The tax implications of bitcoin as money

As Bitcoin does not need to be held or processed by a financial institution[1], many people have concluded that they can bypass tax obligations[2] with bitcoin and other cryptocurrencies.


There are various areas of taxation law that need to be addressed[3]. This includes incorporation of bitcoin into Income tax, Capital gains tax and under foreign exchange rules. The treatment bitcoin will depend in part on its use.

Some of the areas that need to be investigated include:

  • Mining bitcoin,
  • Holding Bitcoin,
  • Using bitcoin,

— as currency for the purchase of goods or services,

— as a token representing the sale of other assets,

— as a smart contract,[4]

  • Buying, selling and otherwise exchanging bitcoin.


[1] See Vartanian et al., supra, n. 8, and Reuben Grinberg, “Bitcoin: An Innovative Digital Currency,” 5 Hastings

Science & Technology Law Journal 159 (2012).

[2] For further information, see Marian, Omri, “Are Cryptocurrencies Super Tax Havens?,” 112 Michigan Law Review First Impressions 38 (2013).

[3] In its (USGAO) May 2013 report to U.S. Senate Committee on Finance (“Virtual Economies and Currencies: Additional IRS Guidance Could Reduce Tax Compliance Risks”), the United States Government Accountability Office (GAO) stated that:

“According to bitcoin’s peer-to-peer-network-generated statistics, as of May 1, 2013, approximately 11 million bitcoin were in circulation. Bitcoin exchange rates against the U.S. dollar historically have been volatile. From May 2012 through February 2013, prices ranged between $5 and $20 for 1 bitcoin. Prices increased through March 2013, and then from April 1, 2013, to May 1, 2013, ranged between $79 and over $237 for 1 bitcoin. In the same time period, the number of bitcoin transactions per day ranged from approximately 8,000 to 70,000 transactions per day.”[3]

United States Government Accountability Office, “Virtual Economies and Currencies: Additional IRS Guidance Could Reduce Tax Compliance Risks” (GAO-13–516), May 2013 (, accessed 12 January 2014)

[4] There is the alternative argument that contractual formation is inherently uncertain in and of itself (Gamage & Kedem, 2006). Being that electronic contracts form a logical subset of the contractual superset and that there is uncertainty within contract formation in general; it must naturally follow that there are areas of uncertainty, which will remain in the formation of electronic contracts, subsequent to the introduction of the ECA. The ECA, though having alleviated many difficulties facing the formation of electronic contracts, cannot in itself remove contractual uncertainty.

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