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Price of Bitcoin Drastically Down Following IRS’s Decision

By Nitesh Bualang
In Bitcoin
Apr 1st, 2014

Price of Bitcoin on the rock following IRS’s decision

The price of bitcoin has been on a free fall since the IRS announced that it is moving in to tax capital gains made in virtual currency transactions. Through Notice 2012-21, the IRS has resolved to treat Bitcoin (or other virtual currencies) as property rather than money. According to the tax agency, Bitcoin is property, just like stocks, and it shall handle Bitcoin holders as it handles stock investors. This news, coupled with the uncertainties surrounding legality of Bitcoin in China, has weighed down heavily on the market price of Bitcoin. Last week alone, the virtual currency lost 17% of its value.

Following the news on March 25th, the price of Bitcoin has plunged as holders come to reality with the new regulation. Any capital gains on Bitcoin are taxable, and thus the regulation will require you to keep records of all your Bitcoin transactions. The IRS is clear that incomplete transaction record will attract penalties.

The stand taken by the IRS contradicts another Federal agency, the Financial Crimes Enforcement Network (FinCEN), on the same issue. The same month, last year, FinCEN declared that Bitcoin professionals were required to hold state-by-state money transmitter licenses. The Federal financial crime unit thus treats Bitcoin as money, which now leaves users with more questions than answers.

Performance of Bitcoin Over the Last 10 Days

Bitcoin price

The performance of Bitcoin for the past 10 days

Prior to the IRS announcement, the price of a Bitcoin was over $540. It has since fallen to $455.35. The situation in China is not helping either. Over a week ago, there were rumors that the People’s Bank of China is going to ban Bitcoin as from April 15.  Last Tuesday, Bobby Lee – the CEO of BTC, a bitcoin exchange company in China – tried to address the rumors at the San Francisco’s Yerba Buena Center for the Arts. However, lack of response from the protagonist, People’s Bank of China, is making the price of bitcoin fall further.

The End of Decentralization

The IRS decision might have just killed Bitcoin, or given it a lifeline! The essence of cryptocurrencies, Bitcoin in particular, has been decentralization. However, difficult it may be for the IRS to track transactions, the fact that users will be needed to report their Bitcoin gains to the agency, alone erodes the very essence of using the currency. What’s more, with millions of applications developers, an application that monitors Bitcoin transactions may just soon be innovated.

On the other hand, the decision may be the beginning of accepting Bitcoin as the virtual legal tender. I know it is way to far to start thinking of this, but finally the U.S. government has come onboard after realizing that Bitcoin has certainly become too big to ignore. Now the Federal government too wants a share of gains that the Bitcoin community have been enjoying. The U.S. government might have just set the path to be followed by other countries. Already Finland applies capital gains on Bitcoin, and Ireland is prepping for a similar legislation.


The IRS new regulation has already taken effect, but most people doubt its efficiency.It would be interesting to see how the tax agency implements the directive, as  none of the Bitcoin wallets is attached to a person’s name or security number. Fluctuation in the price of bitcoin also makes daily bookkeeping a daunting task, and therefore even if users will be willing to comply, it will come with a good chunk of sacrifice.




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