Lyn Alden, author of Broken Money, has made a strong case for fiscal dominance—the idea that government spending dictates monetary policy rather than the other way around. Her now-famous meme, Nothing stops this train, encapsulates the relentless trajectory of government debt and intervention. But what if something—however unlikely—could slow the train down?
Enter austerity. It’s not that austerity is necessarily possible in any meaningful way, but it has been hinted at for the first year. The markets are reacting, not because it’s likely to happen but because policymakers seem more serious. Conversations have changed since the Trump/Musk/USAID revelations. It’s the first time since a very long time that there is uncertainty about whether or not fiscal dominance will continue.
Policymakers can use four levers to help a drowning country:
- Inflation: Quietly eroding debt (and savings) by making every dollar worth less.
- Economic Growth: Expanding the tax base and hoping for a productivity boom.
- Debt restructuring or default?: A mix of extending, renegotiating, or outright not paying back creditors.
- Austerity: Cutting spending and increasing taxes—whether people like it or not.
Austerity has been a joke for years. Now? It’s at least part of the discussion – and likely part of a blended approach. If the fiscal season continues, the tax policy is the first area where we will see real and actionable change.
Bitcoin holders aren’t passively watching this macro-shift. Unlike inflAtion or debt restructuring—forces that are largely out of individual control—a Tax policy changes are one of the areas where proactive financial planning makes a real difference. The right strategy could transform the coming change into an opportunity rather than a financial minefield.
Five Possible Taxation Scenarios for 2025
The tax policies are in flux. The next 6-12 months will likely land in one of these five tax regimes—each with distinct implications for bitcoin holders.
1. TCJA Sunset (5 Probability)
The Tax Cuts and Jobs Act (TCJA) sunsets, and Congress does… nothing. Capital gains are more expensive, income taxes increase, estate tax exemptions decrease, and the cost of capital gains increases. This is the bureaucratic equivalent to ghosting your tax bills.
2. TCJA Extension (10% Probability).
Congress does not add any additional tax breaks. True “kick the can” The current framework will remain in place for several more years.
3. TCJA Extension with Adjustments (80% Probability)
The TCJA is still in place, but it has been modified. Trump’s comments have hinted to eliminating tips taxes, taxing Social Security Benefits, exempting overtime pay and allowing deductions of auto loan interests on American-made vehicles. Other incentives to encourage domestic production could include a reduction in the corporate tax rates and the reinstatement of 100% bonus depreciation. Tax planning options may be further shaped by the possibility of reducing or eliminating capital gains tax, as well as extending exemptions for estate taxes. And the grand-daddy of them all…
4. Bitcoin Capital Gains Tax Exemption (10% Probability).
This is a real curveball. Like gold, bitcoin will be exempt from capital gain tax. The tax benefits would be enormous, from harvesting gains to repositioning retirement accounts.
5. The IRS Death (5% Probability),
The IRS could be replaced by an automated system. We would never have thought of it. “External Revenue Service” A new threat has emerged. What does that mean in terms of enforcement? Audits? Loopholes? Uncharted territory is worth keeping an eye on.
Three Wildcards That Can Shake Up Everything
Beyond these five scenarios, three unpredictable forces could upend everything—and each has significant tax implications for bitcoin holders.
1. Liquidity Crisis & Emergency Tax Legislation
Imagine a sudden financial crisis. Imagine that the government is in a panic, its money printing machines are humming, and it starts to print emergency stimulus checks. If the Federal Reserve intervenes aggressively, scarce assets like bitcoin could surge—making timing and tax planning for gains more important than ever.
2. Strategic Bitcoin Reserve
What used to be speculation is now policy. A U.S. strategic bitcoin reserve has been quietly established via executive order—but so far, only as a holding, not an active accumulation strategy. What are the implications? Officially, the government owns bitcoin. This marks a dramatic shift in their attitude towards this asset.
Key question: Will U.S. become an active buyer instead of passive seller? It would mark the very first instance in which a nation-state of major importance has been a constant, strategic player on bitcoin markets. This would mark a major structural change, as it could dampen bitcoin’s volatility while reinforcing the role of its macroeconomic hedge.
Will this accumulation persist even if the Federal Reserve expands its balance sheet? If so, it would amount to a form of money printing to acquire bitcoin—an undeniably accelerationist move. Even if the bitcoin accumulation does not begin, its presence on the balance sheet of the government will affect the future taxation and regulation treatment. Investors should consider this when planning for the long term.
3. Commodity Inflation and Tariff Shockwaves
The COVID era saw multiple supply chain pricing anomalies—lumber shortages, semiconductor droughts, and food price spikes. Imagine those disruptions returning in waves of sporadic or sustained frequency.
Supply chains are still fragile as geopolitical tensions and tariffs increase. A shortage of key commodities can trigger rising inflationary shocks that have ripple effects around the world. Bitcoin would react as it is a rare asset. However, this could have new tax implications. Investors need to be ready for the capital gain events that may result from volatility in price, and also any changes in regulation if bitcoin becomes a more strategic asset.
What can Bitcoin owners do?
Regardless of which tax regime or wildcard plays out, here’s what you can control:
- Roth Conversions – Locking in today’s lower rates before potential hikes.
- Capital Gains/Loss Harvesting – Using market dips and tax brackets to your advantage.
- Estate Planning – Adjusting before and/or after any exemption changes hit using appropriate structures and transfers
- Income Structuring – Keeping taxable events as efficient as possible.
Bitcoin Tax Strategy: Expanded Strategies to Benefit Bitcoin Owners
1. Roth Conversions: Guarantee Tax-Free Growth
The Roth conversion allows you to transfer assets from a conventional IRA to a Roth IRA. By paying taxes today, you can enjoy future tax-free gains. You can lock-in the (lower rate of) today’s tax if bitcoin is expected to soar. To minimize tax, convert strategically when the market is down.
2. Lock in Rates to Harvest Capital Gains
Don’t wait until tax rates rise to realize large gains. Sell during the year of lower income, and you could pay less on your long-term capital gain (in certain cases even 0%). For maximum effectiveness, combine this technique with Roth conversions.
3. Bitcoin and Estate Planning
Transferring bitcoins could be more costly if the exemptions for estate taxes are reduced. This can be mitigated by structuring holdings into trusts or partnerships. Gifting bitcoin gradually—using the annual exclusion amount—can also reduce tax exposure.
4. Income Structuring: Optimizing Your Tax Mix
To achieve the best possible tax efficiency, blending different account types—traditional IRAs, Roth IRAs, and non-retirement accounts—is key. Tax diversification is possible with a well-structured blend, which allows you to withdraw money at lower rates of tax in retirement. You can reduce your tax burden by balancing income from taxable, deferred and tax-free sources. Strategically selling bitcoins from various account types according to tax brackets is a great way for bitcoin owners to preserve their wealth over the long term.
Concentrate on the Next Step.
Instead of worrying about what the power that be is doing and which levers are being pulled, concentrate on those you have control over. You can still do what you can to ensure that your family is on track, even if your fiscal situation has spiraled out of your control. Your tax strategy is one of the only things that you have control over while policymakers determine which levers they will pull. The window to act will likely be October-December 2025—when legislation gets finalized and before new rates take effect.
Keep ahead of the weather. Our team of CPAs and Advisors can help you create a strategy that will make the most out of whatever is coming.
Jessy GILGER, Senior Advisor at Sound Advisory. The opinions expressed by the authors are theirs alone and not those of BTC Inc. or Bitcoin Magazine.
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Source: bitcoinmagazine.com
