A couple of days ago two US Senators, Pat Toomey and Kyrsten Sinema introduced a bill titled Virtual Currency Tax Fairness Act. The goal of the bill is to simplify use of cryptocurrencies for everyday purchases. If this bill became a law it would remove the obligation of capital gains taxes for purchases made with crypto assets and don't exceed $50. Now this would be real progress in transitioning towards towards better payment systems that would benefit not only ordinary people but also the merchants.
Some people are already criticizing the bill, saying $50 is not enough and this limit should be raised to $200 or $500. I understand the logic of this and agree $50 is kinda low. However, considering the benefits of such bill passing, I would be more than happy with $50 limit. It is great to see that there are some politicians who are actually working on making some useful laws. At the same time is highly unlikely we would see something like this becoming a law anytime soon. It just makes too much sense.
It has been clear for a while now that one of the greatest obstacles for any crypto assets like bitcoin, litecoin, or hive becoming regular payment systems in the real world is capita gains tax. Of course, capital gains tax regarding crypto is not same in all jurisdictions. For now, we are talking about the US. Current law is, when anybody sells crypto assets for profit they must pay capital gains tax, regardless how low the amount it. This means if one would use a crypto asset to pay for purchases, each transaction would trigger a capital gains taxable event.
I don't see huge issue with paying capita gains taxes on profits, be it stocks or crypto. The main problem is keeping track of these transactions, and prices of the assets at the time of the transactions, and keeping records of profits and losses. At least when we trade these assets, there is a history of trades and software and platforms usually provide the data needed to file taxes. This extra work and lack of clarity regarding capital gains taxes for small purchases, make it difficult for people to even try these payments methods. Why bother?
It may be more convenient to just sell the crypto assets to USD and continue paying with USD. Why use same old systems when there is a better one, that offers real benefits and saves money. Merchants who accept crypto payments would be among the first ones who take advantage of these systems, because they would save a lot of money on transaction fees. The finality of the payments, would also provide merchants extra peace of mind that banks wouldn't reverse the payments with "charge back" mechanisms. Also, blockchain can help merchants build better accounting systems and paying their suppliers with the same crypto payments.
What I really like about this bill is that it doesn't only focus on bitcoin. It generalizes all crypto assets and refers to them as virtual currencies. Virtual currency is defined in the bill something that means a digital representation of value which - (1) functions as a unit of account, a store of value, or medium exchange, and (2) is not a representation of the United States dollar or any foreign currency.
First part of the virtual currency definition is clear. But the second part is a bit confusing. My question is, would stable-coins be considered as representation of the USD? Technically, stable-coins are not created by Federal Reserve and don't really represent the currency itself. They only try to keep the value as close to USD as possible. I am leaning to say something like HBD could be considered virtual currency. Let's go with that for now.
If paying with HBD wouldn't trigger capital gains tax as long as the payment amounts are under $50, this can be huge. I can see many apps and solutions emerging utilizing HBD's unique features and Hive blockchain as payment system. I am sure this will benefit all crypto assets, but stable-coins can see more benefits, just because it makes it easier for merchants for pricing their products and services, and accounting.
In my opinion, the approach this bill is taking is better than crypto legal tender laws. One of the reasons is, if any country would introduce crypto legal tender law, it most likely would be bitcoin as legal tender, just like in El Salvador. I don't think all crypto assets would become legal tender. It can get even more confusing if that happened. By letting all crypto assets eligible to be used as payments without capital gains tax, it also creates a fair competition, facilitates innovation, and in the end better technology would be used the most.
I would even argue against bitcoin becoming legal tender. Bitcoin is many things for many people. Some view it as freedom, some view it as better money, some view it as store of value, some see it as a payment system, and some as just another investment instrument. I tend to think for majority, especially the institutions, bitcoin is an investment instrument. If bitcoin were to become a legal tender and all capital gains obligations removed, then this would automatically put bitcoin in advantage over other investment instruments. Institutions would hesitate to invest in bitcoin, and it may even become the most preferred asset to invest in, since there would be no taxes to pay in the end.
Counter argument could be, all investments are risky. Bitcoin being scare by code and having predictable supply, and its global brand recognition already makes it a no brainer investment that will continue gaining value over time. Even without legal tender and with capital gains obligations, bitcoin is in a strong position. It has proven time after time that it always goes back to its previous all time high prices, and makes new highs. This won't stop anytime soon, if ever. That's why bitcoin without being a legal tender can compete with other investment options. It doesn't need any unfair advantages.
That said, I would love to see bitcoin legal tender in some places where it can bring economic boost, and contribute to innovation, and attract businesses. I would love to see bitcoin as legal tender in the US as well. But that is highly unlikely to happen. And that is ok too.
I really like this bill and what is trying to do. I wish these senators good luck in their efforts making something good happen. Even it fails this time. I think they are taking steps in the right directions, and time will come when something like this will become a reality. Let me know your thoughts on this topic in the comments.