“But what if the amount of bitcoin someone has goes up to 7 or even 8 figures at some point in their lifetime? You mean to tell me they still shouldn’t sell Dom?”

Unless the tax laws in the US change by that point, my answer is still a resounding “NO!” Remember a few blogs ago we said crypto was considered an asset and not a currency? Well that’s because that’s how the IRS, the people who tax us on literally everything, see crypto. So lets say you wake up one day and boom, your crypto assets are worth $1 million!!! You’re going to shoot that coinage over to your exchange and sell it for dollars right!? It’s so much money!!!

Well, hold on a second there chief. If you decide to go ahead and do that, you’re not pocketing $1 million dollars by doing so. You’re pocketing far less after taxes and that’s just at the federal level. This federal government of ours is going to take 40% of your capital gains right off the top. Then, depending on the state you live in, they’re most likely going to take a piece of that as well. If you’re living somewhere like California, New York, or New Jersey…..my condolences. As long as the IRS sees crypto as an asset, you will be taxed by way of capital gains on whatever your holdings are IF you decide to turn those holdings into dollars or swap them for another crypto asset (coin or token).

So what are some work arounds for this? Well, like I said I’ll probably never sell my bitcoin for all of the above reasons. What I would do is stake it or lend it out, where they will loan me 50% of the bitcoin I give them to hold in a dollar amount and only charge me a 4.5% interest rate on it. A lot of people say, “Why would you let someone charge you 4.5% interest on your own money? That makes no sense!” It makes perfect sense if your other option is losing 40% of your holdings right off the top. The US government would like to thank you for your generous donation that they did nothing to earn. So of course I would never just outright sell bitcoin. They have this asset class rigged so that if you do try to do something foolish like sell your holdings, they’re going to take close to half of it. The FED doesn’t like bitcoin so therefor neither does the IRS or the government in general.

The other thing you can do is trade your crypto assets in a 401K, IRA, or Roth IRA type account with zero penalty. The financial firm ITrust Capital offers this type of account for investors with no minimum deposit last time I checked. In this environment you can buy and sell whatever is offered until your heart’s content and not have to worry about claiming it or paying taxes on it at anytime until you retire. Of course there are certain stipulations on how this can be done along with certain legal guidelines you’ll have to adhere to. Be that as it may, you’re far more free to do what you like here if you enjoy actively trading digital assets in this fashion rather than you would through a random exchange or API platform like Coinigy.

So that’s really it. I see zero reason to ever sell your bitcoin or ethereum currently when you can just lend it and pay a 4.5% interest rate on it for whatever you want to buy at the time. After you’re done paying off that loan which you pretty much dictate the terms for, YOU GET ALL OF YOUR CRYPTO BACK!!! Yes, everything you lent to Blockfi or whatever other platform available out there, you get it all back at the end. The crypto you give them is essentially just collateral for them to use and lend out to others as you pay down the amount of money they lent you which has zero capital gains or taxes involved! I would urge you if in the coming years you find yourself doing very well in the crypto space, think long and hard before selling your gains back into fiat. I don’t foresee the US government getting more lenient on digital assets in the future. Quite the opposite actually. Your only other option may be to literally renounce your US citizenship and move somewhere else like the Cayman Islands/Bahamas. Sean Connery did it, how bad can it be? ;)

Here’s to your future wealth!

P.S.- Again I am not a tax professional so never take what I post here as gospel on tax laws or what you might face in your own taxable events when trading digital assets or anything else. Always consult with your own tax professional before making any radical decisions with your digital assets. Your trades and your gains/losses are solely your own responsibility. This blog only reflects my own opinions about the subject matter. Thanks for reading. 

-Dominic