Crypto Doesn't Deserve a Tax Exemption
bloomberg.com
bloomberg.com
What if you paid for the car in pesos, instead of dollars, would you have a capital gains tax (honest question, I don't know how it works in the USA)? Nobody would say pesos aren't money.
(For the special case of dollars, it makes sense that there's no "capital gain" to tax: since the "capital gain" is measured in dollars, the gain or loss on your dollars is always zero.)
Now 3 years later, they want to refinance the £400k mortgage they owe with a different lender but the currency exchange rates have fluctuated and now £400,000=$550,000.
In the eyes of the US, they immediately owe capital gains tax on $50,000 even though nothing happened and they didn't even move out of the house.
So yes, the US charges CGT on foreign currency and equivalents.
Refinancing a mortgage doesn't trigger capital gains tax.
Capital gains tax applies when you sell an asset, like a house.
While currency fluctuations do play a role, you calculate the gain or loss at the time of sale, not when refinancing. You'd compare the USD value of your purchase price to the USD value of your selling price.
Interestingly, such gains aren't taxable at the (usually lower) capital gains tax rate, but they're taxable at the (usually higher) regular income tax rate.
Since the only 'allowed' currency is US dollars here, any exchange to a non-US-dollar 'currency' (pesos, bitcoin, whatever) then using that to buy/sell things would implicitly trigger either a capital gains or a regular income event upon conversion to another form of value. It's no different than buying and selling art, or any goods. If I constructed all of business around bartering using rice... technically I would owe taxes on all those transactions.
Regardless you’d be subject to Section 988 and could potentially owe capital gains (or ordinary income) tax if you had a large enough gain from buying, holding and then exchanging the foreign currency.
The US code treats all non-USD currency as property, so you can (mostly) think of it as any other transaction with an exchange between assets. There are some nuances and exceptions of course.
Unless you sell your very rare, misprinted 100 dollar bill for $100k? You definitely owe tax on that payment but I have no clue which part of tax law that falls under, and I'm pretty sure I don't understand what a "capital gain" is.
Perhaps everything deserves a tax exemption, especially cryptocurrency, which operates independently of government control and doesn’t rely on state structures to function.
Governments, in this case, offer nothing essential to the functioning of cryptocurrencies. Cryptos are essentially just digital numbers transferred across the internet, their existence sustained purely by individuals investing their time, resources, and trust. Their value and continued operation are independent of government control, investment, infrastructure, or approval.
Cryptos are simple but cryptoCURRENCY - where the rubber hits the road and the numbers on the internet become useful - is anything but.
It magically manifests itself through the ether? It doesn’t rely on profligate amounts of cheap electricity and the infrastructure required to support data centers?
It doesn’t rely on governments that provide a legal and financial system that supports exchange into actual monetary value that the real world requires to operate?
Claiming cryptocurrency doesn’t rely on state structure completely ignores the existing state structures that are required to enable the complex scheme that’s needed to enable its use.
As they say, “we live in a society.”
Cryptocurrencies, by design, function on decentralized networks that don't require the direct oversight or approval of any government. The electricity and hardware used for mining and transaction validation may come from existing infrastructure, but that infrastructure doesn’t need to be state-controlled in the same way that a national currency system is. Individuals and private enterprises can choose to power crypto networks using renewable energy sources, local power grids, or even off-grid systems, making them more flexible and adaptable to a variety of environments, independent of centralized authorities.
As for the legal and financial systems that facilitate exchange into fiat currency, these are not an intrinsic part of cryptocurrency's functionality. Cryptocurrencies are used as a medium of exchange and store of value in numerous jurisdictions without the need for state-backed systems. Peer-to-peer exchanges and decentralized finance (DeFi) platforms allow users to trade, lend, and borrow without relying on traditional financial institutions or government regulation. In fact, the very appeal of cryptocurrency is that it offers an alternative to centralized systems, providing financial autonomy outside the control of national governments or banks.
