Do you also have to pay taxes when buying coffee with Bitcoin? Cato Institute: The U.S. cryptocurrency tax system is unrealistic

The current U.S. tax system treats Bitcoin as property rather than currency, resulting in each transaction needing to report capital gains. Think tanks point out that detailed records of costs and market value are required for everyday payments, turning a tedious process into a tax nightmare.

Bitcoin payments become a tax nightmare, think tank states the current tax system is rigid

The existing U.S. tax framework is a major obstacle to the widespread adoption of Bitcoin ($BTC). Nicholas Anthony, a researcher at the Cato Institute think tank in Washington, states that the current Bitcoin tax mechanism lacks rationality.

Image source: X/@EconWithNick Nicholas Anthony, a researcher at the Cato Institute in Washington, points out that the current Bitcoin tax mechanism lacks rationality

On a technical level, using Bitcoin for payments is extremely convenient, but the IRS’s capital gains tax rules turn simple transactions into heavy legal and paperwork burdens. The current regulations treat each Bitcoin transaction as a disposal of an asset, so even buying a cup of coffee requires detailed records of acquisition date, cost basis, and market value to calculate gains or losses.

This frequent transaction reporting process places enormous pressure on users. If one insists on using Bitcoin daily to buy coffee, tax season could require filling out over 100 pages of forms. These data must be detailed in “Form 8949” and summarized in “Schedule D,” and such cumbersome record-keeping contradicts the original purpose of currency as a medium of exchange. Moreover, minor record errors could trigger audits or fines, and ongoing legal pressure causes Americans to view Bitcoin as digital gold for long-term holding, reducing daily spending.

Tax burdens distort currency properties, holding preferences suppress payment potential

The current tax structure fundamentally distorts Bitcoin’s utility, transforming it from a potential medium of exchange into a purely investment asset. Capital gains tax was originally designed to incentivize long-term investment but has created severe disincentives when applied to highly liquid currencies. When users realize that every purchase requires tracing complex cost bases, they naturally prefer to hold rather than spend.

This tax bias suppresses market competition and indirectly interferes with the natural development of currency. A 2025 survey by the U.S. National Cryptocurrency Association shows that although 39% of holders are willing to use digital assets for payments, tax burdens remain the main barrier to entering the payment industry. Bitcoin’s price remained around $74,500 in April 2026, with volatile asset values making it extremely difficult to calculate the cost basis for each Satoshi.

Although about 11,000 merchants worldwide accept Bitcoin, the IRS classifies it as “Property” rather than “Currency,” preventing the payment ecosystem from entering the mainstream market. The current tax policies have changed how people use Bitcoin, shifting the originally envisioned “peer-to-peer electronic cash system” into a tool for capital speculation.

Washington policy battles continue, international tax reform trends emerge

Debates over cryptocurrency tax policies continue to heat up in Washington. White House Press Secretary Karoline Leavitt states that the president supports introducing a “De Minimis Exemption,” aiming to simplify crypto payment processes to make them as easy as buying coffee.

Image source: The White House White House Press Secretary Karoline Leavitt states that the president supports introducing a “De Minimis Exemption” to simplify crypto payments

However, recent tightening of IRS reporting requirements increases compliance costs, reflecting a contradiction between regulators and policy goals. Internationally, countries differ significantly in how they categorize digital assets. South Korea’s ruling party has proposed abolishing digital asset taxes to avoid double taxation disputes and reduce oversight difficulties.

Anthony proposes several reform options, suggesting the removal of government interference in currency competition. Completely abolishing capital gains tax on cryptocurrencies could allow market forces to determine the best currencies, or exemptions could be applied for daily payments similar to foreign currencies. While the Virtual Currency Tax Fairness Act proposes tax exemptions for transactions under $200, this threshold no longer reflects modern consumer behavior. It is recommended to set a higher limit based on the average American household expenditure to unlock the circulation potential of digital assets.

Digital assets urgently need regulatory easing to reshape America’s financial competitiveness

To maintain competitiveness in the digital financial industry, the U.S. must simplify its tax laws. The current system frustrates law-abiding citizens and hampers financial innovation. Congress should ensure that ordinary Americans can easily fulfill their tax obligations. If the tax system stops being a barrier to use, Bitcoin can demonstrate its value as a new form of currency.

The upcoming 2026 tax season serves as a reminder for policymakers to reconsider: taxes should be the foundation of national operation, not a shackling obstacle to new technology development. Currently, every minor expenditure becomes a legal labyrinth, and this situation urgently needs change.

By deregulating, digital assets can shift from mere investment assets to truly active circulating currencies. The government should focus policy on improving financial efficiency and, through a more inclusive tax system, inject new momentum into overall economic competitiveness. Only by eliminating excessive administrative burdens in compliance can the U.S. continue to lead in the rapidly evolving global cryptocurrency market.