Cathie Wood, the founder and CEO of Ark Invest, is cautioning investors not to sell or transact their Bitcoin (BTC) until the United States Internal Revenue Agency, or IRS, introduces more sensible tax policies on digital assets.
In a webcast hosted by Cboe, Wood said transacting with BTC could lead to massive tax liabilities.
"The IRS has something to say about this, so if you have huge gains in your Bitcoin, I don't think I would bear much in the way of transactions until we get maybe some changes on the tax front,” Wood said, according to Markets Insider.
Using Bitcoin for transactions and selling it for profit have become attractive options for long-term holders. The flagship cryptocurrency recently spiked above $61,000 en route to new all-time highs. And while the BTC price has corrected sharply from its recent peak, it’s still up 80% on the year.
Bitcoin holders in the United States are also now able to use their BTC to buy Tesla automobiles. At current values, a basic Tesla Model 3 could be bought for around 0.72 BTC.
But whether you sell Bitcoin for profit or use it to buy a Tesla vehicle, it’s considered a taxable event – at least, in the United States. That’s because the IRS treats Bitcoin as property rather than currency. Until that changes, it may be counterintuitive to transact in the cryptocurrency.
Although Wood’s comments were specifically aimed at people sitting on huge profits, the vast majority of buyers have made money on their Bitcoin. By November 2020, it was estimated that around 98% of BTC addresses were in the black.
Luckily, Bitcoin investors hodling large, unrealized profits don't have to sell their coins to reap the benefits of their gains. Platforms like BlockFi allow users to borrow fiat money against their BTC holdings and pay it back over time. This means users never incur capital gains and don't have to give up their Bitcoin to access liquid cash.