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Legit concerns over the threats to BTC of government confiscation and taxation of unrealised gains.

TLDR: with 95% of crypto today being sold through exchanges relaying KYC data to governments, the vulnerability of holders to government confiscation (as opposed to the ban of transactions I.e. China) and taxation on unrealised capital gains is making me very worried.

1. The case for confiscation risk:

95% of Bitcoin on-ramps today require KYC information ([Source](https://bitcoiner.guide/privacy/get/) and exchanges are now required to relay these info to national tax agencies (IRS, HMRC). Therefore, governments are essentially aware of who holds Bitcoin (along with their address and bank account), how much they own and the address in which it is kept (using the public ledger to track transactions).

This makes BTC no longer even pseudo-anonymous (since KYC ties addresses to real-life identities and is relayed to governments) and very seizable with legal pressure applied on the individual holding the private keys of said address. In this circumstance, the BTC holders would have no choice but surrender their BTC to the (clearly authoritarian at this point) government or risk legal repercussions. Unlike confiscation of gold in the US in 1933 (Executive Order 6102) the public blockchain makes it very clear who owns what and where. Even if the user declares having lost their keys, the funds would essentially be frozen forever as any subsequent movement of crypto from this address would prove the user lied and risk further criminal actions.

This confiscation scenario is different from China’s ban on crypto which simply declared all crypto transactions illegal but users simply holding their crypto while moving jurisdiction can remain within the law and in control of their BTC.

If the government then sells the BTC the coins would be redistributed (with a temporary price crash) but the network survives. However, in the case that the US government actually understands BTC and decides to hoard it indefinitely, can it now not have a double-whammy of being able to print as much fiat as it want to consolidate global power while simultaneously pump its own BTC bags to infinity? Such manipulation of the BTC system would surely destroy the whole point of a “self-sovereign” and “outside-of-government-control” currency. Any BTC would now be further dis-incentivised from cashing out to fiat and spending their BTC would only surrender their “way out”

2. The case for unrealised capital gains tax risk:

A second threat from a majority of new crypto holders going through KYC exchanges is again the vulnerability of holders to a government (*eyeing you US government*) implementing annual capital gains tax on unrealised profits (I am assuming the current US proposal will eventually include a majority of BTC holders in the wealth threshold – gradually lowered as the government seeks more and more tax revenues – given that the central banks will continually inflate the BTC price by printing and devaluing fiat).

This scenario would force holders to sell their BTC to pay for the unrealised gains (plus additional capital gains tax on the now sold BTC??). Would that not make BTC unattractive for new holders? I.e. I buy 1 BTC for $1000 (for simplicity sake); the printing of fiat inflates that 1 BTC to $2000; I now owe 30% of the $1000 gain as tax (=$300); I now have to sell $300 of BTC (i.e. 0.15 BTC @$2000 spot price) to pay that tax (+ 30% of the $300 I just withdrew as realised capital gains tax? – unsure about this); i now am left with $1700 worth of BTC but only 0.85 BTC, which is more USD, but less BTC than I started with. In a world where USD is going to 0 and I want to put my life savings in BTC, this seems to me like a huge problem.

PS: I just wished I bought my crypto from P2P from the start…. Bitcoin has definitely made me more libertarian and suspicious of government/central banks than ever lol.



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24 Comments

  1. I don’t think this would really happen. If it did. I’m moving to El Salvador or another pro-crypto tax haven and severing all ties to America.

    It’s the same reason congress has to be careful taxing the rich…. you can go somewhere else.

  2. Governments taxing on unrealized gains is ridiculous. Why do they think they can tax you on something you don’t even own yet?

    It’s like getting taxed on your salary a year before you earn the money.

  3. I bought all my bitcoin from an exchange with KYC. I then moved it to my own wallet, and soon after, had a tragic boating accident. I’m sorry to say my bitcoin is gone and I’ve taken a total loss. My unrealized capital gain is -100%.

