Bitcoin may or may not have clear regulations that can define its asset class, but most of the crypto community would agree to consider Bitcoin as property. Bitcoin behaves like money in some respects, and legally, money also represents a form of property. There are a number of valid reasons for the theory that reflects 'Bitcoin as property," let's talk a little more about some of them.
Bitcoin may or may not be a better form of money or currency and It is definitely too volatile if we compare directly to the dollar or the euro (fiat currencies remain extremely stable most of the times).
Bitcoin's price do fluctuate wildly in short periods of time making Bitcoin unsuitable as a currency.
However, volatility is the part and parcel of any property alongwith Bitcoin. Volatility allows Bitcoin to function as a risky but lucrative speculative asset, making it a form of property.
Bitcoin is decentralized, meaning no single institution such as a government controls the network or issues the coins. There is a hesitation accepting the truth that Bitcoin is money that is boarder less. In fact, this open and borderless structure makes Bitcoin suitable for a type of digital property that can be freely traded on the open market.
In many countries, Bitcoin is treated as property for tax purposes. This tax treatment applies only to property and assets, not to currencies or legal tender. Hence, Bitcoin is property not a currency.
In short, Bitcoin may look and feel like digital cash, but legally and technically it functions more like a speculative digital asset or real estate. Recognizing Bitcoin as property rather than ownership acknowledges its true nature and allows it to operate, be regulated, and be taxed accordingly.
Treating Bitcoin as property rather than currency has many advantages such as tax benefits and legal protection.
Another major benefit of defining Bitcoin as property provides more robust legal protection for Bitcoin traders. Property law for laws regarding ownership, transfer, and seizure of property has been around for centuries. If Bitcoin were considered property, its legal status would definitely be much more secure and trustworthy.
Establishing bitcoin as a form of property sets an important precedent for other digital assets. More importantly, defining Bitcoin as property suggests that others may also qualify as new forms of digital property, giving them more security and credibility.
In addition, Bitcoin and its holders benefit greatly when governments and the legal system recognize them as a form of property. This provides more stability and protects the rights of Bitcoin holders in a way that classification as a currency or property alone does not. While the technology behind Bitcoin is innovative, its status as property should be more conservative — and that's a good thing.
In a Nutshell
Overall, Bitcoin and other cryptocurrencies are an issue of ownership, not as simple possession. While the IRS (U.S.) has already mentioned virtual currencies as property. For clarification, below is a link that walks you through the rules that classify Bitcoin, cryptocurrencies, and even NFTs as property.
IRS Notice 2014-21, as modified by Notice 2023-34, guides individuals and businesses on the tax treatment of transactions using convertible virtual currencies. For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.
IRS Notice 2023-27PDF provides guidance on the tax treatment of non-fungible tokens (NFTs).
Even after so much clarity on Bitcoin's status as property, it's still considered merely a possession in many contexts. However, this needs to change as Bitcoin has real value and purpose as property and a medium of exchange. It's time for lawmakers to recognize Bitcoin and provide the legal protections and rights that come with Bitcoin ownership.
The future is digital, decentralized and open. Bitcoin and blockchain are leading the way. But for this technology to truly change our lives, it needs the legal status and protection it deserves.
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