4 Reasons Why Cryptocurrencies Shouldn’t Be Taxed

by Trading 101     Jul 16, 2019

There are only two certainties in life – death and taxes. The same appears to be true in the context of cryptocurrencies. Ever since the prolific rise of Bitcoin and the hundreds of cryptocurrencies that sprung up in its wake, everyone’s been trying to figure out what the legal status of crypto really is. In trading 101 you get taught all about taxes and rules – yet crypto doesn’t really seem to have any.

No country is yet to acknowledge a cryptocurrency as an actual currency. Most supporting countries have been treating cryptocurrencies as a financial service rather than a form of currency. This has lead to crypto traders and investors being taxed in many countries, with some notable exceptions existing in Europe, such as Belgium, Finland and Cyprus.

Since governments are still in the process of figuring out what to do with cryptocurrencies, let’s look at the reason why crypto shouldn’t be taxed.

  • 1) Trading Crypto-To-Crypto Is Impossible

Given the speed, or rather, lack thereof of lengthy transactions between two different currencies, market volatility often causes those to not be profitable. There’s a significant delay between putting out an order to buy Bitcoin with real world cash and then converting those into whatever cryptocurrency that’s worth trading.

Under current laws in the United States for example, if the value of a currency changes in the delay period, its owner is taxable for the increase in that value. The lack of control over that timeframe makes it unpractical and unfair to tax traders.

  • 2) Tax Audit Is Going To Be A Nightmare

Auditing cryptocurrency traders is going to post an extremely challenging logistical undertaking to any tax agencies in the world, despite the somewhat “transparent” nature of some currencies. Some traders will keep all their crypto trades and wallets on secure websites and not sell them off for cash. Other traders will use foreign cryptocurrency exchanges to avoid tax.

Some will go as far as having entirely offline wallets for their coins, making their activity virtually untraceable by tax authorities. The cost this will impose on the government alone should be enough of a reason not to bother.

  • 3) The Bitcoin Millionaires Are Out Of Reach

The Bitcoin boom in 2017 has made many people rich overnight. However, those who are profiting in the high digits from Bitcoin and other cryptocurrencies are almost guaranteed to be keeping their wealth offshore. Those that had the money to buy a significant amount of Bitcoin anywhere in the $5000 to $10000 range before the big boom were already in positions to avoid paying tax in the first place.

The remaining traders, the 99% so to speak, are regular folk. People that are happy their small investments are paying off. These could be early adopters, families, technology enthusiasts or just gamblers. Taxing them might wipe out their entire profits, which they certainly don’t deserve.

  • 4) What About All The Failures?

As much as Bitcoin and some other currencies have succeeded, many have failed to do so. There’ve been an uncountable amount of ICOs that went south on top of dozens of scams and hacks. The transactions made by the victims thereof are technically still taxable – talk about kicking someone while they’re down.

There’s a clear argument to be made here that a tax system made for fiat currencies is not going to fit the new technology of cryptocurrency. There will be hundreds of people who entered the Bitcoin game too late in 2017 and have to deal with those losses and now they have a large tax bill on top of it all.

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