The introduction of a tax on unrealized capital gains will force investors to pay for the growth of the rate of cryptocurrencies, even those that are passively lying in the wallet.
If the proposal of the US Treasury Secretary is accepted, cryptocurrency holders will have to sell their assets or pay for their rise in price from their fiat income. This will have fatal consequences for the middle and lower classes holding cryptocurrencies.
Janet Yellen voiced the idea of introducing a new tax in response to a question from CNN about the sources of funds to stimulate the American economy. She replied that “it is relatively simple” and suggested that a tax on unrealized capital gains could be introduced as an additional source of budget replenishment.
To clarify, unrealized capital gains, or unrealized exchange rate gains, is the difference between the cost of the purchased cryptoasset, say $ 40,000 BTC, and the price of the cryptocurrency at the end of the tax period — for example, $ 63,000. The $ 23,000 difference represents the profit that the investor would have received. if I decided to sell it. At the same time, if the rate goes down in the new tax period, the investor may overpay a significant amount in taxes.
Commenting on her proposal, the finance minister said the new tax would only affect “liquid assets held by the extremely wealthy” and would be levied on capital gains, which account for an extremely large portion of “wealthy people’s income.” She was probably primarily referring to foreign currencies, stock market assets and derivatives. But also cryptocurrency investors in this scenario will be required to pay taxes on “paper” income.
It is puzzling how unrealized profits can be treated as income and taxable items. According to the current definition, the basis for recognizing capital gains as an investor’s income arises only after the sale of assets.
Cryptocurrencies are the only asset that is difficult to regulate and almost completely excluded from the US financial system. Therefore, the compulsion to sell it enables the regulator to receive additional budget revenues without creating new control mechanisms and applying traditional forms of taxation.
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