Can you pay taxes with Bitcoin? (Hint, "no")

Posted by: Paul Donovan

31 Jan 2020
  • Media reports suggest the Swiss town of Zermatt will allow people to pay taxes with Bitcoin. If true, it would be important.
  • What defines a currency is that other people accept it in exchange for things that have value.  If there is no demand for a currency, it is useless.
  • The single most important demand for a currency is to pay tax. About forty percent of global activity is taxes. This helps give a currency a stable value. When Chinese kingdoms introduced paper currency about a thousand years ago, they insisted taxes were paid in paper. People had to own the paper currency. The resulting demand gave the paper currency a value.
  • Is Zermatt helping to make Bitcoin a currency? It is not. If you owe Zermatt money, they still want Swiss francs. Your tax liability is in Swiss francs. As Bitcoin's value gyrates wildly, the amount that you owe when converted into Bitcoin will gyrate wildly. Zermatt has simply arranged a place where Bitcoin can be converted into Swiss francs, and the Swiss francs then transferred to pay your tax bill. Economically, you cannot pay taxes with Bitcoin. There is no natural, value-stabilizing demand for Bitcoin. Bitcoin is not a currency.

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