KITCO News recently spoke with James Rickards, esteemed financial market analyst and best selling author of books including Currency Wars and The Death of Money. In the interview, Mr. Rickards expresses his view that, despite its surging price, he does not see Bitcoin becoming a ‘reserve’ currency and believes that the IRS is likely to eventually start freezing exchanges over tax evasion:
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“To be a reserve currency, it’s not enough to be just money. Like the dollar is a reserve currency, 60% of world reserves are in dollars, but the reason they are in dollars in not because of the dollar, it’s because of the bond market… Let’s say I am China and I export stuff and I get dollars. What do I do with them? I can’t put them under my bed. You’ve got to go invest in something and so we have the treasury bond market. Now its the same thing with Euros… I can go buy German government bonds. So those are reserve currencies because they have investable assets. If I earn Bitcoins… what do I do with the Bitcoins? There is nothing to invest in. So it’s not a reserve currency until someone goes out and creates a Bitcoin bond market.”
Mr. Rickards continues:
“Let’s say I bought a Bitcoin for $1,000 and I sell it for $2,000. I have to report a $1,000 gain on my tax return. You have got to pay taxes on it… How many people are actually doing that? I don’t know the answer, but I am going to guess that it is not a large percentage. In other words, most people are whipping and driving these Bitcoins, racking up large gains, not putting it on their tax returns. The minute you do that, you are a tax evader… Now there hasn’t been much enforcement but… the IRS is kind of waiting on this one. They will come out of the wood works sooner rather or later. Probably subpoena one of these exchanges. The exchanges will tell the IRS to go jump off a building. The IRS will get a court order, shut down the exchange and freeze all the Bitcoins. So those people are going to find themselves out of luck unless they come forward and identify themselves. This is what the IRS did to Americans with Swiss bank accounts. They’ll do it to Bitcoin.”
There is more to the interview (which can’t be embedded) so we encourage you to watch it here.