Cathie Wood, the founder and CEO of Ark Invest, is warning investors not to sell or trade their Bitcoin (BTC) until the United States Internal Revenue Agency, or IRS, introduces more sensible tax policies on digital assets.
In a webcast hosted by Cboe, Wood said transactions with BTC could lead to huge tax obligations.
“The IRS has something to say about it, so if you have big gains in your Bitcoin, I don’t think it would take much in the way of transactions until we can get some changes on the fiscal front,” said Wood, according to Markets Insider.
Using Bitcoin for transactions and selling it for profit has become an attractive option for long-term holders. The flagship cryptocurrency recently peaked above $ 61,000 en route to new highs. And although the price of BTC has corrected itself drastically in relation to the recent peak, it is still up 80% in the year.
Bitcoin holders in the United States can also use their BTC to buy Tesla cars. At current prices, a basic Tesla Model 3 could be purchased for about 0.72 BTC.
But whether you sell Bitcoin for a profit or use it to buy a Tesla vehicle, this is considered a taxable event – at least in the United States. That’s because the IRS treats Bitcoin as property, not currency. Until that changes, it can be counterintuitive to make transactions in the cryptocurrency.
Although Wood’s comments were specifically aimed at people who make a lot of money, the vast majority of buyers made money from their Bitcoins. In November 2020, it was estimated that about 98% of BTC addresses were in black.
Fortunately, Bitcoin investors who accumulate large unrealized profits do not need to sell their currencies to reap the benefits of their earnings. Platforms like BlockFi allow users to request fiat money against their BTC assets and pay over time. This means that users never incur capital gains and do not need to give up their Bitcoin to gain access to cash.