According to CNBC, at the start of November 2017, Bitcoin was priced around $6,000. Fast forward one month to the start of December 2017, it was priced at $16,000 and eventually hit $19,000 later that month. But as of November 2018, Bitcoin is again priced around $6,300. So, to say that cryptocurrency, specifically Bitcoin, can be volatile is certainly not a stretch.
For some investors, their risk tolerance means they often avoid assets that demonstrate volatility. But for others, volatility could mean opportunity.
Investors interested in cryptocurrencies specifically might be apprehensive due to the frequent price changes, but others implement specific strategies that take advantage of that volatility.
If cryptocurrency investors have the knowledge, patience and tools to buy and sell quickly, they can create the potential opportunity to profit in a short amount of time.
Another pricing factor: taxes
In addition to pricing volatility, taxes could impact potential profits when investing in various cryptocurrencies. Although it’s called “cryptocurrency,” as of 2014 the IRS treats cryptocurrencies as property for tax purposes, not as a currency.
One possibility to mitigate the tax impact – invest with an IRA. Assuming all IRS guidelines are followed, investments in an IRA may be tax-advantaged. Depending on the type of IRA, investments can grow either tax-free or tax-deferred.
The income or gains from sales of cryptocurrencies like Bitcoin are treated as a capital asset by the IRS, making them subject to either short-term or long-term gains tax.
However, individual purchases and sales within an IRA do not require reporting to the IRS for short or long-term gains tax, eliminating the need to diligently track exact prices of every trade cryptocurrency investors execute.
This meticulous documentation that is typically suggested for accurate IRS tax reporting may no longer be necessary when investing in crypto within an IRA.
