Capital gains tax alarms crypto holders

Crypto tax

US Treasury Secretary Janet Yellen, the former Federal Reserve Chair, has recently proposed a tax on capital gains – probably including crypto – regardless of whether they have already been realized or not.

Capital gains tax: what is it?

The capital gains tax is the tax paid when a profit is made on the sale of financial assets. 

The Treasury Secretary’s proposal would also affect temporary capital gains on securities still held by investors each year.

Yellen was keen to explain that the tax would be aimed at the super-rich, adding that it would not be a wealth tax, creating even more confusion.

A similar proposal had already been made in 2019 by Senator Ron Wyden, who called for taxing large financial assets held and capital gains at a rate of 36%.

A tax to fund Biden’s projects

According to many observers, this tax would mainly target large assets held in digital currencies. 

It is no coincidence that one of the first reactions was from Mike Novogratz, CEO of Galaxy Investment Partners, which focuses its investments on the main cryptocurrencies. His comment on Twitter was ironic and piqued.

Yellen told CNN:

“I wouldn’t call that a wealth tax, but it would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals and right now escape taxation until they’re realized”.

This tax would be used in part to fund the Biden administration’s big $3.5 trillion government spending plan over the next ten years.

But this move, if approved, could be counterproductive according to many analysts as it would likely lead many financiers to move their capital abroad.

Janet Yellen

The impact of the capital gains tax on crypto

Bitcoin’s price fell sharply after the US Treasury Secretary’s words about a possible new tax on liquid assets. 

The reason for this is that the approval of the tax would have a serious impact on the market, as many investors would be tempted to close their positions.

According to many analysts, this tax would be aimed at the cryptocurrency world, as most investors are inclined to keep their cryptocurrency holdings in their wallets for as long as possible.

A well-known crypto influencer, known by the pseudonym Cryptowhale, commented on the government’s proposal, describing it as meaningless and punitive.

In the US, there is already clearly a tax on capital gains made from cryptocurrencies held for more than a year, on which a tax is paid, as is also paid on gains made from lending securities or staking.

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