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Representatives of the Bitcoin Policy Institute (BPI), a nonprofit Bitcoin advocacy organization, warned that US lawmakers have not included a de minimis tax exemption for Bitcoin transactions below a certain threshold.
“De Minimis tax legislation may be limited to only stablecoins, leaving everyday Bitcoin transactions without an exemption,” Conner Brown, BPI’s head of strategy, said on X, adding that the decision to exclude Bitcoin (BTC) is a “severe mistake.”
In July, Wyoming Senator Cynthia Lummis introduced a bill proposing a de minimis tax exemption for crypto transactions of $300 or less, with a $5,000 annual limit on tax-free transactions and sales.
The bill proposal also included tax exemptions for digital assets used for charitable donations and tax deferment for crypto earned through mining proof-of-work (PoW) protocols or staking to secure blockchain networks.
Allowing a tax exemption for small Bitcoin transactions would increase its use as a medium of exchange rather than just as a store of value asset, allowing a new financial system built on a Bitcoin standard, BTC advocates say.
The discussion around de minimis tax exemptions has also raised questions about whether such relief should apply to stablecoins, which are designed to maintain a stable value.
“Why would you even need a De Minimis tax exemption for stablecoins,” Marty Bent, founder of media company Truth for The Commoner (TFTC), wrote on X. “They don’t change in value. This is nonsensical.”
Cointelegraph reached out to BPI about the proposed legislation, but had not received a response at time of publication.
Related: Japan’s new crypto tax could wake ‘sleeping giant’ of retail investors
Bitcoin is gaining value, but it isn’t being used as peer-to-peer electronic cash
The Bitcoin white paper, authored by its pseudonymous creator Satoshi Nakamoto in 2019, describes Bitcoin as a “peer-to-peer electronic cash system.”
However, relatively high transaction fees, average block times of about 10 minutes, and capital gains taxes on Bitcoin stifle BTC’s use as a payment method for goods and services.
Many Bitcoin investors choose to hold BTC for the long term, sometimes borrowing fiat currency against their BTC holdings to pay expenses and fund everyday purchases.
The Bitcoin Lightning Network is a second-layer protocol designed for BTC payments, which works by locking a specific amount of BTC in a payment channel between two or more people.
Users connected through a payment channel can conduct multiple transactions offchain, with only the final net balance recorded on the Bitcoin ledger for settlement once the channel is closed.
This makes Bitcoin transactions faster and cheaper, as the users in the payment channel do not have to wait for new blocks to be mined or pay a network fee for each transaction between parties in the channel.
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