New cryptocurrency tax guidelines have been released by the Internal Revenue Service, which has caused some commotion in the cryptocurrency industry due to how uninformed the IRS actually is about the subject.
The taxation seems to be targeting almost every means of crypto trading including Bitcoin robots. According to this Learnbonds Bitcoin Era review, the revenue and profit are directly calculated through "speculation" even though it's classified under high-frequency trading very common on Wall Street.
What Are the New Guidelines Targeting?
Well, to water the guidelines down, we need to say that the IRS will apply relevant taxing rules to all types of crypto revenue a specific trade may generate. It doesn't matter if the cryptocurrencies are acquired through direct purchase on a specific exchange, if they're acquired through months of speculation and trading of different digital assets, or if the user simply received an involuntary airdrop by one of the crypto companies.
Although this seems like nothing out of the ordinary, we need to consider things such as the level of liquidity of cryptocurrencies that will be facing a capital gain tax. Surely, we all know that even though a cryptocurrency could be priced at something above $0.00 it doesn't necessarily mean that it can be immediately cashed out.
That's a point where we reach low liquidity, but the IRS doesn't take that into account. As long as a cryptocurrency has some kind of monetary value, regardless of its liquidity rate, the owner needs to pay according to taxes.
This means that you may receive an airdrop of a useless cryptocurrency worth around $0.01 at the time, but the volume would reach thousands and be forced to pay the relevant tax on it through cash.
It will basically cost you real money to receive useless cryptos on your wallet, that you didn't even ask for.
No More Airdrops?
We all know that action causes a reaction, and it's very likely that crypto companies will find some way to answer these new guidelines. They most definitely don't want to burden their investors with additional taxes they did not ask for, therefore the kind gesture of Airdrops may disappear completely in the United States.
Why? Because imagine the sole reason behind Airdrops. It's basically a strategy to easily issue these currencies into circulation. You give it to a bunch of traders who may or may not be aware of how to trade them, and regardless if they profit or lose money on it, they're most likely going to drive the volume and potentially increase the price.
But now, since the Airdrops will be taxed, the traders are much more likely to hold on to the cryptos and wait for them to increase in price so that they could at least cover the losses they had through paying those taxes.
This decreases trading volume, thus decreasing the chance of the crypto ever-increasing in price, leaving both the company and the trader in this limbo of frozen prices. The government gets the tax so they don't really care if the venture is profitable or not.
The traders are forced to sell the coins at a loss even if they got them for free, and this eventually leads to Airdrops losing the joy that they bring.
Plus, don't forget that airdropped cryptocurrencies are sometimes very hard to "cash-out" and by cash out I mean to sell them for fiat currencies. In most cases, traders are forced to exchange their way to Bitcoin or Ethereum, which they can easily withdraw through fiat and hopefully get some profit.
But in that process of reaching BTC or ETH, the traders will have to face things such as commissions as well as additional taxes.