The Cato Institute has renewed criticism of how the U.S. taxes Bitcoin, saying the current rules make everyday use of the asset hard to manage.
In a Wednesday blog post, research fellow Nicholas Anthony argued that the tax code places a heavy reporting burden on people who try to use Bitcoin as a payment tool rather than only as an investment.
Anthony framed the issue around a simple point. Bitcoin use at checkout has become easier, but the tax treatment has not kept pace.
Bitcoin is considered property, but not currency, under current U.S. rules. It means that every purchase may result in a taxable event, even in the case when you will buy something insignificant such as a cup of coffee or groceries.
For users, that turns ordinary spending into a record-keeping exercise. They must track when they acquired the Bitcoin, how much they paid for it, its value when they spent it, and whether the transaction created a gain or loss.
Anthony explained that the process can produce long tax filings over time, especially for people who use Bitcoin often.
He wrote that ”Bitcoiners know the frustration of tax season all too well” and added that ”it’s never been easier to use Bitcoin as money.”
At the same time, he added, the tax code places ”an incredible burden on law-abiding citizens.” His argument centers on a growing gap between easier payments and complex reporting rules.
Why daily Bitcoin payments create extra work
The problem starts with the way the Internal Revenue Service classifies Bitcoin. Because the asset falls under property rules, spending it does not work like spending cash.
Each transaction requires a separate tax calculation. That approach differs sharply from normal consumer payments, where buyers usually pay the listed price plus sales tax and move on.
Anthony said this treatment makes routine activity harder than it should be. A person who pays with Bitcoin every day may need to report each transaction on Form 8949 and then carry the totals to Schedule D on Form 1040.
That means a small purchase can trigger the same basic type of record review that investors use for stocks and other capital assets.
He argued that the burden does not come from one large payment. It builds through repetition. Someone who uses Bitcoin for recurring purchases may need to gather dozens or even hundreds of entries over a year.
Anthony wrote that buying coffee every day with Bitcoin can result in more than 100 pages of tax filings. Even where the tax due is low, the paperwork remains.
That process also raises the risk of mistakes. Users must keep accurate dates, values, and cost basis records. A missed detail can create problems during tax season.
Anthony stated that the chance of audits and penalties can discourage people from trying Bitcoin payments at all. In that setting, the tax code does not only collect revenue. It also shapes how people behave.
Why Bitcoin stays unspent
Anthony also argued that the structure of capital gains rules pushes users toward holding Bitcoin rather than spending it. Long-term capital gains rates reward investors who keep assets for longer periods.
In Anthony’s view, that works against Bitcoin’s use as a medium of exchange because it gives users a reason to delay spending and wait for a better tax outcome.
He said that setup creates a mismatch between policy design and real-world payment use. Money usually needs to move easily between buyers and sellers.
But if each transaction carries tax calculations and possible gains reporting, users may decide to keep Bitcoin in storage instead. That behavior may suit an investment asset, yet it does not support everyday currency use.
The Cato Institute said the policy distorts decisions by making tax treatment part of every spending choice. A user may not ask only whether they want to buy something.
Additionally, they may also ask whether the payment creates a taxable gain, whether they have the records ready, and whether the reporting work is worth the effort. That added layer can make Bitcoin spending feel less practical than the technology itself suggests.
According to Anthony, the current system sends a clear message to users. He wrote that ”capital gains taxes present many problems” and said the process appears almost designed to discourage alternative currencies.
His criticism focused less on Bitcoin’s technical limits and more on the legal framework surrounding it.
Ways to ease taxes
Cato outlined several policy paths that lawmakers could consider. Anthony said the simplest option would be to remove capital gains taxes entirely.
He also suggested a narrower route that would stop applying capital gains taxes to cryptocurrency and foreign currency use. In his words, that would ”take the government’s thumb off the scale and let competition be the true decider of the best money.”
Another option would exempt purchases of goods and services from capital gains treatment. Anthony said that could reduce the burden on people who use Bitcoin for spending.
However, he warned that such an approach may create fresh compliance problems if taxpayers must prove which transactions qualify for the exemption and which do not.
Moreover, he also pointed to a de minimis exemption. Under that model, smaller gains would not trigger tax.
Anthony referenced the Virtual Currency Tax Fairness Act, which would exempt personal crypto transactions when gains stay at $200 or less. He said that threshold does not match current household spending patterns and argued for a higher level.
That debate has gained attention as policymakers continue to discuss crypto tax rules in Washington. The President Trump administration has signaled support for a de minimis exemption for crypto transactions and said it will keep reviewing legislative options.
That does not guarantee a policy change, but it shows the issue remains active during another U.S. filing season.
Broader tax pressure keeps the issue in focus
The timing of Cato’s argument matters because crypto reporting rules have grown more complex in recent years. The IRS expanded disclosure requirements, and market participants have often said the added layers make compliance harder for ordinary users.
For people who already view Bitcoin as a payment tool, that environment adds more friction. Anthony’s comments also arrive as payment access improves.
Square integrated no-fee Bitcoin payments into merchant terminals, while wallets such as Bull Bitcoin, Zeus, and Trezor have made consumer use easier. It implies that the technology of Bitcoin spending still advances despite the tax treatment being mostly the same.
Separately, beyond the U.S., tax authorities are raising the intensity of their attention on digital assets as well. As we reported on March 16, South Korea is building an AI system to analyze the data on crypto transactions as the country is moving toward a tax on digital asset gains in 2027.
Finally, that effort shows tax enforcement around crypto is expanding, not shrinking.