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Bitcoin and the New Tax Plan

On December 22, President Trump signed his tax reform plan into law. The Tax Cuts and Jobs Act passed Congress with a vote of 51 to 48 in the Senate and 224 to 201 in the House. It’s the most sweeping tax overhaul in 30 years. So, how will cryptocurrencies fare under the new plan? Pretty well, as it turns out. Here’s why Bitcoin investors stand to benefit from Trump tax reform.

About the Bill

The new tax plan:

  • Cuts personal income tax rates by several percentage points across tax brackets.
  • Nearly doubles the standard deduction for all filers.
  • Suspends the personal exemption (currently $4,150)
  • Ends the individual mandate of the Affordability Care Act, removing the tax penalty for uninsured individuals.
  • Massively cuts corporate tax rates from 35% to 21%
  • Suspends or limits most itemized deductions.

Some of these changes, like the tax cuts and doubling of the standard deduction, will expire in 2025. That’s enough time for the federal government to lose out on a big chunk of revenue. The tax plan is expected to raise the federal deficit by about $1.46 trillion, according to some estimates – and, if the cuts are not allowed to expire, that figure will rise.

With the national debt already hovering around 20 trillion, an increase may not seem like good news. For Bitcoin investors, however, a higher debt delivers some unexpected benefits.

Weaker Dollar, Stronger Bitcoin

The national debt impacts the value of the dollar. With a higher debt and an unbalanced budget, the U.S. Government must borrow at a higher interest rate to make payments. As interest rates increase, confidence drops – and so does the dollar’s value. Trump’s tax reform, with its massive debt increase, could make the dollar plunge over the next decade.

Investors once sought relief from a fluctuating dollar by investing in uncorrelated assets or assets like gold, which are inversely correlated with the dollar’s value. Today, there’s a new option: Bitcoin, which is uncorrelated with any asset and offers superior performance.

Chris Burniske of ARK Investment Management points out that Bitcoin constitutes a new asset class that’s uniquely able to stabilize a portfolio in an era of volatile returns. As the tax plan drives investors towards Bitcoin as a hedge against a falling dollar, the value of Bitcoin will rise.

The stock market may also see some pullback heading into 2019. Although cutting the corporate tax rate from 35% to 21% will boost stocks in the short term, slowing growth and the increasing weight of national debt on the GDP will eventually show up as negative returns in the market. In the long term, investors will seek uncorrelated assets that offer better value, with cryptocurrencies and Bitcoin as the leading options.

Extra Money Flows to Cryptocurrencies

There’s a flip side to the national debt increase that leads to a win-win scenario for Bitcoin. Even as Trump’s tax cuts drag down federal budgets, more money flows into the pockets of certain individuals, and – especially – to corporations. These entities won’t just have a greater incentive to invest in cryptocurrencies, they’ll have greater means to do so. Blockchain adoption could surge as a result.

Companies are already integrating blockchain into their operations. Fintech firm R3’s open-source Corda network is being used by over 60 companies, including Intel and Microsoft. Goldman Sachs and Google are investing in the technology. Public interest is high: when Long Island Iced Tea Corp. rebranded as Long Blockchain Corp. in December, its share price rose 289 percent. Lower corporate taxes let companies devote more funds to blockchain integration, bringing the technology into the mainstream.

Mainstream adoption means more opportunities for Bitcoin investors. The list of businesses that accept Bitcoin as payment is large and rapidly growing. CME’s recent launch of Bitcoin futures, along with Bitcoin ETFs and IRAs, make it possible to use Bitcoin in a variety of ways. Trump’s tax reform makes it possible for individuals to invest more in Bitcoin and use these investments more effectively.

Cryptocurrency Tax Fairness Act: The Next Step?

In September, Rep. Jared Polis and Rep. David Schweikert introduced the Cryptocurrency Tax Fairness Act as an amendment to the tax reform bill. The idea was to create a tax structure for cryptocurrencies, so that consumers could make purchases up to $600 without having to report them. Lifting reporting requirements would incentivize the use of cryptocurrencies on an everyday level.

The Act was not adopted into the tax bill, but remains an open issue. Some fear it would lead to over-regulation, while others see it as a necessary step towards legitimizing cryptocurrency. Either way, the Cryptocurrency Tax Fairness Act shows that legislature takes cryptocurrency seriously and is ready to push for a workable model. We can expect to see more discussion and better solutions over the next few years.


