Michael Saylor once said that bitcoin is currently a store of value and not a currency because it is treated as a commodity and subject to capital gains taxes.
Every time you’d make a bitcoin payment, you’d have to pay capital gains taxes if bitcoin’s value increased between the time you purchased the asset and made the payment. Having a capital gains tax on bitcoin is one reason governments don’t have to pursue more aggressive means to protect the U.S. dollar from a potential bitcoin threat.
Instead of making it illegal, they can just impose capital gains taxes on it, rendering bitcoin ineffective as money for high-frequency and daily usage. A new bill, which is being introduced by Sen. Patrick Toomey (R-Pa.) joined with Kyrsten Sinema (D-Ariz.) aims to change this.
A new bill called “Virtual Currency Tax Fairness Act” attempts to make small bitcoin and “crypto” payments tax-exempt. This would be a significant step towards bitcoin’s use case as a daily medium of exchange rather than just a store of value.
Senator Toomey, who has been very positive about bitcoin, is trying to push for more bitcoin-friendly regulation and tax-treatment before he plans to retire later this year.
In the past, there have been other efforts to introduce tax-exemption for bitcoin and “crypto” payments under $200 along with making the Commodity Futures Trading Commission responsible for overseeing bitcoin, which has been widely recognized as a commodity and not a security.
Other countries, including El Salvador, the Central African Democratic Union and the city of Próspera in Honduras all have made bitcoin legal tender or de-facto legal tender. In Portugal, Switzerland and other countries, bitcoin payments are currently tax-free.
If the United States were to treat bitcoin as legal tender, or at least exempt small bitcoin payments from capital gains taxes, this would be an important step forward in bitcoin’s global adoption as digital, sound money.
However, the bill and especially the $50 tax-exemption was met with criticism and ridicule by some people on Twitter. One person jokingly tweeted: “That’s like .22 cents in 2019 Dollars”.
