Cryptocurrencies: An Empirical View from a Tax Perspective

This paper investigates the taxation of capital gains from, the economic importance of, and the inherent challenges related to the taxation of cryptocurrencies. Based on novel data from Chainalysis, this paper simulates the revenue potential from taxing Bitcoin capital gains in the European Union (EU). The total estimated Bitcoin capital gains in the European Union in 2020 amounted to €12.7 billion, including €3.6 billion of realised gains. Applying national tax rules for capital gains from shares to capital gains from Bitcoin yielded simulated tax revenue of about €850 million in 2020. This paper is, to the author’s knowledge, the first to empirically assess the tax revenue potential of capital gains from Bitcoin in the European Union using disaggregated country-level data. The findings indicate that revenue from taxing cryptocurrencies is significant and will continue to increase if the cryptocurrency market continues to grow.