In brief

  • Trump has proposed a capital gains tax cut if elected for a second term.
  • In the event Congress doesn't approve, Trump could index capital gains against inflation.
  • Experts say that either option could be a boon for Bitcoin.

President Trump has pledged to cut capital gains tax on the proviso that he secures a second term in the oval office. It’s a long shot, but if this were to happen, the upshot on Bitcoin could be significant.

“A capital gains tax cut could spur trading activity in crypto," Roger Brown, head of tax & regulatory affairs at accounting firm Lukka, told Decrypt. "Taxpayers with long term holding periods may seek to capture the reduction in capital gains by selling their crypto in the event the rate reduction is ephemeral."

In other words, a cut to capital gains tax—the taxable profit from the sale of an investment in stocks, real estate, or indeed, cryptocurrency—could allow crypto investors to capitalize in the short term. Brown caveats, however, that it may put downward pressure on prices as investors scramble to offload before the tax-cut window closes.

Trump’s election shove

Speaking to FOX Business on Thursday, President Trump boasted that he would get his way on a six percent capital gains tax cut.  

“I’m going to do a capital gains tax cut to 15% in the second term," he said. "We’re going to get it down to 15%. It’s at 21%. We’ll get that down to 15%. I’ll get that done easily.”

But it might not be as easy as Trump thinks. Such a cut would require approval from Congress. 

According to pundits, however, Trump could play his President card and use an executive order to index capital gains to inflation—sideswiping congress altogether.

Indexing capital gains alongside inflation would effectively lower tax bills for investors who are selling by adjusting the original purchase price to meet current inflation. While differing from a formal capital gains tax cut, indexing would have much the same result.

Capital gains tax applies to Bitcoin and other cryptocurrencies. Image: Shutterstock.

“Indexing applies a more fair rate of taxation since the investor would no longer pay tax on gains they didn’t make," Sean Ryan, co-founder of blockchain tax firm Node40, told Decrypt. "This disproportionately benefits higher income earners, but that’s who invests in cryptocurrency."

Ryan also submits—in line with Brown's theory—that given the historical influence of capital gains cuts on profit realization, some cryptocurrency traders could end up capitulating.

“Historically, we know that realization behaviour is very sensitive to the tax rate on capital assets, said Ryan, "Since they are only taxed when realized, individuals are able to choose when they pay the tax."

"I suspect it will stimulate some more complex trading strategies," he added.

The length of the cut will have an impact too. Longer than a year, says Brown, and investors could seek to invest in "crypto and other capital assets."

The wider economic outlook

Economic circumstances surrounding Trump's proposed cut will also make a difference. Amid the unconventional monetary and fiscal stimulus of the past few months, investors, such as wall street luminary Paul Tudor Jones, and even companies, such as MicroStrategy, are increasingly hedging into Bitcoin to mitigate inflation

For Ryan, coupled alongside a tax break, this could act as a catalyst for crypto.  

"[Crypto] is quickly becoming an attractive alternative capital asset decoupled from the stock market with a potential huge upside,” Ryan explained, “Along with a lower gains rate and possible index to inflation, we might be looking at the perfect storm to launch crypto back to the moon."

Either way, both experts agree that slashing capital gains—be it a straight cut or via indexing—is likely to have a noticeable effect on the crypto markets.

Still, that doesn’t make much difference for Ryan. "My behavior probably won’t change," he explained, "I’d like to stay long until $100,000—if I can stomach it."