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They're supposed to, but all they're really doing is exchanging ExchangeBTC for ExchangeUSD and then processing withdrawals, but only for those who request it. A significant amount of money is stored on exchanges because banks suck and it takes a long while to actually move fiat around. To that significant group of people, it makes sense to keep some money on exchanges long-term for short-term trading.
An exchange can have $10M in ExchangeUSD IOUs, but actually only have $5M in USD to pay out. This fractional reserve system (or in this example, probably insolvency) works so long as there isn't any kind of "bank run" on the exchange.
MtGox and BTC-e (maybe BTC-e still does - Idunno) used to have "code money." That is, you could withdraw fiat and BTC in the form of GoxUSD or GoxBTC - debt notes, represented by a hash, similar to Bitcoin. You could trade these notes around, and they offered excellent advantages, but also the very serious drawback that Gox may not honor the IOUs. These IOUs, it should be noted, are effectively the same as the balance you see in your account on an exchange -- they're not necessarily representing actual money. When Gox started issuing these IOUs as a withdrawal method, there was a very slight premium over face value due to the convenience they offered. However, when Gox's future started looking uncertain, GoxUSD and GoxBTC started trading at a discount under face value. This was because the debt notes (the same as account balances in exchange accounts) may not have been fully backed by Gox's reserves. Gox eventually discontinued issuing these debt notes due to regulations.
Thanks for this, didn't know how they officially do it. |
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We have an interesting event coming up - on the next downturn, many new speculators will cash out and will demand money from exchanges. Some of the exchanges aren't going to make it.
Why would the exchanges not have the required funds to pay out? If you sell your bitcoins on an exchange, there must be a buyer with fiat on the exchange ready to buy it. |
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Pay that 0% tax rate.
...
Long term capital gains (held more than 1 year) do not count toward AGI.
Are you 100% sure about that? I don't believe that entrepreneurs selling their dot com businesses get away with 0% tax. I certainly didn't. The tax code is complicated. I'm pretty sure the capital gains doesn't count towards your AGI it terms of taxing your other income, but it certainly counts in terms of which capital gains bracket you will be taxed at. If you're sitting on a capital gains of $70k+, talk to a tax accountant to make double-sure you're not going to get fined stiff penalties for not abiding by the tax codes. |
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well if you have those many rich people competing with one another, that 2% adoption rate looks mighty conservative, especially when BTC is booming into a difference universe.
What % of those rich people do you think actually own gold? (for the record I have no idea). If we knew that, we might get a better idea for what an appropriate adoption % might be for bitcoin. EDIT: this link estimates 1-2% of americans own gold. http://www.youtube.com/watch?v=Qoj-s-Hhfgs |
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I think the error is in saying "Just 1%", which IMHO is more than would be allocated to bitcoin even at it's prime.
If you have an offshore account you have some wealth. You won't be putting a large % of your cash into bitcoin. Let's say you'd be ok with 3% of your offshore wealth in bitcoin.
Then, assume that only 2% of offshore accounts would actually do so. 2% is a reasonable adoption level.
So now you have 3% of 2% of offshore wealth in bitcoin, which is 0.06% of that 30 trillion dollars. That would be about $168k/BTC.
You can revise what you feel is more realistic, but your equation should account for (level of adoption %) x (% allocation in bitcoin given adoption).
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If you really want to figure out your life-altering number, first figure out your life-altering amount of *spendable* passive income, and then multiply by 50 to get your net worth needs.
So, if you want to live off $100,000 for life, you need $5m cash.
You only get to spend 2% of it per year, because on average you might be getting 8% returns (if you're good) per year, and:
- 40+% will be taxed
- 3% you need to put back in just to fight inflation (we're talking USD here...)
Bottom line, if you have 50+ years left to live, limit your spending to 2% of your net worth.
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My dad's retired and in Europe (I'm in the US at the moment), and he spends quite a bit of time investing. He'd remembered I told him about bitcoin a while ago, and called me on Thanksgiving to recommend I sell half my bitcoins because it's now over $1000, so why not cash in half the profit so I can't lose?
