Whether you consider cryptocurrency an investment, a commodity, an alternative banking system or a form of legalized gambling, the rapid adoption and stunning recent volatility of cryptocurrencies has led to frenetic trading by investors. As a result of COVID-19 disruption, economic uncertainty and the entry of PayPal into the crypto-consumer market (allowing more than 300 million users to buy cryptocurrencies easily), the crypto market has seen a dramatic runup in the values of Bitcoin and many other cryptocurrencies.
Speculative crypto trading (as well as day trading of stocks) has made many crypto investors wealthy on paper. Their trading generated a substantial amount of short-term capital gains. The IRS has made it clear that Bitcoin and other cryptocurrencies should be treated as assets or intangible property — and not currency — since it is not issued by a central bank. This results in taxability virtually every time crypto is transferred or liquidated.