The Cato Institute, a Washington-based think tank, has taken aim at the U.S. tax treatment of bitcoin, arguing that the current framework makes everyday use of the asset as money impractical.

In a blog post published this week, research fellow Nick Anthony wrote that “bitcoin taxes make no sense,” pointing to capital gains rules that treat every transaction as a taxable event.

“It’s never been easier to use bitcoin as money,” Anthony said. “Yet, at the same time, the tax code puts an incredible burden on law-abiding citizens.”

Under current U.S. rules, bitcoin (BTC) is treated as property rather than currency. That means spending it — even on small purchases — requires users to calculate gains or losses based on when the asset was acquired and its value at the time of the transaction.

The result, Anthony argued, is a system that discourages real-world use. Simply buying a cup of coffee daily using bitcoin can translate into dozens of pages of filings over time, as each transaction must be tracked and reported individually. He also pointed to the administrative burden involved. Users must report acquisition dates, cost basis, and transaction values for every payment, typically through Form 8949 and related filings.

Beyond complexity, the structure itself incentivizes holding over spending.

Capital gains rules are designed to reward long-term investment behavior, a feature that clashes with bitcoin’s potential role as a medium of exchange, the report stated.

Possible fixes

The think tank outlined several policy options, including eliminating capital gains taxes entirely to carving out exemptions for cryptocurrency payments.

Another idea suggested introducing a de minimis threshold to exempt smaller transactions and reduce the burden.

Anthony highlighted existing proposals, such as the Virtual Currency Tax Fairness Act, which would exempt gains under $200. However, Cato’s researcher opined that the threshold is too low to reflect typical consumer spending.

Tax season

Cato’s research paper is timely, considering U.S. taxpayers are currently navigating another filing season and evolving crypto reporting requirements.

The Internal Revenue Service has expanded disclosure rules in recent years, adding layers of complexity that have already drawn criticism from industry participants.

At the same time, policymakers have explored potential relief. The Trump administration has signaled support for a de minimis tax exemption for crypto transactions and said it will continue to assess legislative options.