A new opinion piece published by the Cato Institute argues that the way the United States taxes bitcoin is fundamentally broken, treating the asset in ways that make little economic sense and actively discourage its use in everyday transactions.
The core argument
The author contends that under current U.S. tax law, every time someone spends or exchanges bitcoin, it triggers a taxable event requiring the calculation of capital gains or losses.
This means that buying a cup of coffee with bitcoin requires the buyer to track the asset’s cost basis, calculate any gain since acquisition, and report it to the IRS — a burden that does not apply to spending dollars.
The piece argues this treatment is inconsistent with how bitcoin actually functions for many users:
“Treating bitcoin as property for tax purposes creates enormous compliance burdens that make it impractical as a medium of exchange.”
The author notes that the IRS has classified bitcoin as property since 2014, a decision that has shaped a decade of tax friction for ordinary users.
A currency treated like a stock
The Cato piece draws a sharp contrast between how the government treats foreign currency transactions versus bitcoin.
Small personal foreign currency gains are often exempt from capital gains treatment, yet bitcoin receives no such carve-out despite serving a similar function for many holders.
The author states:
“There is no good policy reason to treat bitcoin more harshly than foreign currency.”
What reform could look like
The piece calls for a de minimis exemption — a threshold below which small bitcoin transactions would not trigger a taxable event.
Such a policy already exists in some form for foreign currency under Section 988 of the tax code, and the author argues extending similar logic to bitcoin would be straightforward.
As the author puts it:
“A de minimis exemption would go a long way toward making bitcoin a viable everyday currency rather than a speculative asset people are afraid to spend.”