It's hard to explain to someone, the lottery notion of bitcoin, the all-or-nothing of it. Also hard to explain why people, especially younger people, fall in love with the genius and balance of the technology. Either it's going $10k+ or it's at zero, and I'm ok with it going either way (of course, I have a *preferred* way it would go).
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True, my bad. Thanks for pointing that out, that is what I need to research and look into. If anyone has any tips regarding that please feel free to share.
Here is a great primer on tax & bitcoin for US residents http://www.bitcointax.info/In general, you will not be able to simply hold your bitcoins and then buy expensive items with it without capital gains, as it falls under a barter exchange code of the tax law. You're "supposed" to declare any exchangable services at their market value, for instance, if your friend is a doctor and you are a painter, you can paint his house in exchange for a medical service, but you will both have to declare the market value of goods received to pay tax as if it were income. Of course, some things you can quite easily get away with and I don't think are a big deal (e.g. exchanging an hour of tennis lessons for an hour of math tutoring). But buying a house or an expensive car is kind of a big deal. If you want to not pay gains, your best option is to move to a low tax jurisidiction and cash out once you've established residency there (that process would take about 6 months). Stay for two years, then return. You'll have to decide if it's worth uprooting your life for the savings in tax. |
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If everybody is hoarding it's not a healthy market. You need heavy volume to see rise in price (and also big pullbacks). If nobody had sold since the early days, price would still be at 10 cents.
+1 If anyone has pangs of regret for spending their early bitcoins, if you hadn't spent them, you wouldn't have the opportunity for regret today! The whole bitcoin community should be really grateful for the early adopters who were spenders and actually made use of the system. Where possible, I try to spend bitcoins or receive payments in bitcoin. I still hoard by replacing bitcoins immediately after I spend them. It's a little more cumbersome to do the Fiat -> Bitcoin -> Bitcoin -> Fiat dance, but it's still fun to see it all work. |
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oh, then it makes more sense. I don't see the point of buying "shares" of Secondmarket when you could buy actual bitcoin, but whatever works.
I think buying shares opens it up to tax-free retirement accounts. |
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If everyone who had 1 Bitcoin became a millionaire then the world would have far to many millionaires and that status would not be as prestigious as today. Some people have thousands of Bitcoin so do the math, its pretty much impossible.
Anyone who has thousands of bitcoins right now, isn't going to hold onto every single one of them without selling some along the way, unless they were already rich and it wouldn't have made a difference or impact to them. |
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And not only that, if they tax my gains, then all my mining gear and electricity and part of my mortgage (space) is now a tax deduction, thank you very much.  Now if only we had some kind of bitcoin-like ledger to manage and track all our deductions  |
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$720 for me. I need $344 to double up my coins. I don't mind if it dips below $300, I'll still buy right at $344..double coins makes me happy either way.
Well...not quite double for free. Bitcoin regulation is well on its way and uncle sam (or other tax authority) will want to capture your gains on that sale at $720. Bitcoin will be quite traceable and I suspect audits will come down the line for anyone reporting gains in bitcoins in 5 years or so. So you'll get double coins but probably a small tax bill to make up for it. It's not all bad news though. Ask your landlord (if you have one, for instance) if he/she will accept rent in bitcoins, and buy the difference of bitcoins in your rent. That way, your "new" bitcoins will get taxed against that rate, instead of the cheaper rate. I think that's excellent motivation to spur the adoption of bitcoins  |
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I totally agree with this. I buy Bitcoins because I think they'll go up not because they're any use to me. I totally believe that 99% of the bitcoin buyers are like this, does anyone really believe that all the people buying BTC through exchanges and forcing the price up are doing so because they want to spend it - really, how, where.
I believe that speculation solves a catch-22, notably, how do you get people on board a currency and use it, when there is nothing to use it on? Well...the speculators get on board first, whether it's driven by greed, or a dream, or whatever. But now that early speculators, or even investors that have produced large profits, have some wealth, they will begin to want to spend it. Why? Because, you have the choice of either cashing out your winnings and paying a hefty gains tax on it, or directly spending the coins into something you want. And the market will respond by offering items for those speculators that they can pay in bitcoins directly. And we're already seeing this happen: it's cumbersome, for the most part, at least for now, but remember, you can't solve the catch-22 otherwise. |
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I think the key point is the fact that you started with an investment of $1100. If you had 4750 laying around why didn't you buy in with that in the first place?
