Bitcoin continues to appear in headlines across global news sources, as various governments and other players decide whether to deal in bitcoin and how it should be treated. In our blog post a couple of months ago, we provided an explanation of the bitcoin phenomena, and an analysis of what legal and business issues they may present in the global marketplace. Previous to that, we reported on the FBI’s shut-down of the “Silk Road” website, infamous for allowing users to traffic in illicit substances and pirated goods around the world using bitcoins.
As bitcoin gains more popularity, various players have been stepping up to take a stance in this new craze.
On one end of the spectrum, the hot bitcoin news in December was that China’s central bank outright banned third-party payment companies from doing business with bitcoin exchanges. This marked the first time that China’s central bank regulated the virtual currency.
On the other end of the spectrum, Overstock.com, an online retailer who focuses on discounted brands and closeout items, announced just this month that it will now accept the digital currency as a form of payment for its products. Some critics call this a “stroke of genius,” as Overstock.com was able to carve a niche to set itself apart from other retailers in the industry as the first major online retailer to accept the currency. Some also speculate that this move may force other online retailers, such as Amazon.com, to also consider opening their doors to this new form of payment. However, Overstock.com’s CEO Patrick Byrne indicates this decision was not made just to boost the company’s bottom line, but also as a political statement to get out from under the control of big banks and big government:
It helps us fight the machine.
Just last week, Law360 reported on an interesting repurcussion of trading in bitcoin – how do members of the bitcoin community report their profits to the relevant tax authorities? In the United States, thus far the IRS has been unresponsive to questions from taxpayers and government officials regarding this issue. Some individuals are using the bitcoin as it was likely contemplated – for trading in the global marketplace. However, many others are treating it like a security, investing in the bitcoin as they might other valuable commodities. This raises additional issues as to the tax treatment of losses and gains experienced when trading bitcoin, including the timing for reporting and the characterization of the loss or gain. Further, the Foreign Account Tax Compliance Act, which would require non-US banks and other financial institutions to report US account holders who are evading US taxes, does not currently apply to digital currency.
It is clear that bitcoin is more than just a passing trend, and is becoming more and more mainstream. While some view the bitcoin as a breakthrough opportunity, others are taking a more cautious approach. Either way, bitcoin is here to stay, at least for the time being, and companies need to carefully weigh the legal risks and uncertainties with the potential rewards before joining the growing number who are jumping on the bitcoin bandwagon.