Is Bitcoin exempt from capital gains? Bitcoin becomes “money” in the US

In a recent post on X, Microstrategy CEO Michael Saylor posted a quote from an alleged conversation with Donald Trump in which he discussed his changing views on Bitcoin. According to Saylor’s report, Trump has made several announcements that are significant to the possibility of Bitcoin making deep inroads into the US economy in the coming years.

“They force them to pay tax on cryptocurrency and I don’t think that’s right. #Bitcoin it’s money and you have to pay capital gains tax if you use it to buy coffee? I was talking to a friend and he said, ‘It really shouldn’t be taxed,’ and I agree.”

This claim has yet to be independently confirmed, but the idea of ​​eliminating capital gains tax on Bitcoin is not new. For years he had bipartisan supporters in the US Senate. Today, we are at a critical moment where a confluence of political circumstances could trigger the adoption of Bitcoin in the US and, by proxy, around the world to an unprecedented degree.

As Trump’s victory becomes increasingly likely, his views could have implications for how Bitcoin will be regulated and taxed in the coming years. If he actually used the phrase “Bitcoin is money,” the consequences would be huge. To understand why, it’s helpful to review Trump’s past statements about Bitcoin and cryptocurrencies so we can trace the path that led us here.

Bitcoin’s threat to the dollar

The evolution of Trump’s views on Bitcoin will be familiar to many people who have walked a similar path while learning about it.

Because it is a new technology that deviates from the conventional understanding of what money is, most rational people, when first exposed to Bitcoin, will resist it and assume that it is probably nonsense.

In this spirit, Trump stated during his previous administration that “Bitcoin… is not money.” He correctly understood that in the 21st century, US power stems primarily from the dollar’s role as the world’s leading reserve currency, a store of value for central banks and institutions, and a medium of exchange for oil and other commodities.

Because he understood that Bitcoin threatened this favorable agreement, he believed that Bitcoin conflicted with his vision of increasing American influence in foreign policy. The ability of the United States to print money and decide who gets it is truly the most extraordinary power ever given to a single political body in human history.

Our open capital markets seal the deal, allowing the U.S. economy to benefit from investing those dollars back into our financial system. This allows the federal government to collect taxes from the productive capital of the entire planet. This cannot simply be abandoned, and it would be rational to suppress new technologies that threaten change.

Revisiting Free Market Principles

Several months ago, during his 2024 presidential campaign, Trump changed his position. When asked whether he supported access to cryptocurrency, he replied that he was “fine with it.”

He did not explain why his attitude changed, but it would be reasonable to assume that politics had a strong influence.

The Biden/Harris administration is inextricably linked to the rise and fall of FTX, which turned out to be a money laundering operation benefiting US politicians – which is likely why regulators allowed it to operate for so long. The current administration is also involved in corrupt and possibly illegal attacks on banking institutions, dubbed Operation Chokepoint 2.0. A leading Democratic senator has attempted to create an “anti-crypto army” using militaristic language to threaten the $2.33 trillion industry. The deeply unpopular SEC Chairman Gary Gensler intimidated and undermined leading financial innovators.

An estimated 26% of Americans own Bitcoin, and this does not include financial products such as spot Bitcoin ETFs. Being “all right” is simply good politics. Trump’s comments were widely praised in the Bitcoin and crypto communities, setting the stage for Trump to deliver his historic keynote address at the Bitcoin Conference in the summer of 2024.

Passion for DeFi and World Liberty Financial (WLFI)

The average person’s journey to understanding Bitcoin comes to a fork in the road. One way is to recognize the uniqueness of Bitcoin; another is to suggest that the technology behind Bitcoin is a true innovation and that new tokens, tools, DeFi platforms and crypto projects are more important.

Taking the cryptocurrency route, Trump (and his sons) conceived and promoted a dubious DeFi product called World Liberty Financial. After a launch that could be described as somewhere between disappointing and disastrous, we haven’t heard much about it. The less said about this, the better.

Separation of money and state

Crypto projects like World Liberty Financial and other DeFi and NFT initiatives are missing the forest for the trees.

Ultimately, cryptocurrency use cases may emerge that lead to healthy and sustainable businesses. But the real reward of Satoshi’s invention is something much more important: the separation of money and government.

Over the past decade, a movement has emerged that has many overlaps with (but goes beyond) Trump’s base of supporters to reconsider the costs and benefits of established institutions created in the early to mid-20th century. Which ones do we need? Which ones were damaged? What alternatives do we have?

The Federal Reserve is a prime example. Its original mission was to protect the value of the dollar. Since its creation in 1913, the dollar has lost 97% of its purchasing power.

In recent years, the naive belief of most Americans that the Fed is an apolitical organization of benevolent technocrats who will never use their vast, Ring of Sauron-like power for anything other than the good of humanity has evaporated. As the bipartisan followers of Donald Trump, Robert F. Kennedy Jr., Ron Paul, Bernie Sanders, Tulsi Gabbard and others have woken up to this reality, previously held assumptions about the very nature of money are being challenged.

Should money really be issued by a central government? Why should the price of money be dictated by the Fed and not by the market? Is it strange that a single man or woman can stand up on a podium, give a five-minute speech and influence the well-being of 8 billion people across the planet? What happened in 1971? (For those unfamiliar, 1971 was the year the Nixon administration removed the last vestiges of the dollar’s peg to a scarce asset, unleashing a money printer that could be used at will.)

Bitcoin is money

While ordinary citizens are exploring these issues, the US government’s approach to Bitcoin is confusing and inconsistent. A variety of sclerotic bureaucracies are competing to expand their powers to include regulation of Bitcoin. The Commodity Futures Trading Commission (CFTC) would like to see it classified as a digital commodity. Securities and Exchange Commission (SEC) Chairman Gary Gensler, who once argued that Bitcoin is a commodity, now refuses to do so, presumably for fear of losing the ability to regulate it. He has avoided issuing proactive regulatory guidance for the bitcoin industry, preferring instead to regulate enforcement. Meanwhile, leading politicians and their media mouthpieces claim that Bitcoin is a tool of crime and nothing more.

Taking a step back and comparing Bitcoin to other forms of money, it becomes clear that it fits this definition, and for good reason: it has qualities that make it useful for facilitating the exchange of value in the global digital economy.

Ultimately, this is why Trump’s statement, if Michael Saylor’s account is correct, is so important. (Trump’s post today on the 16th anniversary of the Bitcoin white paper is further evidence of his changing views.)

Eliminating capital gains tax on Bitcoin transactions will reduce the filing complexity for Bitcoin users as well as their tax burden. But this gives Bitcoin the label of “money,” which changes everything and sets the stage for its use in everyday trading.

If Bitcoin’s status in the US is clarified as money from a regulatory perspective, we can expect a boom in the development of wallet software, e-commerce and retail payment solutions, private transactions and more.

In the medium term, Bitcoin may even save the US from becoming overly dependent on the power of its money printer, which has caused political and market distortions that are no longer tolerated by a large portion of American voters and international interests.

The dollar was mortally wounded by the collapse of trust in American institutions. He could be kept on life support for some time, perhaps even decades. But he will never return to the status he once had.

Bitcoin provides a decentralized exchange of value with final settlement. Accelerated adoption in the coming years will coincide with the development of artificial intelligence and nuclear power, two complementary new technologies for which Bitcoin removes barriers to growth.

It’s hard to imagine a more significant policy decision by the incoming administration. We hope that designating Bitcoin as money will become a reality.