In 2014 IRS provided guidance in Notice 2014-21 saying Bitcoin was property, not currency. As property if you hold for holding period, it is a capital asset and you have a capital gain or loss. If you mine it, it is ordinary income. It left lots of unanswered questions. If it was property, could you do a 1031 like kind exchange? Must you use FIFO to determine basis?
As Bitcoin exploded some were using it for nefarious purposes. Some assumed it was untraceable, but Bitcoin depends on the public ledger, the block chain, which is visible on any laptop. It has wallet addresses and transactions.
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