Crypto is growing fast, but the way the U.S. taxes it hasn’t quite caught up. Right now, crypto is treated like property, which means every time you use it, even for something as small as buying coffee, it can trigger a capital gains tax (CGT).
Nicholas Anthony, a policy researcher at the Cato Institute, explains that capital gains taxes are meant to encourage people to hold digital assets like Bitcoin and other cryptocurrencies for a longer time. But in some cases, they can push people to buy or sell assets just to reduce their taxes, instead of making decisions based on the market itself.
This makes it harder to use crypto for everyday payments. That raises an important question: if the U.S. scrapped capital gains tax on crypto transactions, could it make the country more competitive in the global race to lead digital finance?
The Case for Scrapping Capital Gains Tax on Crypto
Nicholas Anthony also shared on X, noting that using Bitcoin for everyday payments can quickly turn into a heavy tax burden.
Imagine every swipe of your card turning into a tax form.
That’s what happens when spending Bitcoin.
If you buy a coffee with Bitcoin, the government makes you pay capital gains taxes on top of sales taxes.
Spending Bitcoin daily can turn into 70 pages in tax filings. pic.twitter.com/4At19JCFey
— Nick Anthony (@EconWithNick) April 15, 2026
Removing capital gains tax on crypto could make it easier to use, attract more innovation, and help the U.S. stay competitive globally.
Enabling currency-like use
Without a capital gains tax on each use, crypto becomes easier to spend like cash rather than just hold like a stock. Traditional currencies aren’t taxed every time you spend them. Treating crypto similarly could make more sense if it’s meant to function as money.
Stablecoins and crypto payment platforms could grow faster if users and businesses face fewer tax complications.
Strengthening U.S. competitiveness
Friendlier tax rules could make the U.S. more attractive for crypto companies looking for a base to operate and expand. Developers, investors, and entrepreneurs tend to go where the environment is easiest to build in. Better tax treatment could pull more of them into the U.S.
Some countries already offer lower or no crypto taxes. Singapore does not charge capital gains tax on crypto, and the United Arab Emirates also does not apply personal capital gains tax on crypto holdings. Adjusting U.S. policy could help it keep up in the global race.
Boosting innovation and adoption
Right now, every crypto transaction can create a tax event, which makes things complicated. Removing that burden would make it easier for people to build and use crypto apps without worrying about constant tax tracking.
If users don’t have to think about taxes every time they spend crypto, they’re more likely to actually use it for payments, not just hold it as an investment. Startups that rely on crypto payments or tokens could operate more smoothly.
Nicholas Anthony suggested a potential way forward:
“The simplest option is to end capital gains taxes completely. A slightly more complicated option, however, is to stop applying capital gains taxes to cryptocurrency and foreign currency use. Doing so would take the government’s thumb off the scale and let competition be the true decider of the best money.”
Risks and Downsides of Removing CGT Tax from Crypto Transactions
While scrapping the crypto capital gains tax could encourage competitiveness, it also raises serious concerns around government revenue, market behaviour, and regulatory control.
Government revenue losses
The capital gains tax plays an important role in generating government revenue, becoming even more important due to the increasing trend towards conducting financial transactions online. By exempting cryptocurrency transactions from paying capital gains tax, substantial revenue losses can arise.
Initially, this may not seem like a big deal, but as cryptocurrencies gain wider adoption, the disparity might grow, forcing governments to seek new sources of funding or lower spending in other areas. This might also create issues regarding fairness, as there could be a situation where a certain type of asset would be tax-exempt while others are taxed.
Speculative activities
Given the removal of the tax, a situation could emerge where people would engage in trading for profits rather than investing and utilizing their currencies in regular activities. This would make the market highly unstable because people will look for ways of making money out of these short-term investments, leading to high fluctuations in the market.
Tax evasion
With no taxes imposed on cryptocurrency dealings, individuals and possibly even corporations could engage in practices where they would try to use cryptocurrencies as a way of minimizing their tax burden. People will engage in these acts to avoid taxation of their other financial assets and activities.
This creates challenges for regulators trying to separate genuine everyday usage from strategies designed mainly for tax avoidance. Over time, this could weaken trust in the system and increase enforcement pressure.
Distortion of investment patterns
If crypto gains some specific tax advantages against other financial instruments, such as stocks or bonds, then it can distort investors’ behaviour. This will not happen because crypto will be a promising type of asset, but because it will become more attractive from the point of view of taxation.