In 2017, Bitcoin prices soared and blockchain adoption exploded across industries. Trump’s tax reform sets an even better stage. Rising debt will increase Bitcoin’s value as investors move away from the dollar to a safer, uncorrelated asset. Lower corporate and individual taxes will lead to increased spending power and greater blockchain adoption. The Cryptocurrency Tax Act and similar bills will improve public awareness. This decade should be exciting for Bitcoin, with plenty of new opportunities for investors.

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Fiat Currnecy

What is Fiat Currency?

The history of traditional currency and how Bitcoin is disrupting the system.

The Dollar: Behind the Scenes

The cryptocurrency movement has made individuals more aware than ever of the intricate workings of the physical currencies that power their everyday lives. Billions of dollars are transacted each day around the world, from cash exchanging hands and the swiping of credit cards to multi-million dollar business deals, without the parties involved truly understanding the exchanges of value occurring right in front of them.

The concept of currency evolved out of trading economies, where parties would exchange goods for other goods or services. Some of the oldest known currencies were shells, selected for their aesthetic appeal, iconographic significance, utility, or ability to be made into jewelry. Once the ability to mine and refine metals became common practice, tokens, and eventually coins, made of copper, brass, silver, and gold were frequently used as currency to pay for goods and services. These tokens did not need a state or bank to declare their value, as the value was derived from the scarcity of the material used to produce the tokens as well as the effort required to mine, haul, and refine the raw materials into coins, jewelry, and other useful objects. During the Middle Ages, in order to finance large projects or military initiatives, nobles would purchase gold and silver possessed by the peasantry, issuing notes honoring the amounts purchased. These notes could be used to pay off debts or taxes to the crown, making them functionally similar to the gold and silver coins they were used to purchase. The ability to be used to pay state expenses made the notes valuable and worthy of exchange in much the same manner as metal coins. These paper notes were effective as the governments could produce as many as necessary in order to purchase gold and silver from the populace at a fraction of the cost of producing coinage.


The era of promissory note paper money saw drastic changes to the economies of the time, creating a vessel capable of spreading wealth to more of the population. However, one of the significant drawbacks of state-backed currencies, called fiat currencies, was the ability to produce the notes at a rate disproportionate to the growth of wealth. Simply put, due to the basic principle of supply and demand, as more individuals come into greater wealth, supplies of goods dwindle, forcing merchants to adjust prices. As prices increase and more currency is needed to purchase goods, the value of individual monetary units decreases. While the solution may seem to be producing more currency, in market economies this has the adverse effect of causing inflation.

Throughout history there are many examples of major economies suffering from rampant inflation, causing the value of their currencies to bottom-out, leaving them effectively worthless. Two of the most extreme examples are Germany and Venezuela. Post World War One Germany saw such drastic inflation as a result funding its war efforts entirely through borrowing that saw the mark, the German currency, devalue at a rate of one trillion paper marks per one gold mark by 1923. Paper notes were printed in several denominations above one million marks per bill and were so worthless, citizens used the notes as wallpaper or kindling. A modern day example is Venezuela. The bolivar, the state issued Venezuelan currency, has seen extraordinary inflation as the government continues to use the economy as a means of controlling the populace. The bolivar was exchanged at a rate of approximately 630 per $20 USD in 2013 and has since shot up to nearly 200,000 bolivar for $20 USD in 2017. Due to extremely low withdrawal limits at Venezuelan banks restricting individuals to withdraw what amounts to less than $5 USD and merchants raising prices in effort to support themselves, the people find themselves in the midst of one of the most severe economic crisis of the 21st century.

Consumer Price Index Chart
Consumer Price Index

Dangers of Centralized Control

Wild swings in the value of state-backed currencies are a direct result of the centralized nature of the authorities controlling them. The Venezuelan government, for example, can decide to print additional currency at any time, continuing the cycle of rapid devaluation of the bolivar and reinforcing the widespread poverty many citizens are suffering. This comes as a result of limited oversight: when the highest authority in the state chooses to produce and inflate its currency, the people have little to no recourse, resulting in mistrust of the government and banks. Citizens, in order to have any sort of financial agency, are forced into working with independent, third-party brokers and money handlers for the majority of their transactions with no guarantee that these organizations can be trusted.

Centralized control of state currency creates a trust-based environment. As money is necessary for supporting daily life and conducting business, official channels of currency distribution and management become gatekeepers, keeping a tight grip over the individuals who require their services.

