A new Cato Institute paper argues that U.S. capital gains rules make “bitcoin taxes make no sense,” burying everyday BTC payments in paperwork and locking the asset into a hoarding role instead of money.
Summary
- Cato Institute’s Nick Anthony argues US capital gains rules make daily bitcoin spending “make no sense.”
- Treating BTC as property forces users to track tax lots on small purchases, from coffee to groceries.
- Cato urges scrapping gains on crypto payments or adopting a higher de minimis threshold than the current $200 proposal.
The Cato Institute is calling for a reset of how the United States taxes bitcoin, arguing that current rules make it almost impossible to use the asset as everyday money. In a new blog post, research fellow Nicholas Anthony writes that “bitcoin taxes make no sense,” because every transaction is treated as a taxable event under capital gains rules.
Anthony notes that under existing guidance, bitcoin is treated as property, not currency, meaning users must calculate gains or losses each time they spend BTC (BTC), no matter how small the purchase. “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.”
In his analysis, Anthony describes how something as trivial as buying a cup of coffee with bitcoin every day can snowball into “over 100 pages of tax filings” over time. For each transaction, users must record the date they acquired the BTC, the price paid (cost basis), the date they spent it, and the dollar value at the time of the purchase, then report it all on Form 8949 and Schedule D.
Beyond sheer paperwork, Anthony argues the structure “discourages real‑world use” and nudges people to hoard BTC rather than spend it, because capital gains rules are designed to reward long‑term holding. In his words, current policy has “effectively paralyzed Bitcoin’s use as a currency” even as wallet infrastructure and merchant tools make payments technically straightforward.
The think tank sketches several policy fixes, ranging from eliminating capital gains on cryptocurrency payments entirely to carving out exemptions for day‑to‑day spending. Anthony points to the long‑running Virtual Currency Tax Fairness Act proposal, which would exempt gains under $200 per transaction, but calls that threshold “too low” to match typical consumer behavior in a high‑inflation environment.
Cato’s intervention lands in the middle of U.S. tax season, as the Internal Revenue Service rolls out expanded crypto reporting rules that will see broker‑reported digital asset sales matched against Form 8949 entries and new 1099‑DA disclosures. At the same time, lawmakers are still debating de minimis exemptions, with some revised bills shifting relief toward regulated stablecoins, prompting criticism from bitcoin advocates who say Washington is “picking winners and losers” in the crypto market.
In previous crypto.news reporting on U.S. crypto tax bills and de minimis proposals, coverage has highlighted similar tensions between encouraging innovation and maintaining oversight, as well as concerns that complex filing rules could push retail users offshore or into non‑compliance.