In a recent opinion piece for CoinDesk, Zac Townsend, CEO and co-founder of Meanwhile, voiced concerns over Vice President Kamala Harris’s endorsement of a contentious 25% tax on unsold assets.
While the proposal stirred up strong reactions in Silicon Valley, it has received surprisingly little attention from crypto investors, despite its potentially devastating implications for the sector.
Why Capital Gains Tax Proposal Is Bad News for Crypto Markets?
Even if a person hasn’t sold a single asset, the proposed unrealised capital gains tax would nevertheless compel them to pay taxes on the appreciation of their bitcoin holdings. This drastic shift from conventional tax law, which only taxes realised gains, has the potential to seriously impair cryptocurrencies’ value as a store of wealth and possibly upend the whole market.
The wealth tax, which was first proposed in President Biden’s budget proposal, is supported by those who claim it targets Americans who have a net worth of more than $100 million and corrects tax system imbalances.
However, according to Townsend, this tax would foster an atmosphere that would be favourable for large-scale sell-offs by wealthy investors who need to raise money for taxes, which would ultimately cause the price of cryptocurrencies to drop. Everyday investors, even those with modest investments hoping for a brighter financial future, would be badly impacted by such a loss.
Notable Bitcoin investors like Tim Draper, Michael Saylor, and the Winklevoss twins could face staggering tax bills amounting to billions. For instance, the Winklevoss twins, who purchased Bitcoin in 2013 at just $10, would be liable for a $1 billion tax bill.
The Road Ahead with Harris
This tax plan would penalise people who believe in Bitcoin’s future potential by discouraging long-term investments and encouraging short-term trading.
Furthermore, it would discourage innovation in general since wealthy Americans would have to sell off a sizable amount of their stock holdings to cover their taxes, and startup founders who get equity compensation in the form of stock might be reluctant to go public.
In the current regulatory environment, Townsend proposes that the Biden-Harris government should think about establishing a national Bitcoin reserve to strengthen the social safety net rather than focusing on investors, as the SEC seems more interested in enforcement than in providing clear recommendations.