Afaics, ShapeShift.io and Changely don’t have any daily limits. Limit per transaction is about $5K or so. But the problem is taxation differences.

The USA has something called like-kind exchange, meaning no capital gains tax event if trading between liked-kinded assets.

https://money.stackexchange.com/questions/74789/do-altcoin-trades-count-as-like-kind-exchanges-deferred-capital-gains-tax

So 99.9% gold coins are like-kinded with 99.9% gold bars. But coins with some copper and gold are not like-kinded.

https://klasing-associates.com/possible-1031-exchange-bitcoin-ethereum-electroniccrypto-currencies/

https://ttlc.intuit.com/questions/3632491-is-an-exchange-between-bitcoin-and-altcoin-considered-like-kind-exchange

Here is the key phrase: A truck cannot be exchanged for a car without going through fiat.

So the theory is that when trading on an exchange everything is an IOU that is exchangeable without going through fiat. Even the fiat balance on the exchange is an IOU issued by the exchange (even if it is USDT), thus not really fiat. And the tokens are not really tokens just an IOU, as evident by the fact that exchanges often fail to pay those IOUs (e.g. Mt. Gox). So there is no actual differentiated (potentially non-like-kinded) exchange until withdrawing from the exchange an actual token or fiat. For those willing to keep their investment on tokens and risk the losses if the exchange blows up. In short, all trading within an exchange is trading fungible IOUs in an online game and there is no taxable event until some crypto or fiat is pulled out of the exchange. Exchanges only issue IOUs (e.g. Mt. Gox). Unless you have the private keys or the fiat at a bank in your name, then you have only IOUs. (Note; IANAL and I am not providing tax advice)

However, apparently FinCEN requires all transactions within the exchange to be tracked else the cost basis will be the one that maximizes tax burden.

But when trading on ShapeShift and Changely, you immediately exchange tokens, thus potentially a taxable event unless the tokens exchanged are correctly construed to be like-kinded. It’s not clear whether trading between tokens on different ledgers is like-kinded or not. The IRS has not ruled on that yet.

If the 99.9% gold content makes coins fungible with bars (i.e. you can trade them fungibly without going through fiat because they have a common basis of purity which is not fiat), then does having the same original source for the case of competing forks of Bitcoin make them fundamentally fungible? I think not. However, if we can trade them in pairs without going through fiat does that make it a like-kinded exchange and essentially fungible? I think no. Meaning I deliver payment in BTC but pay with BCH because there is an instant liquid exchange between BCH and BTC. This works the same with forex and barter, but afaik we still must pay taxes on barter and exchanging foreign forex without involving our nation currency. For those jurisdictions where Bitcoin is ruled a currency (e.g. Germany but only if held over a year presumably before cashing out of the currencies not just trading between currencies, but not available to corporations), then when buying another altcoin, then the purchase is not a taxable event, but when selling the forex (i.e. the alt which is not ruled a currency), then it could be a taxable event. Since the EU has ruled that Bitcoin is a currency (not an asset), thus if trades between currencies within an EU country are not a taxable event then only when cashing out to an asset would a potentially taxable event occurred depending how your nation taxes gains on the value of currency. Note I heard that a high ranking official in Finland stated that trading between altcoins in Finland is not a taxable event.

The tax implications of exchanges for those who are in tax jurisdictions that require assessing taxes on trading between different tokens. So if hodling a token on a wallet, then transferring the token to the exchange is a taxable event because the token has been converted to an exchange IOU. To avoid taxation, according to our aforementioned rationale that exchange trading is all like-kinded IOUs, the tokens would have to have been held on the exchange the entire time and not withdrawn in order to avoid a taxable event. Bummer!


We can’t have it both ways. If we argue that exchange holdings are only IOUs and not actual tokens and fiat, then the taxable event is when entering and exiting the exchange. If we argue that the tokens and fiat inside of the exchange like-kinded to the actual tokens and fiat outside the exchange, then the taxable event is upon trading within the exchange.

Those who pay 0% CGT (short or long-term capital gains) don’t have to worry about this, such as in Italy and maybe Switzerland. As another example US citizens can move to Puerto Rico and stop paying capital gains taxes on gains from outside the USA and Puerto Rico.

Yeah I agree that delaying when taxes are assessed is a huge factor in planning the strategy for investment.

I had not been factoring this tax concern into my analysis of which tokens to hold or trade. Many of you would prefer to long-term hold and not trade because of tax concerns.


Note USA citizens who have their primary place of work (even if self-employed) abroad can qualify for the annually inflation-adjusted ~$103k foreign earned income exclusion, and they’re apparently not liable for paying income taxes in the country where they are if that country taxes foreign “residents” (which in my case, the Philippines doesn't tax resident foreigners even if I were a resident, yet I’m only officially present on a tourist visa anyway). But the self-employed must still pay self-employment tax which is 15.3% (to fund Social Security retirement benefits which I will never receive any benefit from and which the government raids for general budget appropriations). Yet the AMT also applies to expats, and kicks in at $42 – $54k depending on if married filing separately or single, although the Trump tax plan may raise those thresholds significantly or eliminate the AMT.

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A controlled demo really says nothing about the game theory of Mt. Box centralization of the hubs of LN. And the fact that most users will simply choose to have an account with a hub and thus be given fractional reserves. And the failures of hubs like we have failures of exchanges  now. And the runs on the bank. And the surge spikes of settlement load on the main chain. Etc..

We’re a long way from knowing which electronic currency people are going to want to use to buy coffee. Even if LN worked perfectly it would not necessarily win the adoption race for uptake.

I can’t predict whether SegWit will be a failure mode for BTCSegWit. We’ll have to wait and see.