Andreas Thiemann, Formerly of the European Commission, Joint Research Centre (JRC), Seville, Spain. Email: andthiemann@gmail.com
As cryptocurrencies like Bitcoin continue to grow in popularity, they are becoming an increasingly important part of the global economy. However, one major question remains: how should governments tax profits made from trading and selling digital currencies? My new study,Ā Cryptocurrencies: An Empirical View from a Tax Perspective, which appears in The Journal of Tax Administrationās special issue on the taxation of cryptocurrencies, offers some important insights into the potential revenue that the European Union (EU) could generate by taxing capital gains from Bitcoin.
Bitcoin and Capital Gains Tax
The term ācapital gainsā refers to the profit made when an asset, like Bitcoin, is sold for more than its purchase price. In 2020, Bitcoin capital gains in the EU were estimated at ā¬12.7 billion, including ā¬3.6 billion in realised gains (profits that were actually cashed out) (Chainalysis, 2021). This is a huge sum, but what does it mean for taxes?
My study looks at what might happen if EU countries taxed Bitcoin gains the same way that they tax profits from traditional investments like stocks. Based on this assumption, the research estimates that taxing Bitcoin capital gains in 2020 could have generated about ā¬850 million in revenue across the EU.
Research Significance and Findings
To the best of my knowledge, this study is the first to examine Bitcoin’s tax revenue potential in such detail, using data from Chainalysis, a company that tracks cryptocurrency transactions. It breaks down the total capital gains by individual countries, offering a clearer picture of the potential tax revenue.
The findings show that revenue from taxing cryptocurrencies could be significant and will likely grow as the cryptocurrency market expands. While taxing cryptocurrencies presents challengesāsuch as ensuring accurate reportingāthe research highlights the growing role that these assets could play in government budgets in the future.
In short, as Bitcoin and other cryptocurrencies continue to rise in value, they could become a valuable source of tax revenue for the EU and beyond.
References
- Chainalysis. (2021). The 2021 geography of cryptocurrency report: Analysis of geographic trends in cryptocurrency adoption and usage. Chainalysis.
- Thiemann, A. (2024). Cryptocurrencies: An empirical view from aĀ tax perspective. The Journal of Tax Administration, 9(1), 88ā102. https://jota.website/jota/article/view/160