When Bitcoin goes to Zero, Don’t Blame Regulation

After bitcoin goes to (essentially) zero (since it is global, even a few oddballs can prop up its value for years at some low level, like hobbyists do for all kinds of things), which it will, some will say that it was regulation that killed it, not, as I explain, because crypto is worthless because it is not part of a balance sheet and as such has no inherent value to extinguish debt.

To be clear: That bitcoin can’t withstand being treated as any other ordinary good yet does not deserve special tax-free treatment is part of the theory though. You don’t get to declare “I’m a currency! I deserve special treatment!” and not pay taxes. Governments maintain the value of their currency through taxation (taxes drive currency). Money is a public good we all support for our mutual benefit.

You can’t just invent some new token (even if something new and shiny like blockchain & crypto) and declare it a special good that can be traded tax free. Yet taxing a self-declared “currency” guarantees its failure as it will not make sense for individuals to move into it if they are going to be taxed in real money for transactions in it.

Until recently crypto has been bartered freely in its sphere like Pokémon cards because no one cared. It takes time for public institutions to catch up to developments, but there is no more reason, if they become significant, to allow crypto tokens to trade tax free than anything else someone invents; we simply do not have the right to declare something tax free because we want it to be or businesses would do it all the time.

Because crypto tokens do not have any intrinsic value (as opposed to the other taxed assets they compete with), AND because they, unlike real money, are neither tax credits nor bank-loan repayment credits, then any ordinary taxation that every other good can bear will drive cryptos to zero.

Speculators will cry because their Ponzi scheme is tamed, Millennials will want a participation trophy, and libertarians and anarchists will as always be sophomoric, not understanding the deeper need for social cooperation that is embodied in agreed taxation.

Real businesses provide real value that makes them able to pay taxes and still be profitable. Crypto tokens have no intrinsic value and cannot just declare themselves tax free to claim utility; unlike real assets, crypto will not bear even the slightest bit of legitimate taxation because there is no value there to tax. House of cards (or tokens I guess).

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March 28, 2019  UPDATE: The Intro to Economics textbook is finished! Live on Amazon here –

1000 Castaways: Fundamentals of Economics

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