As a result, there is a risk of capital allocation that can be associated with taxation policies rather than real economics and returns.
Complexity of enforcement and compliance
While simplification is the objective, exempting cryptocurrencies from capital gains tax does not necessarily mean that the task becomes less complex. It can be expected that there will still be questions about what is taxable and what is not in relation to activities carried out with cryptocurrency.
It appears that such ambiguity may complicate rather than simplify things for enforcers and may provide room for abuse.
Market Impact: What Would Actually Change?
If capital gains tax on crypto were removed, it wouldn’t just affect taxes; it could reshape how people trade, invest, and use digital assets in everyday life.
Liquidity and trading volume
Eliminating tax friction might encourage more transactions using cryptocurrencies instead of storing them to avoid taxes. This would result in a high volume of transactions between various wallets and exchanges.
It may help enhance liquidity on cryptocurrency exchanges. Consequently, there will be greater efficiency and better pricing. It may also lead to increased transactions because cryptocurrency becomes a flexible means of payment rather than being locked up.
Investor behaviour
Another significant behavioural change could occur if users were not concerned with their activities triggering taxation every time they trade. People might engage in various activities, such as allocation of resources, purchasing, or selling cryptocurrency more freely.
This would help reduce the barrier to entry for retail investors who currently find it difficult to manage complex tax laws. Companies may also become more receptive to cryptocurrency payments and investments.
Institutional response
Larger players might benefit from increased simplicity. With more flexibility in tax laws, institutions might have an easier time incorporating cryptocurrencies into current offerings such as payment systems, treasury operations, and investment vehicles.
Less compliance friction could lead to a greater willingness to experiment with financial instruments built on top of crypto, especially in areas like cross-border payments or digital asset custody. Still, caution is likely to be taken until there is clarity about regulatory oversight.
Growth for stablecoins and payments
The category most likely to benefit from simpler taxes will be stablecoins, since they were created to facilitate payments as opposed to investment. In cases where using crypto does not trigger any tax event, stablecoins could become more functional when used for payments and digital commerce.
This would enhance their role as a bridge between conventional finance and cryptocurrency, increasing the scope for practical application beyond just trading.
Market efficiency and price discovery
Lowering of tax barriers in transactions would lead to an accurate representation of the demand for the cryptocurrency in its pricing. Some individuals currently avoid making any movement regarding cryptocurrency because of the taxes involved.
This would make the price discovery process quicker because it would enable the prices to respond rapidly to changes in the market environment.
The Bigger Debate: Policy vs Innovation
At the heart of the debate on crypto taxation lies much more than the question of how to tax and raise revenue for the government. It is about how policy affects innovation.
One side of the debate argues that the current approach towards tax and regulation is flawed because tax laws must aid innovation rather than hinder it. Since crypto assets are believed to form a technological foundation for the future of finance, a reduction or elimination of crypto taxes could give the U.S. an edge in attracting innovators and investors who build the necessary infrastructure.
At the same time, governments require revenue to fund various projects. A reduction in crypto taxes might improve competitiveness, but it could undermine revenue generation mechanisms. The problem lies in achieving a balance where the United States continues to attract innovations but does not harm its overall financial stability by transferring taxes elsewhere.
A major concern is fairness and market balance. If crypto benefits from a substantially improved tax status compared to normal investments such as stocks or bonds, then it could affect capital movement. Investors can base their decision-making on tax benefits rather than value creation. This can create an imbalance across financial markets and potentially overheat one sector while underfunding others.
Tax Policy as the Real Test of Crypto’s Future Role in the U.S. Economy
So, should the U.S. scrap capital gains tax on crypto to fuel currency competition? The realistic approach would be to base their decision not so much on ideology but rather on what function crypto should have in their economy.
If cryptocurrency is viewed as a long-term speculative asset, then it would make sense to keep the existing taxation policy in place because it preserves revenue. But if the goal is to turn crypto into something closer to a functioning layer of digital money, used for payments, settlement, and everyday transactions, then the existing tax model starts to look less compatible with that vision.
The real turning point is not whether crypto can become more widely used, but whether policy will allow it to behave like money without being penalized at every step. That decision would effectively define whether the U.S. wants crypto to remain an investment class on the sidelines or evolve into a core part of its financial infrastructure.
Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.
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