Is Bitcoin Legal?
With the rapid ascension of bitcoin as the world’s most popular cryptocurrency, it has been intensely scrutinized by major players in the financial services industry. People want to know is bitcoin legal, and if so, what does the future hold for BTC? While there are two countries that have banned bitcoin, the digital currency remains largely unregulated and is, therefore, legal in the majority of countries. There are certain countries that have started to issue rulings on how bitcoin can be used, which means legality comes down to what your intentions are and how you plan on spending your BTC.
Most people are interested in either investing in bitcoin or making everyday purchases and these instances bitcoin is completely legal. There are even US investment firms that include bitcoin in their portfolios, and retailers than accept the virtual currency. To better understand the current legal climate of bitcoin, we will familiarize you with some of the entities that regulate bitcoin. Once you have the technical legal aspects understood, we will walk you through ways to invest and sell your bitcoins.
There are various U.S. agencies that oversee virtual currencies and how they are to be used by citizens of the country. These include government regulators, financial bureaus, law enforcement agencies, and tax administrators that all have their own individual regulations regarding Bitcoin and virtual currencies in general. There have been criminal dealings such as the Silk Road marketplace that have caused authorities to buckle down on the best way regulate the virtual payment system. In this review of bitcoin we discuss the four key authorities that oversee bitcoin regulation in the USA are:
The United States Congress has played an active role in helping to determine the future of bitcoin. There have been congressional discussions regarding bitcoin since it first entered the market, but the biggest move by congress has been the creation of the Congressional Blockchain Caucus. The goal of the bipartisan group is to ultimately advance the technology responsible for blockchain and digital currencies with strategic policy implementation. Legislators realize the profound effect that blockchain technology could have on the financial industry, and many representatives are pro-bitcoin.
The Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury, has the primary goal of protecting the financial system by combating money laundering. The bureau enforces the Bank Secrecy Act of 1970, which is a law that requires all US financial institutions to help with identifying and preventing money laundering. In 2011, FinCEN added virtual currencies under their scope of authority by altering the definition of what constitutes a money services business. Since then, FinCEN has released several rulings and memos over the years regarding the requirements of bitcoin escrow services, processors, miners, and other US XBT services.
The US Commodity Futures Trading Commission was created in 1974 to regulate futures and option markets. The Commodities Exchange Act of 1936, which strictly regulates how commodity futures are traded, is the main guiding principle of the CFTC. Shortly after bitcoin entered the financial services market, the Commission officially declared bitcoin to be considered a commodity and began regulating virtual currencies. The CFTC requires all US retail traders to buy bitcoin derivatives on-exchange, though investors that are buying BTC without leverage are excluded. This means that if you purchase bitcoins in your name, put them into your own wallet, and hold the private key, you are not under CFTC jurisdiction.
The US Securities and Exchange Commission was created with the passage of the Securities Exchange Act of 1934, with the main purpose of overseeing every aspect of the securities world and protecting investors. The SEC issued their first notice regarding bitcoin in 2014, which essentially warned investors about the perils of investing in bitcoin. The commission has also been linked to a Digital Currency Working Group that has assisted in several citations and rulings against various virtual currency operators. There have been various proposals for the establishment of bitcoin EFTs, but so far the commission has denied all requests due to their concerns on how the trusts would be regulated.
The Internal Revenue Service (IRS) issued a notice stating that yes, Americans do have to pay tax on bitcoins. For tax purposes, virtual currencies such as Bitcoin are categorized as property. All incomes from bitcoin are taxable, and if you are an employer all payments to employees or contractors must be reported. When you receive bitcoins the value is equated to that of the local currency. Mined bitcoins also follow the same rules and the income is to be reported at the market value from the original mining date. If you are mining bitcoins and then selling them, you will be taxed on an increase in value. If the value decreased, you can declare a loss.
If you are looking for a new safe haven investment or want a way to diversify your portfolio, bitcoin can be a smart bet. When you want to invest in bitcoin legally there are a few different routes that you can take. The first is to invest in the Bitcoin Investment Trust (BIT), which allows investors to get exposure to bitcoin through a more traditional investment vehicle. When you buy shares through BIT, they are titled in your name and the shares can be held in other investor accounts that you may have. One of the major benefits is that you do not have to worry about how to buy XTB on the marketplace or which type of wallet to store it in. BIT puts all in assets in cold storage vaults that implement the highest cryptographic security measures.
There are also active exchanged-trading funds that specialize in investing in disruptive markets. An active EFT is for those that do not want to utilize a passive investment strategy and would instead like to yield above-average returns. You get the tax advantages and flexibility of EFTs but with the management teams and trading capabilities of mutual funds. ARK Investment Management now includes the Bitcoin Investment Trust in their portfolio, which allows you to invest indirectly in bitcoin with two of their funds.
The simplest way to invest in XBT is to buy and hold bitcoins. As with any type of financial investing, you want to buy low and sell high. With sites like Coinbase, you can set up price thresholds that will automatically purchase BTC once they hit a specified price. There are also XBT exchanges where you can buy coins from users rather than directly from a firm. It can be beneficial to use a traditional exchange because the transactions may be faster than having to wait on a firm that outsources bitcoins. Once you have purchased your bitcoins, you can then put your bitcoins into a secure cold storage location until the price peaks and you want to sell. Using this method is typically the cheapest way to start legally investing in BTC.
You can sell or trade bitcoins using several different platforms, each with their own unique advantages. The best ways to sell your bitcoins are with an exchange, peer-to-peer marketplace, or in person. Exchanges are by far the most popular way to sell bitcoins online because it is extremely convenient and relatively fast. When using a centralized exchange, you have an intermediary that holds each user's bitcoins. You can create a sell order that specifies how much BTC you would like to sell and at what price. Once there is a matching buy order, the funds are transferred into your account and the transaction is complete. Kraken bitcoin exchange is one of the more commonly used bitcoin exchanges.
When you use a peer-to-peer marketplace, you are trading your bitcoins on a decentralized platform. You can create an ad as a seller and specify the type of payment you would like to receive. Sites such as Paxful have more than 150 different ways for sellers to get paid. You can choose to receive payment via gift cards, cash bank deposits, Western Union, PayPal, and more. One of the unique features of peer-to-peer selling that many users like is that there is more privacy. Some trades do not require ID’s or very much personally identifying information. While smart sellers should always take proper precautions before accepting a trade, many bitcoin users appreciate a service that respects privacy just as much as the overall bitcoin payment system does.
You can also sell bitcoin in person though we always recommends taking extra security precautions. Face-to-face transactions are easy, just scan your QR code and the deal is done. Always meet a seller in a public location and do not carry large amounts of bitcoin on your person. There are websites that you can visit to help with locating local buyers in your area. There is not any actual bitcoin exchanged via the site, but it acts as a facilitator for initiating the meeting.