@stvnguan - I think what is being stated is that
1) if you sold the virtual currency and bought US dollars and THEN used the US dollars to buy the watch, then the loss on the virtual currency / US dollar trade would be a deductible loss as you closed out your investment in the virutal currency.
but that is not what occured.
2) you traded the virtual currency for the watch, using a friend as an intermediary, and the watch is a personal use item. So in this case, there is no investment loss because there was no recognition of a investment trade.
3) if you walked into the jeweler and he accepted virtual currency (in other words taking the friend out of the middle), again the trade is virtual currency for a personal use item and there is no deductible loss.
4) even thought the watch is a 'good'. it's being used for personal use.
That is how I interpret what everyone wrote; I may not have it totallty correct.
