No, not just because they can. Really, this should be a non-taxable event. We are simply exchanging US dollars for another currency. Yes, its digital, but the US banking system is mostly digital nowadays and who writes checks anymore? So its not that it's digital.
My argument is, we are simply trading US dollars for another currency. I can jump on a cruise ship or drive to Mexico, go to a local Exchange ( taxi cab or taco stand will do) and exchange my US dollars for Pesos ( roughly 22 pesos to 1 USD). With the pesos I can buy a coffee, food, clothing etc... and before I leave Mexico I convert my pesos back to US dollars, and the exchange rate may have changed since I initially swapped.
So can I declare a loss if the conversion leaves me short - Nope. It was just a exchange of one currency to another. Is the IRS looking at every currency exchange and expecting citizens to report P/L on currency conversions?
If I physically buy a 1oz Gold coin for $1800 and put it in a safe for 20 years and sell it for 3500 is the IRS expecting me to report the "profit" ? I sold it to a friend, no one knows I bought it, no one knows I sold it...that's how crypto should work.
In crypto,, I do not 'purchase' a hard assest (stock certificate), I simply exchange USD for BTC. I do not own any shares of a Bitcoin company, I merely exchanged my currency (USD) for theirs (BTC).
What am I missing here....?
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