The Washington-based think tank argues that current tax rules make it impractical to use Bitcoin as an everyday means of payment.
The Cato Institute, a Washington-based think tank, published a blog post this week openly criticizing the tax treatment of Bitcoin in the United States. According to researcher Nick Anthony, the current system effectively makes it impossible to use bitcoin for everyday payments, placing an excessive administrative burden on ordinary citizens.
The core issue lies in the fact that, under current U.S. regulations, Bitcoin is classified as property and not as currency. This means that every transaction – even buying a cup of coffee – constitutes a taxable event subject to capital gains tax. Users must calculate the difference between the purchase cost of the bitcoin and its value at the time of spending, reporting every single transaction.
Anthony illustrated the practical consequences with a concrete example: buying a cup of coffee every day using bitcoin can translate, over time, into dozens of pages of tax filings. Each payment requires recording the acquisition date, the cost basis, and the transaction value, typically reported through Form 8949 and other related documents.
Beyond the bureaucratic complexity, the researcher highlighted how the very structure of tax rules incentivizes holding over spending. Capital gains regulations are designed to reward long-term investment behavior, a feature that directly conflicts with Bitcoin’s potential role as a medium of exchange. “It has never been easier to use bitcoin as money,” Anthony wrote, “yet the tax code places an enormous burden on law-abiding citizens.”
The Cato Institute outlined several possible solutions. The first option involves the complete elimination of capital gains taxes on cryptocurrency payments. Another proposal concerns the introduction of a de minimis threshold – an exemption for low-value transactions. In this regard, Anthony cited the Virtual Currency Tax Fairness Act, which would exempt gains below $200, while noting that this threshold is too low relative to average consumer spending.
The publication of the report coincides with the American tax season, at a time when the IRS has expanded cryptocurrency reporting requirements in recent years, adding further layers of complexity already criticized by industry players. The Trump administration has meanwhile signaled a favorable stance toward introducing a de minimis exemption for cryptocurrency transactions, stating that it will continue to evaluate available legislative options.
