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Should Cryptocurrencies Be a Part of Your Investment Strategy? 

By Jannis N. McCollier, FWSF Technology & Infrastructure Co-Chair

Inside the Fed

On July 26th, Financial Women of San Francisco hosted an industry leadership event at the Federal Reserve Bank of San Francisco. The sold-out event, held in the Janet Yellen Conference room, featured speaker Kendra Hartnett, senior risk specialist at the Federal Reserve Bank, who gave insights into bitcoin, blockchain, and cryptocurrency.

Quick Facts

Bitcoin is one of the top digital currencies that support peer-to-peer financial transactions. When a purchase is made via bitcoin, the blockchain technology turns the transaction into a “block.” The block is verified by members within the network. Once the block is approved, it is added to the chain and recorded. Finally, the bitcoin is transferred to the receiver.

Threats for bitcoin are hackers and viruses, who steal currency from holders. Despite the creation of “wallets” to store the digital currency, over $1 billion bitcoins have been lost or stolen.

The tax treatment for the bitcoin is the same as any other capital asset. If the digital currency is held for more than one year, then the individual will be taxed at the capital gains rate. On the other hand, if it’s held for less than one year, then the individual is taxed at the ordinary income rate.

Is This a Real Thing?

Currently, the Securities and Exchange Commission, Commodity Futures Trading Commission, Internal Revenue Service, and U.S. Treasury Department all monitor cryptocurrency. Since there are only a few consumers who have adopted digital currency, these government agencies have not imposed regulations on the currency. Based on the government’s research, more consumers prefer cash than any other form of payment. With that in mind, it is safe to say that digital currency must overcome consumers' distrust.

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