Since Notice 2014-21, the IRS has treated convertible virtual currency as property, and the practical consequences cascade from that one ruling. Every disposition — selling for dollars, swapping one token for another, or paying for a good or service — is a realization event under IRC §1001, “Determination of amount of and recognition of gain or loss”. You compute gain or loss as proceeds (the fair market value received) minus cost basis, and the holding period determines whether the result is short- or long-term, taxed on the schedule in section “Capital Gains/Losses”.
There is no de minimis exemption. Buying lunch with appreciated Bitcoin is a taxable sale of Bitcoin, full stop — one reason crypto is a clumsy medium of exchange and a far better buy-and-hold asset. Basis is tracked per unit. To sell your highest-basis lots first by specific identification, you must document the lot at the time of the trade; and since 2025 the IRS expects per-wallet rather than universal basis tracking. Sloppy records default you to FIFO, which in a long bull market realizes your lowest-basis coins first — the worst possible order.