Bitcoin is now 16 years old. It has morphed from a speculative haven for short-term traders to an increasingly credible, mainstream financial asset.
However, it’s still young relative to more traditional asset classes. That youth, coupled with rapid price ascents, has thrust the largest digital currency into the spotlight. And with that, more investors are getting interested in bitcoin and the crypto world at large. With that interest comes the need for education and foundational tools that can be used for initial cryptocurrency exposure.
Those include the spot bitcoin ETFs approved a year ago by U.S. regulators. That group includes the CoinShares Valkyrie Bitcoin Fund (BRRR ). ETFs such as BRRR are comparable to their gold forefathers. That’s because they provide exposure to an asset — bitcoin — while taking care of security and storage for investors.
Perks to be sure, but novice investors should note that ETFs like BRRR are subject to standard U.S. trading hours. But cryptocurrencies trade 24 hours a day, seven days a week. That’s just one of the points new bitcoin investors need to remember.
Understanding the Taxes
Bitcoin and other cryptocurrencies are treated as property by the IRS. That means the capital gains/losses structure applicable to other assets is applied here as well. That’s pertinent for investors who directly own bitcoin or another digital currency. But market participants still await guidance from the IRS on spot bitcoin ETFs, such as BRRR, and applications of the wash-sale rule.
The wash-sale rule mandates that when an investor sells an asset at a loss for tax perks, they cannot purchase another asset that’s “essentially similar” over the next 30 days.
“The question the IRS has yet to answer is whether someone could sell a bitcoin ETF and then buy a ‘substantially identical’ cryptocurrency ETF or bitcoin itself without triggering the wash sale rule,” noted Nathan Peterson of Charles Schwab. “Unfortunately, without additional guidance from the IRS on this topic, we can’t be sure of the answer. If you end up with a loss from a cryptocurrency or bitcoin ETF, we recommend meeting with a tax advisor to determine if the wash sale rules apply to your particular situation.”
Will It Become a Reserve Currency?
Another issue for investors to ponder is the likelihood or lack thereof of this cryptocurrency becoming a reserve currency comparable to traditional currencies such as the dollar or euro. There is momentum for the U.S. and other developed nations to build such reserves as avenues for fighting debasement of fiat currencies. But new investors may not want to bank on that being a catalyst for near-term upside for bitcoin or ETFs such as BRRR.
“As long as bitcoin remains highly volatile and subject to hefty transaction fees, it seems likely that it’ll have only limited use as a medium of exchange, a unit of account, or a store of value,” added Peterson. “The volatility and limited use may make it unlikely that cryptocurrencies will become a reserve currency.”
For more news, information, and analysis, visit the Crypto Channel.
