Millions of Americans trade cryptocurrency, but a new study from the Tippie College of Business finds many may not be very savvy when it comes to finance, acting more like meme stock traders and failing to report gains on their taxes. 

The researchers examined anonymous data from more than 1 billion tax returns on reported sales of cryptocurrency like Bitcoin and Ethereum between 2013 and 2021 provided by the IRS. 

The results suggest those sellers tended to be younger and less experienced than most equities traders and had lower incomes, becoming more so over time, said Jaron Wilde, study co-author and professor of accounting at the Tippie College of Business. He said that in the eight-year study period, the age of typical crypto sellers dropped from 45 to 34 and their taxable income dropped from $296,000 to $94,000.

They also behaved more like meme traders than experienced equities traders, with trades seeming to be driven as much by hype and price swings as fundamentals, Wilde said. They also appeared to be less tax sensitive with cryptocurrency sales than they are with traditional securities, something that more experienced traders typically keep in mind.

They also found that while surveys suggest as many as 21% of Americans traded crypto during the study period, only 6% of taxpayers actually reported it on their tax returns. Wilde doesn’t believe this is necessarily malicious, though. When the IRS added a question to 1040 forms in 2019 asking if a taxpayer’s income was derived from virtual currency, reports increased, suggesting many crypto traders simply didn’t know their gains were taxable, further evidence of inexperience. 

They also typically did not use a tax professional to complete their returns. 

In the end, the study says crypto traders act more like speculators than traditional investors. 

The increasing popularity of crypto has state and federal regulators considering new laws and policies, many of which can be informed by the study, Wilde said. The virtual currency check box, for instance, suggests tax reporting can be improved over time with similar tools, and that taxpayer education needs to be continually increased. 

Wilde’s study, “Who Reports Cryptocurrency to the IRS,” was published in the journal Review of Accounting Studies. A co-author, Tyler Menzer of TCU, is a Tippie PhD graduate.

Media contact: Tom Snee, 319-384-0010 (o); 319-541-8434 (c); tom-snee@uiowa.edu