The debt-based monetary system has gone too far. On the one hand, the United States has surpassed the $35 trillion national debt threshold, placing a burden of $104,000 on every American citizen. On the other hand, the Congressional Budget Office (CBO) puts federal spending for 2024 at $1.2 trillion. 24.2% Of GDP.
This divergence between profligate spending and debt inflation puts the economy on a narrow path. It is highly unlikely that the US government will choose to cut spending, most of which goes to social programs, rights, and the military. Indeed, this last spending alone is the main element supporting the US dollar as a global currency.
Conversely, this would entail another expansion of the Fed’s balance sheet, with three 0.25% expansions. Price reductions In contrast, non-cash assets such as stocks, gold and Bitcoin are poised to grow again. At the heart of this dynamic is the question of information integrity.
And with the US Bureau of Labor Statistics expected to revise down its employment numbers by as much as 1 million jobs between April 2023 and March 2024, the informational corruption is evident in central banks themselves. If the Fed can increase the M2 money supply by 27% in 2020-21, money itself loses its informational coherence.
This is why investors are looking to stocks, gold and Bitcoin. These assets become vehicles of value because the currency loses its ability to reliably transfer value. The problem is that they are also taxed as a way to slow the speed of the exit from the central banking system.
This is especially true for Bitcoin, a unique asset that acts as a store of value but can also be used as a vehicle for everyday transactions. The question is, can a legal environment be created in which low-value Bitcoin transactions are exempt from federal taxation?
Uses and Suitability of Bitcoin as an Alternative Currency
To understand the regulatory path forward, we first need to understand how Bitcoin is typically used. Ultimately, comparing Bitcoin to fiat currencies paints a clearer picture of whether Bitcoin can be used as a practical currency, or whether it could be seen as a threat to the current monetary system.
Despite layer 2 scaling solutions like the Lightning Network, the more BTC is used, the more load is placed on the Bitcoin mainnet as miners process blocks of transactions. In turn, greater activity on the network generates greater friction, manifested in escalating fees for each BTC transaction.
In a developed country like Australia, the use of cryptocurrencies for payment has generally been minimal.
Image rights: Reserve Bank of Australia
This is predictable, because people need strong incentives to move away from existing payment solutions, ones that are already instant and convenient.
At best, Bitcoin transactions mostly revolve around third parties facilitating Bitcoin transactions using fiat currency. For example, Bitcoin onramp platform Strike had to drop its custodian Prime Trust and eventually filed for bankruptcy. However, Strike still uses banks like Lead, Cross River Bank, and Customers Bank.
In other words, Bitcoin adoption is linked to online payment systems, through commercial banks linked to central banks. The latter have already made profits. In reality Digital, except for hosting it on their notebooks.
Although these institutions are able to manipulate the money supply, they can do so to facilitate the maximum liquidity needed for a debt-based monetary system, where fiat currency serves as an effective tool for tracking debt.
In contrast, the scarcity of Bitcoin makes it less attractive for such use. Gold has already demonstrated this when it was abandoned. Because the supply of gold was not elastic enough to support a growing (debt-based) economy, mainstream economists viewed a gold-backed currency as obsolete.
Furthermore, Bitcoin is not suitable as a daily currency mover compared to fee-free alternatives like Nano (XNO) that boast of being environmentally friendly. Green Hosting Or potential central bank digital currencies. Rather, Bitcoin’s power relies on its untouchable scarcity, a scarcity that acts as a global reserve settlement layer.
While these two factors, network friction and liquidity flexibility, make Bitcoin less suitable as a convenient medium of exchange, they do make Bitcoin less of a threat to the system. But does this mean that the tax treatment of Bitcoin should be modified?
The impact of current tax policies on the use of Bitcoin
On exchanges and platforms like Strike mentioned above, users can freely buy Bitcoin without worrying about it being a taxable event. This only becomes the case when the BTC is sold for a profit. After that, it is subject to capital gains tax for the trade.
This is because the Internal Revenue Service (IRS) classifies Bitcoin as: ownershipIf Bitcoin is held for less than a year before being sold, holders are subject to a regular income tax rate of 10% to 37%.
Holding Bitcoin for a year makes it subject to a tax rate of 0% to 20%, depending on the income level divided into three brackets – 0%, 15% and 20%. In return, Bitcoin holders must keep a record of when they bought Bitcoin, at what price, and when they sold it, at what price. The difference in profit is taxed as capital gains.
Similarly, exchanging Bitcoin for another cryptocurrency is a taxable event, and is subject to capital gains tax. If Bitcoin is received as a payment/dividend, or from mining/depositing/airdropping, it will then be treated as wage income tax, and falls within the regular income tax range of 10% to 37%.
In addition to purchasing, holding, or donating Bitcoin to a registered nonprofit, users can also transfer Bitcoin from exchanges to wallets without it being a taxable event. While Bitcoin gifts can also pass as non-taxable upon receipt, they will still be subject to the same tax regime later on.
If Bitcoin is sold at a loss, holders can write it off, up to $3,000 per year (which can be carried over to the next year if it exceeds the amount). Currently, it is still possible to engage in Bitcoin tax loss harvesting, where Bitcoin holders can sell Bitcoin at a loss to claim a tax exemption, and then buy it back.
Unfortunately, this freedom that shareholders do not enjoy may end with Proposed Loomis-Gillibrand Responsible Financial Innovation Act, Section 1091, “Loss from Fictitious Sales of Certain Assets.”
