US should scrap crypto capital gains tax to fuel currency competition: Cato

Crypto users in the US are required to pay capital gains taxes on cryptocurrencies, stifling their usefulness as a currency, argued a Washington DC-based think tank.

Cato Institute, a US-based think tank, argued that the government should remove capital gains taxes on Bitcoin and other cryptocurrencies to open the door for more currency competition.

The capital gains tax (CGT) is discouraging the use of alternative currencies like Bitcoin (BTC) as it incentivizes long-term holding and adds extra burdens to reporting requirements, Nicholas Anthony, a policy scholar and research fellow at the Cato Institute, said in a report on Wednesday.

He said the simplest option is to end capital gains taxes completely; however, another option could be removing them on crypto and foreign currency use to “take the government’s thumb off the scale and let competition be the true decider of the best money.”

“Bitcoiners know the frustration of tax season all too well. It’s never been easier to use Bitcoin as money,” he said. “Yet, at the same time, the tax code puts an incredible burden on law-abiding citizens. Something as simple as buying a cup of coffee every day with Bitcoin can result in more than 100 pages of tax filings.”  

The Cato Institute is a US public policy think tank that tries to influence policy through research and reports. Its members have testified before lawmakers advocating for crypto in the past.

Imagine every swipe of your card turning into a tax form.That’s what happens when spending Bitcoin.If you buy a coffee with Bitcoin, the government makes you pay capital gains taxes on top of sales taxes.Spending Bitcoin daily can turn into 70 pages in tax filings. pic.twitter.com/4At19JCFey

Using crypto to pay for goods and services can trigger a taxable event in some cases because it falls into the same broad category as stocks, real estate, and other capital assets, according to investment management firm VanEck.

Anthony argued another solution could be to remove CGT just for purchases of goods or services, but also warns it “risks creating its own compliance nightmare if people are required to prove the transactions. That’s better than being taxed, but the process would still be taxing.”

He also pointed to a de minimis tax as another possible avenue, where CGT is not triggered unless a specific threshold is met.

Related: Iran conflict hints Bitcoin’s addressable market could exceed gold: Bitwise

“The only thing worse than getting robbed would be having the robber demand endless forms about the money they are taking from you. Taxes are no different,” Anthony said.

A 2025 National Cryptocurrency Association survey found that 39% of US crypto holders reported using crypto to purchase goods and services.

Meanwhile, the academic publishing company Springer Nature identified about 11,000 merchants worldwide using BTC Map data that currently accept Bitcoin as payment.

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Source: CoinTelegraph