The idea that cryptocurrencies “need” government structures is a misunderstanding of their decentralized nature. While state-backed systems provide a safety net or a point of conversion, they are not essential to the existence of cryptocurrencies themselves. In fact, governments’ involvement often comes with regulation, restrictions, and sometimes outright hostility — yet cryptocurrencies continue to thrive in regions with little or no government support.
Yes, we live in a society, but part of the reason cryptocurrencies have gained traction is because they challenge the monopoly that governments and traditional financial systems have on money, banking, and trade. In essence, cryptocurrencies operate as a parallel system that doesn’t depend on state authority to function.
Cryptocurrency benefits from existing structures. Many of which are government supported. Taking without paying due is immoral.
> but part of the reason cryptocurrencies have gained traction is because they challenge
Yes, but they do not supercede existing systems and until they do, they are party to them.
For many colonists, the Tea Act was part of a broader frustration with what they viewed as excessive and unwarranted taxation on goods they needed, like tea. They objected not just to the specific tea tax, but to any form of taxation that they felt was imposed without their consent, and that undermined their economic freedom. This frustration eventually culminated in the Boston Tea Party in December 1773, which was a protest against both the specific tax on tea and the broader issue of unfair taxation—whether or not they had direct representation in Parliament.
Also, they did not see it as a violation of their "economic freedom," as that concept was not really around in the 1700s. They objected to the violation of the British constitution, which meant their rights as British subjects were violated. Taxes were fine by them, as long as they had a voice in Parliament, which they did not have.
[1]: https://xkcd.com/538
1. We are trying to fit new concepts to old systems
2. We lack sufficient clear and agreed upon terminology and definitions.
You could see this in the privacy argument for files when they are uploaded to the cloud and if they were free to access by law enforcement.
You can see this now in the blanket statement of "crypto" that fails to acknowledge that it contains projects that act like equities, others like currency, and some like both.
It's kind of an inverse relationship, isn't it? The ones with the most capital gains are the least currency-like; anything that behaves like a currency (perhaps USDC or USDT) has no appreciable capital gains to tax anyway.
It's hard to assess what this would mean over time when you already know the history of the price biasing your viewpoint. Especially when you have to modulate that value by the effects of media coverage and public opinion contributing to a boom/bust cycle. I could see how it could be consistent with the price history with stepped increases in value as its long term potential as a currency is reassessed as being more likely, each step triggers an oscillation as the opposing forces react to the change in value and change in stability respectively. I think spread latency (not everyone reacts to the forces at the same rate) would have a dampening effect causing things to flatten out over time. Worst case scenario would be if the competing forces cause an ever increasing oscillation.
I think that should mean that the end state for Bitcoin should be relatively stable, but at a value that we just don't yet know $0, $100, $1,000,000 could all happen.
If it turns out to be $1,000,000, I'm completely ok with people paying tax on the increase in value if they bought at $10. On the other hand if the price remains stable around there, then people who used it as a currency would not generate much taxation income, but cause a considerable amount of paperwork to keep track of everything. Perhaps in that instance A percentage capital gain threshold would be in order. Perhaps something like, if the gain over a period is more than inflation_rate*1.1 capital gains tax kicks in.
People mostly are not aware of what is there really written in law and second and maybe more important don’t want to know because if they would apply existing law they would not earn as much.
Ignoring laws just like Uber or Airbnb doesn’t make law not applicable or a new concept.
Driving people around for money was regulated, the same with renting apartments.
The same with cryptocurrency stuff and coin offerings - something being a meme coin doesn’t magically make law not applicable if dozens of people buy it with hope for its value increasing and people selling it making funny pictures about going to “the moon” instead of promising future returns.
The "currency" isn't backed by any institution, takes forever to send/receive tokens, has absurd transaction fees, cherry on top, is terrible for the environment. Did we really need an alternative for gold that bad?
This is complete nonsense. You aren't taxed on buying something, you are taxed on realizing the gains you have achieved. If you traded some stocks to someone to buy their car, you would similarly be taxed on the portion of the sale price that was attributed to realized gains.