Stores of Wealth

Because traditional currencies are subject to decisions made by the centralized authority, typically a national government or bank, these currencies fall victim to the same geopolitical crises and problems faced by that authority. Governments can collapse or fall out of international favor, reducing the value of the currency on the world market and making it nearly impossible for citizens to use the currency for anything meaningful. Banks have been known to be short-sighted in investing, taking advantage of short term gains offered by dubious practices such as selling debts or engaging in subprime lending. These practices are largely to blame for the 2008 global financial crisis which resulted in the loss of billions of dollars from individuals around the globe. A centralized currency only works when the individuals using the currency trust in the authority issuing the currency, and trust on an international scale can be difficult to maintain and easy to lose.

Concurrently, decentralized currencies, such as blockchain based cryptocurrencies, operate based on immutable, tamper-proof software protocols and are verified through open, public ledgers. Because these digital currencies have no central authority and are produced through various mathematical, programmatic functions, they are not subject to the same problems and pitfalls of traditional, centralized fiat currencies. The cryptocurrency market, being entirely electronic, is influenced much more rapidly than traditional security or commodity markets, but remains largely influenced by market forces alone. Without any one authority, and existing without a central issuing bank or nation, cryptocurrencies offer secured, apolitical methods of storing wealth, enacting financial transaction, and conducting cross-border payments. The advent of Bitcoin in 2008 was the birth of a new era of economics, with currencies that don’t follow many traditional economic rules developing into an international market worth over $100 billion USD. Though this technology still remains in its infancy, there is incredible potential for economic disruption.


Article written by Anthony Muccio –  blockchain journalist and frequent contributor to Cryptocoins News. Anthony is passionate about blockchain technology and has devoted much of his time to crypto-economics writing and research. An aspiring Python programmer, his interests include data science, machine learning, and game theory.


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Decentralized vs. Fiat Currency: Identifying Failure

Decentralized Currency

Critics have cited Bitcoin’s decentralized nature as problematic to long-term investment, but this criticism deserves deeper analysis.  Notable dissenting voices include investor Warren Buffet and economist Paul Krugman.  Critics are entitled to their opinion.  In considering the potential demerits of Bitcoin, however, investors should be aware of the benefits associated with its decentralized character.  The intent of this post is to explore the failures of historical fiat currencies.  (For reference, fiat currency describes government issued and/or authorized money, lacking intrinsic value.) From fiat currency failures, the benefits of a decentralized system become clearer.

Currency Failures of the Past

Fiat currencies, similar to Bitcoin, are susceptible to shocks in value.  Since they lack intrinsic value, immaterial forces can dramatically influence their worth.  This post examines the failures of the German Papiermark, the Argentine Peso, and the Zimbabwean Dollar.

After Germany’s World War I defeat, the Treaty of Versailles mandated Germany provide war reparations to allied nations.  When Germany neglected payments, France and Belgium occupied areas of German production, which forced the German government to print papiermarks for salaries.  As the quantity of currency increased, the value of the currency decreased.  This induced a spiral of hyperinflation.

Following the 1973 OPEC oil embargo, Argentine budget and trade deficits threatened to collapse the economy.  In response to growing debt and civil unrest, the Argentine government printed money.  The value of the peso drastically decreased, until the government established a new peso to stabilize the economy.

The situation in Zimbabwe echoed that of Argentina and shutterstock_482075365Germany.  Excessive government spending and economic problems led the government to overissue currency.  The government printed Zimbabwean dollars in higher denominations as the value of the dollar plummeted.

Lessons Learned

Each of these cases shares a common denominator.  Social, geographic, and political forces contributed to devaluation, and eventual collapse, of each of these currencies.  Bitcoin is exempt from these sources of error.  As an independent, decentralized currency, Bitcoin will not face pressure from foreign governments or internal unrest.  Monetary supply is fixed, which means that supply will not respond to changes in the world.  Effectively, Bitcoin removes the element of human error.

The argument of this article is imperfect for several reasons.

  1. Historical currencies are tested under harsher conditions than Bitcoin through wider use and longer duration.
  2. This piece overlooks the benefits of monetary policy, which have been used to stabilize economies.
  3. Hyperinflation, which is the common source of failure among these currencies, could still occur to Bitcoin.

Despite these imperfections, the trend in other intrinsically valueless currencies points a finger at geo-political variables as the culprit for currency failure.  Since Bitcoin avoids geo-political variables, it may be less prone to failure.