Bill Miller IV, the chief investment officer at Miller Value Partners, has voiced his skepticism regarding the justification for governments to tax Bitcoin. In a recent discussion on the "Coin Stories" podcast with Natalie Brunell, Miller argued that taxing Bitcoin "doesn't make a ton of sense" because the blockchain technology manages ownership independently, negating the need for government administrative oversight.
Miller, known for his early advocacy for Bitcoin, drew a comparison between Bitcoin and traditional assets like real estate. He highlighted that unlike real estate, Bitcoin doesn't rely on government infrastructure to verify or enforce property rights. Property taxes on real estate, for instance, fund the administrative efforts required to track and maintain ownership records. With Bitcoin, the blockchain automatically handles property automation, making government intervention, and thus taxation, seem unnecessary.
He stated the government didn't create Bitcoin, so for them to tax it when the blockchain automates property rights is unreasonable.
These comments come amidst ongoing discussions in the United States about the taxation of cryptocurrencies. Earlier this year, rumors circulated about a proposal from Eric Trump, son of former U.S. President Donald Trump, to eliminate capital gains taxes on certain U.S.-based cryptocurrencies. While Miller acknowledged the possibility of Bitcoin being exempted from capital gains tax, he also pointed out the uncertainties surrounding such a development. He further touched on the idea of Bitcoin being subjected to property tax, similar to real estate, but expressed reservations about its necessity.
Miller also highlighted a notable aspect of Bitcoin's current tax treatment: the absence of a wash sale rule. A wash sale rule prevents investors from claiming a loss on a sale if they repurchase the same or a substantially similar security within 30 days. The fact that this rule doesn't apply to Bitcoin presents a unique opportunity for investors.
The conversation also addressed the challenges that traditional asset managers face when incorporating Bitcoin into their portfolios. Miller noted that uncertainties surrounding taxation create significant obstacles for fund managers, especially concerning the classification of income and the timing of transactions involving Bitcoin ETFs. He suggested that these unresolved taxation issues indicate that the cryptocurrency market is still in its early stages.
Despite the existing tax hurdles, innovative solutions are emerging in the market. The Pearl Fund recently launched a $500 million Bitcoin investment fund that leverages federal Opportunity Zone (OZ) law to potentially bypass long-term capital gains taxes entirely. This SEC-compliant fund allows accredited investors to defer taxes until 2026 and, if they hold the investment for at least 10 years, exit completely tax-free. Such initiatives aim to address what Brian P. Phillips, Managing Partner at The Pearl Fund, identifies as "Bitcoin's biggest problem: capital gains tax".
