrency does not fall into any one of these isolated categories. Perhaps it should be viewed as its own unique grouping, i.e. awesome-sauce.
(1) https://www.sec.gov/news/public-statement/statement-clayton-2017-12-11
(2) https://www.irs.gov/newsroom/irs-virtual-currency-guidance
(3) https://apps.azleg.gov/BillStatus/BillOverview/69854?SessionId=119
(4) https://bitcoinmagazine.com/articles/wyoming-house-unanimously-approves-two-pro-blockchain-bills/
Hey nice topic to bring up.
I agree it's a security. It's a right to own and use a financial asset. I'm certain the IRS will change its stance this year. It has to, because it can't continue treating crypto as property while also denying it all the special tax benefits of other property, e.g., like-kind exchanges, depreciation, etc. So it's going to have to change, whether on its own or by neglecting to enforce or by act of US Congress.
State can tax property however they want, it doesn't change what the federal government does.
I get the currency argument but there's no sovereign entity backing these things. In other words, no government issues or guarantees the value. Therefore not currency.
This happens because the policymakers are struggling to catch up with the technology. We're in for some fun times.
I would agree it is more of a security than property. Like you said, they just took away all the benefits of crypto being property.
States and federal government shouldn't really be in the same category, but if enough states feel the same way about something, then the federal government will be the next to follow.
I'm sure we will see a lot of policy changes this year.
as far as I can understand the law, all tokens are commodities, but not necessarily a security.
Interesting read, thanks for pointing out the discrepancies.