US urged to abolish crypto capital gains tax to unlock real currency competition
A policy scholar at the Cato Institute is calling for a sweeping change to how the United States taxes Bitcoin and other digital assets, arguing that the current capital gains regime effectively prevents cryptocurrencies from functioning as real money.
Nicholas Anthony, a research fellow at the Washington-based think tank, contends that capital gains tax (CGT) treatment for Bitcoin and similar assets pushes users to hoard rather than spend, distorts market competition between currencies, and buries ordinary people under impossible reporting requirements.
According to Anthony, the most straightforward fix would be radical: eliminate capital gains taxes entirely. Short of that, he proposes at least removing CGT for transactions involving cryptocurrencies and foreign currencies used as money rather than as investments. That, he says, would “take the government’s thumb off the scale” and allow genuine market competition to determine which forms of money people actually prefer.
How current tax rules block Bitcoin as a day‑to‑day currency
Under U.S. law, cryptocurrencies are generally treated like capital assets, similar to stocks or real estate. Whenever someone spends Bitcoin on a coffee, pays a bill in Ether, or uses stablecoins for a purchase, they may technically be triggering a taxable event. The buyer must calculate the difference between the asset’s value at the time it was acquired and its value at the time it was spent, then record that gain or loss for tax purposes.
Anthony argues this framework is fundamentally incompatible with using crypto as everyday money. He notes that what should be trivial purchases can snowball into massive paperwork: something as ordinary as buying a coffee each day with Bitcoin could generate over 100 pages of tax documentation over the course of a year. In his view, this is not a niche problem but a systemic barrier to using digital currency in normal commerce.
VanEck and other investment firms have previously explained that this treatment stems from crypto’s legal classification as property. Grouped together with stocks and real estate, digital assets fall under the same broad capital gains rules. While that might make sense for investment portfolios, Anthony argues it is disastrous for payment use cases.
CGT as an incentive to hold, not spend
The Cato scholar emphasizes that taxing every transaction nudges people toward long‑term holding instead of active spending. Because every purchase potentially crystallizes a taxable gain or loss, users are economically motivated to avoid using Bitcoin and other coins for day‑to‑day payments. The result: crypto behaves more like a speculative investment or digital gold than a competing medium of exchange.
From an economic standpoint, Anthony sees this as a quiet but powerful subsidy to the existing monetary system. If dollars can be spent freely without capital gains calculations, while crypto spending carries complex tax obligations, then the government has effectively privileged fiat currency over alternatives. That, he suggests, is the opposite of neutral competition.
Proposed reforms: full repeal, targeted exemptions, or de minimis rules
Anthony outlines several potential reform paths:
1. Full abolition of capital gains taxes – the most radical option, which would eliminate CGT not only for crypto but for all assets. He frames this as the cleanest and least distortionary solution, though he acknowledges its political difficulty.
2. Exempting crypto and foreign currency used as money – a narrower approach that would specifically remove CGT when digital assets or foreign currencies are used for payments. Investments held for profit would still be taxed, but routine transactions like buying groceries or paying rent would no longer require gain calculations.
3. Limiting exemptions to purchases of goods and services – another intermediate option would keep capital gains taxes for speculative trading but exempt transactions where crypto is clearly being used as a means of payment. Anthony warns, however, that forcing people to prove the nature of each transaction could create yet another compliance maze.
4. De minimis thresholds – some countries use a minimum value threshold under which small transactions do not trigger capital gains obligations. Anthony points to this as a possible compromise for the U.S., where modest daily purchases could be exempt, while larger transfers and investment disposals would remain taxable.
Even these more modest reforms, he cautions, can become complicated if lawmakers burden them with extra documentation rules. In his words, such a system risks creating “its own compliance nightmare” even as it tries to relieve the current one.
“Taxes are no different from robbery” – harsh critique of the burden
Anthony uses vivid language to describe the situation faced by crypto users. He compares the tax apparatus to a robber not only taking money but demanding “endless forms” detailing how it was earned and spent. For him, the problem is not just the financial cost but the administrative and psychological weight of turning every minor transaction into a potential audit trail.
Users who try to follow the rules strictly often discover how unworkable the system is in practice. Frequent trading, micro‑payments, and everyday purchases create a web of taxable events that can overwhelm even sophisticated software tools. Anthony argues that this reality effectively punishes law‑abiding users while doing little to deter real tax evasion.
Growing real‑world use, despite the tax drag
Despite the barriers, a significant share of American crypto holders are already using their coins as payment instruments. A 2025 survey by the National Cryptocurrency Association found that 39% of U.S. crypto owners reported using digital assets to buy goods or services.
On the merchant side, research by academic publisher Springer Nature, drawing on BTC Map data, identified roughly 11,000 businesses worldwide that currently accept Bitcoin as payment. While this is still a small fraction of global commerce, Anthony sees it as evidence of genuine demand that could accelerate sharply if tax frictions were reduced.
