January 28, 2025 | Read Online

"It's such a fine line between stupid and clever."

— Spinal Tap

Trump turns crypto policy up to 11

Politicians love to tinker with the tax code and we can't really blame them because it's good politics.

Tax cuts (which feel free) are always an easier sell than spending increases (which are clearly not free), especially when proposed as a means of encouraging some laudable activity.

Only a heartless, penny-pinching miser could oppose tweaking the tax code to promote an activity as worthy as buying a house, going to college, or saving for retirement.

There are so many of these tweaks that the US tax code runs to 6,871 pages.

Weirdly, crypto may now be deemed a similarly worthy activity.

"The digital asset industry plays a crucial role in innovation and economic development in the United States," an executive order declared last week.

As such, the president has directed the federal government to promote permissionless blockchains, dollar-backed stablecoins, crypto mining, and self-custody — because these are all good things now and therefore worthy of government promotion.

The EO doesn't stipulate exactly how they should be promoted, but with crypto officially in the "good" column, it stands to reason that crypto assets would get favorable tax treatment.

Or perhaps much more than that.

Because the Trump administration takes everything to eleven, crypto may even get the most favorable tax treatment — Eric Trump has floated the idea of making profits earned in US-based cryptocurrencies exempt from capital gains taxes.

On the one hand, this makes a degree of sense: Using crypto is good, so any measure that encourages the use of crypto must also be good.

On the other hand, this is deeply unserious: Lots of things are good! And we pay taxes on nearly all of them!

Working, for example, is good and should certainly be encouraged, but earned income remains subject to taxation.

Everyone recognizes that this is unfortunate — if the federal government could fund itself only with cigarette taxes, it certainly would.

But then cigarettes would cost $677 a pack and there would be no smokers left to fund the government.

So we have to tax some good things, too, crypto presumably included.

Perhaps crypto deserves special treatment because it's strategic?

The conceit of the Bitcoin Strategic Reserve is that Bitcoin is at least as strategically important to the US as gold or oil.

Or more so, it seems: The Trump administration is also reportedly planning an "America-first strategic reserve" that would buy and hold crypto assets issued by US-based entities.

These two ideas — tax-free crypto and a US crypto reserve — might make perfect sense to someone who believes the global financial system will soon be denominated in bitcoin and run on public blockchains.

But hardly anyone does believe that — and even the most fervent crypto advocate would struggle to keep a straight face while making the argument that crypto is the only industry worthy of such preferential treatment.

What about AI, semiconductors, drone manufacturers, the electrical grid, and the stock market?

Are we to believe that crypto is more strategically important than all of these?

I don't think we are, actually, because that's clearly not what this is all about.

Instead, it's about self-dealing.

These proposals, frivolous as they are, devolve into Spinal Tap-like parody when you channel your inner Hercule Poirot and ask, cui bono?

Under Eric Trump's proposal, profits made in the TRUMP token, 80% of which appears to be owned by the President, would be exempt from taxes.

And I will print out this newsletter and eat it if the Trump family's WLFI token isn't included in an America-first strategic reserve.

There is of course no rational argument for these things.

Memecoins like TRUMP don't employ anyone and are economically counter-productive — the equivalent of giving preferential tax treatment to casinos, sports betting, and pickup trucks that run on coal-powered engines.

And World Liberty Financial (WLFI) is no more strategic to the US than dozens of other DeFi projects — the whole purpose of which is to be universally accessible and beyond the control of governments (making them, if anything, anti-strategic).

Perhaps I'm giving these proposals too much credit just by writing about them.

What is serious, however, is the reputational damage they do to crypto, because these are not just bad economics and bad policy, they're bad politics, too.

Much of the country already thinks that crypto is one big grift and these proposals, even without being enacted, risk making much of the rest of the country think so, too.

Rightly so.

If these proposals somehow became law, they'd likely enable the greatest public policy grift of all time.

Eliminating capital gains taxes on US-based crypto would save President Trump at least $8 billion at the current market price of his memecoin — a price that would presumably go up if the government began using taxpayer dollars to buy US-based cryptocurrencies.

I can't imagine there's ever been a set of policy proposals that would offer such gigantic benefits to such a small cohort of beneficiaries.

People will notice something as big as that — and blame the crypto industry for it.

Some of crypto's biggest advocates, like Coin Center's Peter Van Valkenburgh, appear to be concerned.

"Now that there's so much pro-crypto energy in Congress, in the Administration, how does it get manifested?" he asked on a recent podcast. "It could get manifested in a really good way. It could get manifested in a really messy way that might be worse than having enemies. We have to be very careful right now."

Tax-free crypto and a crypto strategic reserve are two of the messiest, most enemy-making ways I can imagine.

Instead of being careful right now, the Trump administration is turning everything up to eleven.

I suspect that's already put crypto on the other side of clever.

— Byron Gilliam

The stakes have never been higher. As markets evolve and policy takes shape, Mohamed El-Erian will cut through the noise on macro trends. Anthony Scaramucci will unpack the changing face of finance and crypto. Kristin Smith will lay out the hard truths about regulation and its ripple effects.

📅 March 18-20 | NYC

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