What to do with your bitcoin

Bitcoin has blown past $4,000 but its original mission – as a replacement for fiat currency – is long forgotten. Merchant acceptance of bitcoin is at an all-time low, according to a new report from JPMorgan covered by Bloomberg and Business Insider.

Only 3 of the top 500 internet sellers accept bitcoin, down from five last year. That decline is a “striking discrepancy,” in light of bitcoin’s price surging to $4,309 today.

Reasons for the lack of acceptance include volatility, security concerns, and a lack of demand. While many are jumping onto bitcoin as an investment, few are using it in their day to day transactions.

Investment in bitcoin is driving the industry. But, if it’s to achieve status and stability, bitcoin must become coin of the realm rather than a slot on the roulette wheel. Bitcoin must be used in day to day transactions and become easily exchangeable for dollars or Euros.

Of course, governments are happy with the current state of the industry. So long as bitcoin remains on the sidelines, MasterCard, Visa, and the US government can control commerce.

Bitcoin, among other cryptos, is a global digital currency, which transactions are safe and public and are administered in an absolutely decentralized manner. Which means that it is not controlled by any state, bank, institution, financial or company. In general, virtual money has a paradox; between supply and demand that has stalled its commercial use, also the international government controls over this particular currency.

One attempt to make bitcoin more easily exchangeable is the bitcoin ATM (BTM bitcoin teller machines). There are 800 terminals in the United States, with plans to expand into latin America and Canada this year. In fact, Panama got its first machine a few weeks back.

In Puerto Rico, around 5 years ago, no establishments that accepted bitcoin because there were no customers who wanted to pay with bitcoins. And the buyers did not insist in using this method because it was not present in their day to day and saw no advantages in unloading a wallet (the program in which the currency is stored, later to be used in digital shops or establishments that accept them) and converting euros or dollars into digital money.

Now Puerto Rico has over 30 establishments that accept and register Bitcoin transactions, and comply with the Treasury Department of Puerto Rico requirements. Progress on the island is steady, although there is access to bitcoin payment and such transactions, in Puerto Rico there are still no ATMs (the closest one is in the Dominican Republic).

Bitcoin is one way to reduce reporting and increase privacy. Federally, virtual currency is viewed as property and not investments or cash and it’s not subject to FBAR filing nor are wallets subject to FATCA. However, the IRS is actively targeting US based wallet companies. The US government wants its share of your profits! See: IRS Investigating all Bitcoin Transactions

The blockchain is a global accounting system utilized by bitcoin that records each transaction in an unalterable way and within the immediate reach of all. Cryptocurrency is a digital means of exchange and allows to make payments between people and businesses where it is accepted. Therefore, a digital currency, different from the physical payment – euro or dollar.

Because bitcoin is taxed as property, it generates capital gains when sold. That means investors have options to reduce or eliminate US tax on bitcoin transactions.

For example, you can buy and trade bitcoin in your IRA, 401-K or defined benefit plan. If your plan is a ROTH, you’ll pay zero tax on your bitcoin gains. If you have a traditional plan, you get tax deferral on your bitcoin investments.

You can also take your IRA offshore, by forming an offshore IRA LLC, and invest through an international bitcoin wallet. This will maximize privacy and protect your assets from future civil creditors in the United States.

If you’re a hardcore bitcoin investor, you might consider setting up in Puerto Rico under Act 22. If you move to this US territory, spend at least 183 days a year there, and otherwise qualify for Act 22, you will pay zero capital gains tax on assets acquired after becoming a resident of Puerto Rico.Consumer Resource Guide

Only Puerto Rico can offer you this tax deal. If you move to a foreign country, you still pay tax to the US IRS on your capital gains, no matter where earned. If you move to Puerto Rico, you pay zero to the US IRS and zero to Puerto Rico on both long term and short term capital gains.

For more on this topic, see: How to Stop Paying Capital Gains Tax

I also believe that blockchain and cryptocurrency are the future of offshore banking. Offshore banking might not use bitcoin, but some version of crypo such as Ethereum or Ripple are sure to become the new normal for offshore banks.

I hope you’ve found this article on bitcoin to be interesting. For more on how to protect your assets and reduce your taxes, please contact us at info@premieroffshore.com or call (619) 550-2743. All consultations are free and confidential.