Yes, bitcoin and other cryptocurrencies are probably a capital asset. Under Sec. 1221(a) of the income tax code, a capital asset is anything that is not:
- Inventory or property held by the taxpayer primarily for the sale to customers in the ordinary course of his trade or business
- Depreciable property (real or personal) used in trade or business and real property used in a trade or business
- Copyright, literary, musical, etc held by the taxpayer who created it.
- Accounts receivable in the ordinary course of business for services rendered or sale of property
- A publication of the US government
- Any hedging transaction (see 1221(b)(2))
- Supplies consumed in the operation of a trade or business
Thus, because bitcoins do not fall within any of the above categories, they are capital gains to the extent that they are not used in a hedging transaction. However, this would not be true if bitcoins are held as inventory in a trade or business, which might be the case if you mine bitcoins, nor is it true if bitcoins are classified as a self-created intangible asset like a copyright, which is unlikely but possible. In either of those cases, bitcoin would be a non-capital asset and therefore subject to ordinary income tax rates.