  4. Its really simple start “selling” your btc next time it crashes then buy back it in secret so on the books the assets you own is less.

    conversely, this off the book bitcoin cannot be sold on kyc exchanges (easily, *you need to launder it ) so you better hope you can live off our btc…

    This or consider moving out a shit hole country like the US.

    You dont even have universal healthcare and you are expected to pay tax on unrealized gains wtf.

    Tax year BTC all time high, gov forces you to pay tax on unrealized gains – moving up the cost base. Next year BTC crashes 80%, you are now holding paper losses. Is the government going to pay you back money? No..

    This is a one side money grab and its crazy, just because it effects billionaires for now all the socialist simps are slobbering over it.

    Meanwhile politicians keep the tax exploits they use, like step up in basis when inheriting assets. If you can inherit the gains you can inherit the cost base lol, like this is a blantant flaw and they decide to keep this rule.

  5. This taxing of unrealized gains won’t pass. It can’t. That would force people to sell their assets.

    What about the people with homes that have increased in value over the last year? Are they now forced to sell their home in order to pay taxes? What a terrible thought!

    This was really meant to target the ultra rich who avoid paying their fair share of taxes through loop holes like borrowing until you die. But as always the film that would take the brunt of this would be the small fishies.

  6. Take your bitcoin off the exchange into cold storage. They can’t confiscate and tax something they can’t touch ! Boating accidents are very popular in this sub as well, every week some one gets into one.

    Use Tor to when doing transactions to stay safe. Most modern wallets have a 2-click Tor set up.

  7. They won’t! But if a country does start trying to steal your Bitcoin then that’s exactly why you need Bitcoin! Cold storage ❄️, then keester 🕳your wallet through border control 👮‍♂️and head to a friendlier country 🇸🇻 / planet 🪐

  8. ## CoinJoin now!

    Then lose it in “boating accident”, and thank me later. If you dont know why, search “executive order 6102″… If you dont CoinJoin, you can never touch your KYC tagged again.

    That concludes this public service announcement.

  9. Sure, possible.

    I share the libertarian “freedom from” convictions, but none of the gluttonous and harm inducing “freedom to” depravity.

    I think BTC might be “too big” at this point (too decentralized in the practical ways that matter). Could be wrong tho.

    Everything seems to break at some point.

  10. Point #1 is literally impossible and has already been disproven. There are 198 countries in the world, if one government of 1 country tries to print so much money that they can buy ALL the bitcoin in the world they wouldnt be able to do this. Because as soon as they start doing this and buying the bitcoin, price will explode and the people of the other 197 countries will fomo in, whales and miner whales will no longer want to sell such a fast appreciating asset, and in fact very few will want to sell it to the US government.

    A lot of the wallets that hold the majority of the already mined bitcoin are early bitcoin adopters or devs, with libertarian views, which will make it even harder to get their bitcoin and to convince them to switch an asset appreciating 100x every day for one that is worthless and printed to infinity (US dollar).

    Not only would this NOT destroy bitcoin, the hyper-inflation due to such a large scale money printing event would completely crash the US economy.

  11. Trouble is that average tax payers don’t have access to a money printer like governments do. The act of attempting to collect unrealized gains through additional taxation will likely encourage more people to seek harder forms of money to protect their wealth. Bitcoin fixes this.

  12. Wow who knew so many billionaires on here planning to leave the country to avoid tax lol it would def hurt the stock market if this happens, but hopefully not as much as people think due to retirement and pension accounts that don’t pay any capital gains tax. Distributions are treated as ordinary income when you eventually draw from the account. Anyway, this is a bitcoin group. How many bitcoin billionaires on here? How many bitcoin billionaires are there in general? Can’t be that many… Michael Saylor in the room? Tax the wealthy on unrealized gains def sucks but hopefully will not crash the price. BTC is international as well. Is most BTC held in the US? Anyone know what percentage of bitcoin is held by individuals in the US?

What do you think?

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