Bitcoin as Commodity vs. Property: Investment, Tax, and Regulatory Implications

The CEO of the global financial institution Cantor Fitzgerald, Howard Lutnick, believes Bitcoin should be considered a commodity just like gold. UK, on the other hand, recognized cryptocurrency as property, which could have implications for how crypto is taxed and legally treated within the country.

The question is which route is better for investors?

Bitcoin as a Commodity

Regulation and Oversight

If Bitcoin is classified as a commodity, it falls under the jurisdiction of bodies like the Commodity Futures Trading Commission (CFTC) in the U.S. This could lead to clearer regulatory frameworks for futures trading, similar to how gold futures are regulated. This might encourage more traditional financial institutions to engage with Bitcoin, potentially increasing liquidity and acceptance.

Taxation

As a commodity, Bitcoin’s taxation could resemble that of gold or oil where gains or losses are typically treated as capital gains or losses. This could simplify tax reporting for investors since commodities have straightforward IRS guidelines for taxation.

Market Effects

• Liquidity: Increased liquidity due to more structured trading environments like commodity futures exchanges.
• Price Volatility: Might see reduced volatility as more sophisticated trading instruments like futures could be used for hedging.
• Acceptance: Wider acceptance in traditional markets, potentially leading to more institutional money entering the space, which could stabilize or even increase Bitcoin’s value.

Investment Perspective

Investors might view Bitcoin more as a hedge against inflation, similar to gold, which could affect its correlation with other assets like stocks or bonds.

Bitcoin as Property

Regulation and Oversight

This approach might lead to Bitcoin being regulated more like real estate or other forms of personal property, potentially under different legal frameworks which might not be as developed for digital assets. This could mean regulatory ambiguity or the need for new laws.

Taxation

Capital Gains: Gains from selling Bitcoin could be treated as capital gains, but with potentially different holding period considerations if selling or using Bitcoin for transactions.
Use as Currency: If used for transactions, this might complicate taxation, as each transaction could trigger a taxable event, similar to selling property.

Market Effects

• Use Case: Might encourage the use of Bitcoin in transactions, viewing it as an asset with utility beyond investment, potentially increasing its velocity and real-world usage.
• Volatility: Could potentially increase volatility due to less regulatory oversight on trading practices and more speculative trading.
• Real Estate Comparison: If Bitcoin’s property status leads to comparisons with real estate, it might not see the same liquidity benefits as commodities, potentially affecting its price based on real estate market cycles rather than commodity market dynamics.

Investment Perspective

Investors might treat Bitcoin as part of their overall property portfolio, affecting how they balance risk and asset allocation, potentially leading to different investment strategies compared to commodity treatment.

There’s a growing sentiment that Bitcoin’s scarcity, similar to gold, inherently supports its value, which might be more aligned with commodity characteristics. However, its inability to function seamlessly as a currency in day-to-day transactions leans towards treating it as property or an asset class.

If Bitcoin starts to compete with traditional assets like real estate for investment, as suggested by some X posts, this could fundamentally alter investment behaviors, potentially reducing capital in traditional real estate markets.

The regulatory approach could either foster innovation by providing clear rules for companies to operate within or stifle it with overly restrictive property laws not designed for digital assets.

Treating Bitcoin like a commodity could integrate it more seamlessly into existing financial systems, potentially stabilizing its value and increasing its utility as an investment vehicle. Conversely, treating it as property could expand its use cases beyond investment, but might also complicate its regulatory and taxation landscape, affecting market dynamics differently. Both approaches have their merits and drawbacks, largely depending on the regulatory environment and how investors and users perceive and utilize Bitcoin.

Which do you favor?

For those interested in buying and selling Bitcoin you can do so through a tax-advantaged crypto IRA* at My Digital Money. Learn how crypto IRA works.

How It Works My Digital Money

Click here to open an account today!