But even with this tax exemption still open, it’s clear that the unique nature of bitcoin is not reflected in the IRS’s treatment. Tracking every single bitcoin transaction alone would severely discourage everyday use, as would simply buying a pint of beer. My account Initial BTC price to see if it is at a loss or profit.
Likewise, traders will have to bear the same tax regime because they are technically receiving property, not money. Along with the previously mentioned issues of friction and fluid liquidity, this imposes an additional burden on widespread adoption of Bitcoin by incentivizing long-term holding.
Moreover, Bitcoin’s expansion into innovative financial products is also hindered.
Tax burden on bitcoin derivatives
Although Bitcoin has become the least volatile cryptocurrency due to its massive market cap of $1.2 trillion, holders still prefer to protect themselves from price fluctuations. Derivatives, such as options and futures, make this possible.
Additionally, Bitcoin’s price volatility creates opportunities for traders who want to bet on whether Bitcoin’s price will rise (go short) or fall (go long). This important speculative market for risk hedging and price discovery is also burdened by the current tax system.
Once an options contract is exercised, or when it expires, it is subject to capital gains tax. Most traders will create Trading Alerts To indicate the moment when the price of Bitcoin crosses a certain threshold. This helps traders to respond quickly as the loss or capital gain tax is calculated based on the difference between the fair market value of Bitcoin and the strike price. So, staying up to date with the fair market value of Bitcoin is a challenge.
There would be the added difficulty of calculating the fair market for another cryptocurrency if it was the means of settling a Bitcoin contract.
But if the contract expires without purchasing Bitcoin, the capital loss will be considered the premium paid for the contract. On the other side of the equation, sellers of Bitcoin options premiums will have to pay capital gains tax as well.
When it comes to futures contracts, 60% of the gains/losses are taxed as long-term capital gains/losses, while 40% are taxed as short-term capital gains/losses. This is regardless of the length of the futures contract.
While derivatives markets greatly enhance liquidity and trading volume, the current Bitcoin tax regime discourages broader participation.
Virtual Currency and Bitcoin Tax Fairness Act
2024 has turned out to be a heap of good news for Bitcoin, largely unaffected by the German government’s Bitcoin selloff. The most popular cryptocurrency received institutional approval when the Securities and Exchange Commission approved 11 exchange-traded funds, with their assets under management rising to $48.13 billion as of August 20.
Not only did the Bitcoin ETF exceed all expectations, its success served as an endorsement platform for two presidential candidates, Robert F. Kennedy Jr. and Former President Donald TrumpBoth backed the idea of creating a strategic reserve of Bitcoin at the Nashville Bitcoin 2024 conference in late July.
At that time, Senators Ted Budd (R-N.C.), Krysten Sinema (I-Ariz.), Cynthia Lummis (R-Wyoming), and Kirsten Gillibrand (D-N.Y.) reintroduced the bill. Q.4808Virtual Currency Tax Fairness Act.
As the title of the bill suggests, cryptocurrencies would receive the same tax treatment currently granted to foreign currencies.
This means that cryptocurrency transactions under $200 would only be subject to regular sales tax. While this is still behind El Salvador’s approach to making bitcoin legal tender, the bill would immediately lift the barrier to small-item purchases at merchant locations.
Previously, one of the co-sponsors, Senator Cynthia Lummis, male She is “pretty sure that Bitcoin will be among them… and perhaps even a dominant one,” referring to a future global system based on a basket of global reserve currencies.
According to the latest campaign developments, presidential candidate Kamala Harris supports President Biden’s proposed 44.6% capital gains tax, as well as raising the corporate tax rate from 21% to 28%.
The broader implications of Bitcoin adoption
Although to lessThe recession is still in place until 2025. If it does, it will be another test of Bitcoin’s price, whether it’s a low or a high. But in the long run, the structure of mass democracy doesn’t allow for austerity.
If austerity isn’t on the horizon, the Fed’s ballooning balance sheet will inevitably erode confidence in the US dollar, and it’s anyone’s guess whether the factions competing for power will allow Bitcoin to become a potential exit route along the way.
Making Bitcoin transactions under $200 subject to sales tax, rather than capital gains tax, would go a long way toward entrenching Bitcoin in the financial system. Given that BlackRock’s IBIT has become the largest Bitcoin ETF, with $17.24 billion in assets under management, it’s fair to say that the perception of Bitcoin as a “threat” has been mitigated, if not abandoned.
conclusion
With the price of Bitcoin currently above $60,000, it is becoming increasingly clear that only a small minority of people will ever own it. More than 1 BTCTherefore, this small population is unlikely to destabilize central banks.
What is more likely is that a parallel hybrid system will emerge where Bitcoin is both a commodity and a token that is tracked. This is evident from the fact that even senators who are not explicitly against cryptocurrencies want to expand their scope. Cryptocurrency Monitoring.
Bitcoin’s transparent ledger is perfectly suited to this purpose. This is a positive development, as privacy-oriented cryptocurrencies like Monero (XMR) have already been pushed out of the major exchanges.
Without these headwinds when navigating the ocean of fiat currencies, Bitcoin is free to foster financial inclusion and innovation despite the barriers it faces, including the taxation of assets that appreciate in value. The Virtual Currency Tax Fairness Act paves the way, but it is likely to be subject to further tweaks. Specifically, it is not yet clear how the $200 transactions are grouped.
This is a guest post by our guest Shane Neagle. The opinions expressed here are entirely their own and do not necessarily reflect the views of BTC Inc or Bitcoin Magazine.
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