The guidance that the Internal Revenue Service provided on Tuesday that  Bitcoin should be treated as property rather than as currency for tax purposes has prompted a fair amount of commentary, including a Standard Deduction column by DealBook’s Victor Fleischer.
Steven Englander, the chief foreign exchange strategist for Citigroup,  sees the I.R.S. decision as ending “a couple of Bitcoin mythologies† and possibly nudging  virtual currencies toward becoming mainstream payment systems. In a note sent out on Thursday night, Mr. Englander  said that the belief that one can operate outside the financial system and conduct transactions of any significant size anonymously has been shattered.
He also pointed to “a real fork in the road between the bitcoin as an asset and bitcoin as a transactions medium.â€
Many consumers and retailers may use the generic Bitcoin transactions technology, saving on the transactions charge from conventional credit card and money transfer companies, but avoiding the I.R.S. reporting burden. So they will want to transact in Bitcoin, but not hold it, and they will be pretty much indifferent which [digital currency] they use. Exposure will be infinitesimally short.
Mr. Englander argues that it is difficult to see how Bitcoin itself can have value “when consumers and businesses actually seek to avoid holding it as an asset.â€
We come back to the view that if Bitcoin will evolve into a payments technology, it will be simpler to have $coin and €coin which will suffice for almost all transactions. In the same way that the exposure to Bitcoin can be made infinitesimally small in transactions, FX exposure can be made similarly small in cross-border transactions.