In his view, these numbers show that crypto is not just an abstract, speculative asset. It is gradually being integrated into retail, e‑commerce, and cross‑border payments. The current tax framework, he argues, is holding back what could be a much more dynamic competitive landscape for money.
What “currency competition” actually means
When Cato calls for “currency competition,” it is appealing to a long tradition in economic thought that argues multiple forms of money should be free to compete on equal footing. In that vision, individuals and businesses would choose the currencies that best meet their needs based on stability, convenience, privacy, and technological features.
Under genuine competition, some people might prefer Bitcoin for its fixed supply and resistance to monetary debasement. Others might favor stablecoins pegged to the dollar but transactable on global blockchains. Some might hold and spend foreign currencies if they trust those monetary authorities more than their domestic central bank.
Anthony’s point is that as long as the tax system treats one form of money (the dollar) as frictionless and others as administratively toxic, there is no real competition. The policy framework has already picked a winner, not the market.
Potential benefits of reform beyond crypto
Proponents of changing CGT treatment for crypto argue that the benefits would extend beyond the digital asset sector. By opening space for alternative monies and payment railways, they say, reforms could:
– Put pressure on central banks and governments to maintain more disciplined monetary and fiscal policies, knowing that citizens can more easily move into competing currencies.
– Drive innovation in payments, settlement, and financial services, as developers build for truly global, interoperable money systems.
– Enhance financial inclusion for people who lack reliable banking access but can use mobile‑based digital wallets.
– Improve the resilience of the financial system by reducing dependence on a small number of domestic banks and legacy payment networks.
From this perspective, easing the tax burden on everyday crypto use is not merely a favor to speculators. It is a structural change meant to foster a more adaptable and competitive economic environment.
Critics’ concerns: revenue, speculation, and fairness
Any move to scrap or reduce capital gains taxes on crypto will face serious objections. Skeptics worry that:
– Government revenue could fall, especially if high‑net‑worth individuals shift more of their wealth into digital assets to exploit favorable treatment.
– Speculative bubbles could intensify, as tax advantages attract more leveraged or short‑term behavior.
– Unequal treatment might emerge compared with other assets, raising fairness concerns among taxpayers who do not use crypto.
– Tax avoidance structures could proliferate, where people disguise investments as payments in an attempt to bypass gains taxation.
Anthony and others in his camp respond that carefully designed rules-such as limiting exemptions to genuine payments or using de minimis thresholds-can mitigate abuse while still enabling normal commerce. They also argue that economic growth sparked by freer currency competition could offset some lost tax revenue over time.
How other countries are experimenting
While the article focuses on the U.S., the debate over taxing crypto payments is global. Some jurisdictions treat small crypto purchases as tax‑free up to a modest amount per transaction. Others have crafted specific carve‑outs for digital asset payments, while retaining strict rules for trading and investment.
These international experiments suggest that it is possible to distinguish between someone using Bitcoin to buy lunch and a hedge fund executing complex arbitrage trades. Anthony uses such examples to argue that the U.S. is falling behind in modernizing its tax code for the digital money era.
What reform could mean for ordinary users
If the U.S. were to adopt even partial reforms-such as exempting modest everyday purchases from capital gains calculations-many ordinary users would experience crypto very differently:
– Budgeting and accounting for personal finances would become simpler, since people would not fear triggering tax events with every small transaction.
– Wallet apps and payment platforms could remove large portions of their tax‑tracking features, focusing instead on usability and security.
– Merchants might be more willing to accept digital assets if they knew customers were not deterred by tax paperwork.
For those who currently avoid spending their crypto for fear of complex filings, a more rational tax framework could unlock real payment use rather than pure hoarding.
The broader philosophical battle
At its core, the Cato Institute’s push to scrap capital gains taxes on Bitcoin and other cryptocurrencies is part of a broader philosophical dispute over who should control money. One side views money primarily as a tool of state policy, to be managed and regulated centrally. The other emphasizes money as a spontaneous market institution, which should be free to evolve and compete with minimal political interference.
By framing the tax code as a weapon that tilts the playing field, Anthony is not just making a technical proposal. He is arguing that the current rules embody a choice: to favor a monopoly currency and a centralized financial system over pluralism and market discovery.
Whether lawmakers embrace his recommendations or not, the underlying tension is unlikely to disappear. As cryptocurrencies, stablecoins, and other digital monetary experiments continue to gain traction, pressure will grow on tax authorities worldwide to reconcile twentieth‑century codes with twenty‑first‑century technology.
For now, in the United States, every Bitcoin coffee still looks like a capital asset disposal. Cato’s position is clear: until that changes, talk of fair “currency competition” will remain more theory than reality.