Gains are gains. Sure, you lose some (or most) to taxes, but you are still in profit. That's why you owe taxes in the first place.
My goal is to increase my BTC holdings from my initial $1100 investment. In my example, I would now be holding 20 BTC from $1100 invested. If I sell 10 BTC @ $1000, and buy back at $900, effectively I would have fewer BTC than before, because: I have to pay $4750 in taxes, which leaves me $5250, which only buys back about 5.83BTC @ $900 so I would have reduced my holdings from 20 BTC to 15.83 BTC. My point is, for me to gain BTC holdings, I would *have* to buy back at a percentage drop about equal to my tax rate just to break even. So I was curious whether there are others who also factor this in, and how that affects their decision to sell and buy back in when it's much lower. |
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each country has their own laws
Sure, but unless you live in a tax free country (or a country that doesn't impose tax on bitcoin gains), or you don't plan on reporting, then how to weigh the tax implications? I just wanted to run over a simple case study with simple numbers. I don't plan on making many trades a year, maybe a couple of big sells and the rest as small periodic buys. I'm weighing in on whether or not it's worth trying to sell before a big correction, but my understanding, it would have to be a big correction for it to be worth trying to pin point it. |
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How is taxation affecting your buy/sell decisions?
For simplicity, let's assume a high bracket of 50% for taxation, and that you bought:
10 BTC @ $10
10 BTC @ $100
If BTC were to hit $1000, and you sold 10BTC (half your holdings), and you cashed out $10,000 (for a net gain of $9500)...
And then, BTC falls to $500, and you buy $10,000 back in (+20BTC).
You've now got 30BTC, but a tax liability somewhere around $9500 of gains, or $4750.
You would have had the same net effect by buying $4750 worth of BTC when it was at $475 each.
Am I just false in my claims above? It seems like trying to play the bounce, you're more likely to lose out due to tax and it's just better to sit on unrealized gains. I must be missing a key point.
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Hi all,
I'm looking into potentially selling a multi-unit building in a major US city for bitcoins. The transaction size would be over $2M U.S. dollars.
I realize there is probably only a small pool of buyers with that kind of bitcoin on hand, but I'm interested in the potential for making something like this work. One issue with buying bitcoins, seeing the value go up (relative to fiat), and then selling bitcoins in order to make a large transaction is that you first have to pay capital gains tax (or worse, short-term gains tax) on the profits of your currency exchange.
The question is: where would I list this, and how desirable would it be for bitcoin millionaires to diversify some of their assets into secure long-term cash flowing real-estate in a major US city without first having to convert their bitcoins to cash? Is it even feasible/legal?
Thanks for any input.
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So...what your trendline is saying is...it should be the price it is today in September or so. So by December it will be higher. So buy, right? |
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If there is anything that working in the technology industry has taught me it's that successful technologies are rarely without huge design flaws or weaknesses. In fact, those flaws and weakness often foster an eco-system of early adopters and businesses that develop to services and products to "fix" things and this in itself has a powerful viral/network effect. For example, look at the Bitcoin services offered to merchants.
Don't get me wrong Bitcoin's future is far from certain and has a high chance of failure, but don't under-estimate the ingenuity of people to work around the problems we see today, especially when motivated by sizeable financial opportunities that simply don't exist in the alternatives right now.
I totally agree. I initially had some apprehensions about bitcoin because of it's potential flaws and the endless possibilities for creating new currencies. But, the community around bitcoin has significant investments into it, and any flaws with real threats to bitcoins existence will be addressed quickly by all the miners and developers who have a vested interest. Anyone creating an alternative currency will have their own vested interest. If it's the government, it will work in favor for the government. If it's a business or individual, it will work in favor for them. So what motive does anyone have to adopt them vs bitcoin? If it's someone truly altruistic who just wants to make the world's fairest alt. coin, he will have a hard time finding supporters and in particular evangelists where there is nothing in it for them. |
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