Cato Urges Scrapping Crypto Capital Gains Tax

The Cato Institute released a report Wednesday calling on the U.S. government to eliminate capital gains taxes on Bitcoin and other cryptocurrencies. The report argues those taxes in crypto discourage routine use, favor long-term holding, and create large reporting requirements that hinder competition between forms of money.

Nicholas Anthony, a policy scholar and research fellow at Cato, wrote that current capital gains rules treat crypto like stocks or real estate, turning ordinary payments into taxable events that are costly to document. “It’s never been easier to use Bitcoin as money,” he wrote. “Yet, at the same time, the tax code puts an incredible burden on law-abiding citizens. Something as simple as buying a cup of coffee every day with Bitcoin can result in more than 100 pages of tax filings.”

The report lays out several policy options. The simplest option would be to end capital gains taxes entirely. Other approaches include exempting crypto and foreign-currency transactions from capital gains tax, exempting purchases of goods and services only, or adopting a de minimis threshold that prevents small transactions from triggering reporting. The report notes that exempting purchases could create compliance challenges if taxpayers must prove which transactions qualify for relief.

Investment manager VanEck is cited in the report for noting that U.S. rules classify cryptocurrencies as capital assets, which means using crypto for purchases can create taxable gains or losses.

The report includes data on consumer and merchant activity. A 2025 survey by the National Cryptocurrency Association found 39% of U.S. crypto holders had used digital assets to buy goods or services. Research using BTC Map data identified about 11,000 merchants worldwide accepting Bitcoin as payment.

Anthony used a pointed analogy to describe the reporting burden: “The only thing worse than getting robbed would be having the robber demand endless forms about the money they are taking from you. Taxes are no different.” He urged Congress to simplify the tax code so average Americans can meet filing requirements with less difficulty.

The Cato Institute is a Washington-based public policy think tank that produces research aimed at lawmakers. Its members have previously testified before Congress on crypto-related issues. The report was released while policymakers continue discussions about how tax and regulatory frameworks should adapt to digital assets that serve as both investments and means of payment.