Federal Reserve Bank: Taxing Bitcoin Could Save Fiscal Deficit, Would Heavy Tax Benefit Micro Strategies?

The Federal Reserve Bank of Minneapolis, one of the 12 Federal Reserve Banks in the United States, recently published a research paper suggesting that the government should consider taxing or outright banning digital assets such as Bitcoin to address government fiscal deficits.

Can Taxing or Banning Bitcoin Improve the Fiscal Deficit? Federal Reserve Bank Argues with Mathematical Models

The report indicates that the current accumulated national debt in the United States has reached a staggering $35.7 trillion, with an annual expenditure exceeding tax revenues by about $1.8 trillion. In a working paper released on October 17 by the Minneapolis Federal Reserve Bank, it stated: "In an economy where a government attempts to maintain a permanent deficit through nominal debt, the existence of Bitcoin poses challenges to policy implementation."

"Prohibiting Bitcoin by law is the only way to restore a permanent primary deficit, and taxing it can achieve the same effect." The Federal Reserve Bank proposed a plan for taxing Bitcoin using mathematical models. A primary deficit refers to a situation where government spending exceeds tax revenue and other income after deducting interest payments on debt.

Is Taxing Bitcoin Following Italy and Japan's Lead Good for MicroStrategy?

Matthew Sigel, Director of Digital Assets Research at VanEck, mentioned on Twitter that the Federal Reserve Bank has joined the European Central Bank in attacking Bitcoin and added, "They are just fantasizing about ensuring U.S. debt remains a risk-free safe asset by either legally banning Bitcoin or imposing additional taxes on it."

Here, the attack on Bitcoin by the European Central Bank mentioned by Mattew Sigel is actually referring to Bitcoin's failure to become a global means of payment and instead becoming an investment asset. After failing to create productivity, Bitcoin is just a large PvP, a zero-sum game. In response, Jürgen Schaaf, a senior management consultant at the European Central Bank, launched a series of attacks on Bitcoin on Twitter.

Jürgen Schaaf stated: "Non-holders should recognize that the rise of Bitcoin is driven by wealth redistribution at the expense of their assets." and believes that there are compelling reasons to advocate for policies to eliminate Bitcoin."

ECB expert criticizes Bitcoin: Prosperity for early investors, poverty for latecomers

Interestingly, Dan McArdle, founder of Messari, unearthed a paper published by the Federal Reserve Bank in 1996. The paper defines money as objects that do not enter production and have a fixed supply. He pointed out that Bitcoin actually conforms to the Federal Reserve Bank's definition of money at that time because, as the European Central Bank mentioned, it did not create much productive value and has a fixed supply.

It's worth noting that in Japan, the capital gains tax on cryptocurrencies can be as high as 45%, while the highest tax on stocks is only 20%. This exaggerated difference has made companies like Metaplanet, which holds Bitcoin, more popular.

Why is Japan's crypto tax system favorable to the Japanese version of MicroStrategy, Metaplanet's stock price?

Italy has also raised the capital gains tax on Bitcoin to 42%. In an environment where several countries set digital asset-related taxes at 40% or higher, it may give rise to more companies similar to Metaplanet. Back in the U.S., if Bitcoin is similarly taxed without being directly banned, there is a chance that, in comparison to the tax system, MicroStrategy's stock could rise again.

Italy raises Bitcoin capital gains tax to 42%, cancels minimum revenue threshold for digital service tax