There's a gigantic difference: an exemption for almost all personal transactions. In practice almost every foreign currency transaction you make is exempt[1]. The IRS doesn't allow that exemption for Bitcoin and technically you are required to calculate and report gains for every single Bitcoin transaction you make (regardless of whether dollars are involved). Imagine reporting every Starbucks purchase on your tax return. It's a completely unreasonable burden for a currency.

[1] The actual rule is $200 of capital gains per transaction, and you'd usually have to spend substantially more than $1000 in a single transaction to get there.

No, the $200 limit is the limit on the exchanges for the year.

EUR/USD exchange rate changed 3-4% from a year ago, so spending $5-6k in Euros would surpass the threshold (though in this particular case, as a loss).

The BTC/USD exchange rate more than doubled over the past year, so you'd have to spend less than a few hundred dollars to remain under <$200 gains.

The $200 tax exemption would make little practical difference. Even for traditional stable currencies, it's relatively easy to exceed that in any significant use. And with BTC's historical volatility, it's virtually guaranteed.

I am not an accountant and may be wrong, but if a US citizen exchanges $1000 USD to euro, and then euro appreciates 10%, and then they spend that euro to make a purchase, I was under the impression that that purchase is not subject to capital gains. Exchanging back to USD would be, but I thought currency classification exempted cap gains on purchases of goods and services.

Am I wrong? Have never held any significant amount of foreign currency, so have never dealt with this personally.

My understanding is that a gain or loss in that currency is recognized upon spending/trading it.

Quick search brought me to https://thismatter.com/money/tax/foreign-currency-transactio... which agrees with that.

Like use tax, I suspect it is often just neglected.

Interesting, thanks for correcting me.

It looks like there may be an exemption for small amounts under $200 (https://smallbusiness.chron.com/foreign-currency-exchange-ta...), which would make Bitcoin much more functional (if it would apply to Bitcoin anyways, mute point as BTC is classified as an asset), but not to the extent of my misconception.

The lack of a de minimis exemption for bitcoin is key here, and a major way in which it's not treated like a foreign currency.

Yeah there is specific tax code for gains on foreign currency. It is actually worse than capital gains tax. https://smallbusiness.chron.com/irs-tax-laws-regarding-forei...