Capital gains from Bitcoin estimated to be $30B

U.S. holders of Bitcoin generated about $30 billion worth of capital gains in 2021 alone, which, if all successfully taxed at the 15% rate, would mean $4.5 billion in additional government revenue.

According to a recent report from IVIX, which sells software solutions to tax authorities, researchers first determined the value of all Bitcoin transactions on the blockchain (about $95 billion); they then looked at where these transactions were coming from based on geolocation data and found that, after accounting for anonymizing factors like proxies or the Tor network, about 17% of transactions were done by people in the U.S. Then they looked at the growth in cryptocurrencies overall in 2021, determined Bitcoin's share of that growth, and came up with $30 billion worth of capital gains.

The tax revenue from these transactions, however, are mainly theoretical. A report from digital asset platform Cointracker in April found that only about 3% of people in the U.S. had not filed their taxes. The IVIX report pointed out that there are currently many challenges when it comes to reporting cryptocurrency gains, as well as enforcing what regulations are out there.

With this in mind, the report recommended that the government expand current know-your-customer rules to require money service businesses to also report customers' crypto wallets; to consider how to adapt current regulations to decentralized finance exchanges; to assume full capital gains if a taxpayer cannot provide a cost basis; and to prepare for an overall higher volume of capital gains in the future.

"The crypto market in the United States is large and growing quickly. Strengthening reporting, particularly of capital gains, has the potential to provide significant additional tax revenue. Governments that use data to develop policy and technology to support compliance will achieve the most success," the report concluded.