269…Bitcoin Taxes
In 2010 my roommate worked at the Yahoo! offices in Santa Monica. One afternoon we were watching football and drinking beer with some people from his work. This one engineer kept talking about this internet money called bitcoin and how it worked on this new technology called blockchain, and how he had gotten a few thousand dollars worth on a lark. He said that in the 6 months since he had bought it it had more than doubled, from around $0.48 to $1.10. He kept asking those of us who didn’t work at Yahoo (I assume the people he worked with were sick of him asking.) if we wanted to get in on it. I laughed, and said something to the effect of “You software engineer guys are so gullible about anything that sounds vaguely cool. No I’m not going to give you $100 for fake internet money.”
Back at the BTC peak in December 2017 that $100 investment would have netted me over $1.1M. However, after the peak, I would have lost around $700K, so really, I dodged a bullet there. (This is what I need to tell myself to not hate myself for the rest of my life. Let me have my fantasy.)
The technology behind bitcoin and other cryptocurrency coins is actually amazing and really does have the potential to change the world. But Bitcoin’s main value is as proof of concept for this new technology. A lot of crypto-nerds confuse the inherent value in the tech with inherent value in the currencies. This is the reason that twitter is awash with a bunch of dudes who didn’t turn down the $100 worth of BTC they had the opportunity to buy in 2010 who now all think they are Warren Buffet in a v-neck tee.
No one is quite sure what to do with BTC. Case in point, Fifty Cent, who declared bankruptcy in 2015, found out a few months ago that he has several million dollars, because on a lark he decided to accept BTC as a form of payment for an album released in 2014, which he promptly forgot about. A business manager reminded him that he had around 700BTC last December worth around $8M at the time.
Into this fray jumps our fair state. There is currently a bill to allow for state taxes to be paid in BTC. It has already passed the state senate and is on it’s way to the house. Arizona would be the first state in the nation to allow BTC to be used for official transactions.
In the bill Arizona would begin allowing BTC to be used to pay for taxes to the state in 2020. The taxpayer would make their payment in BTC and the state would immediately convert that value to US dollars. If there was a discrepancy — due to fluctuations in the exchange rate — either the state would pay the difference back to the taxpayer, or the taxpayer would have to pony up the difference.
I’m not sure I see the advantage to anyone in this bill. If the state is immediately converting the BTC to US dollars, why not allow people to pay their taxes with Pesos, or for that matter shares of publicly traded stock. The main benefit to accepting BTC as a form of payment, is that you now have BTC. By immediately converting the payments into dollars you lose that benefit. Similarly, if between the time that I make my BTC payment and when the state converts it to dollars the value of BTC drops then I’ve lost my BTC, plus I need to make further payments in dollars. Also, and I may be wrong about this, but it seems to me that if you have the law written this way it will build volatility into the BTC market, rather than removing it, because speculators will know well ahead of time when there will be an influx of coins available. It’s possible I’m entirely wrong about this, because it’s a gut feeling I have about the way markets react, and everyone knows that economics behaves in exactly the opposite way that gut reactions do most of the time.
If the law was written with the intention of allowing Arizona to build a stockpile of crypto as an investment for the state I could see the potential value. I could even see the potential if you made your payment in BTC and you’re done. If the value goes up immediately afterward, well then the state ends up ahead, and if it goes down, you dodged a bullet. But as currently written the law seems highly flawed.
As near as I can tell, the main reason to do this is because a lot of people who have even less of an understanding of Bitcoin than I do have heard about BTC and Cryptocurrency and want to get some of that sweet sweet Bitcoin press. That seems like a really bad, and ill considered way to write laws. I would hope that the state would reconsider how they will go about accepting Bitcoin, which I don’t necessarily think is a terrible idea.
