This is a follow up to my thoughtpiece on Bitcoin utility: Beyond the HODL: Unlocking Bitcoin’s Utility

The title may be clickbait – tax isn’t a sexy topic – but nearly every BitcoinFi company building for institutions that I have spoken to sees it as a major barrier to entry. Tax obligations for Bitcoin and cryptoassets (since they are treated as property rather than currency in most jurisdictions) touch everything from payments to staking and lending. The elephant in the room is tax, and it remains a stubborn barrier to widespread adoption.

For individuals, it’s confusing and annoying. For institutions, the time dedication and compliance risks are several magnitudes higher. Internal tax teams worry about derivatives accounting, GAAP vs. IFRS treatment and quarterly mark-to-market requirements. I nearly had a major partnership deal unwind for exactly this reason! If the tax burden is not minimized, a tentative “Yes” can quickly become a hard “No” to the adoption of Bitcoin-led products.

The issue boils down to this: every movement of Bitcoin is a taxable event. While some countries have carved out narrow exemptions, the US and most OECD members have not. For BitcoinFi builders the table stakes are not just transparency (after all, this is an easy win for blockchain tech!), but robust infrastructure. This means reliable transaction data, technical attestations, audit rails and cost basis reconciliation, as well as API-led reporting that institutions can mold into their own views. These systems need to run 24/7/365 and feature excellent SDKs and templates with integrations directly into enterprise backbones like SAP and Oracle.

The crypto tax software market, worth $4.2B in 2024 and projected to exceed $10B by 2029, with a CAGR of 20%¹, is mostly retail-driven today. Institutional needs are far greater, and the compliance burden in both time and money is likely to be 5-10X greater.

While it’s tempting to think stablecoins (fiat-denominated cryptocurrencies that effectively skip the tax issue because they are fiat pegged) are the solution², I would argue these are inferior solutions that simply paper over the inconvenient tax treatment that Bitcoin suffers today.

Stablecoins appear to solve this by sidestepping capital gains calculations – and current adoption reflects that. Visa Onchain Analytics reported $8.5T in stablecoin transaction volume over the past 12 months³, compared with Bitcoin payments via Lightning which remain a tiny fraction of global settlement flows (optimistically estimated at 5%). But this is only a workaround. Stablecoins are inferior long-term and true adoption of Bitcoin is worth fighting for. The holy grail for BitcoinFi companies is simple: Bitcoin transactions should be recognized as currency movements, not taxable events.

Until then, progress will occur incrementally. A de minimis exemption for small payments (in current US proposals, under $200⁴) would remove friction for small day-to-day transactions. Global coordination of regulatory and legal requirements is also advancing, with the OECD’s Crypto-Asset Reporting Framework (CARF) set to standardize disclosure requirements across borders.

Meanwhile, staking (and/or wrapping) and lending of Bitcoin is more complicated. If a holder maintains custody of their Bitcoin it is generally not considered a taxable event, but wrapping it into another token often is (at least under US rules). Non-custodial staking is unlikely to be appealing to yield providers and lenders. Here lies a genuine design challenge for BitcoinFi companies.

The way forward is clear. Let’s be proactive while embracing the tax reality we currently have, build products that make compliance seamless, and keep lobbying for policy change. Best-in-class solutions will mean real-time cost basis reporting, the ability to export directly into tax forms, architecture that is ISO27001 and SOC2 compliant, and above all, integrations that make tax issues invisible to partners and auditors alike.

If Bitcoin is to power global settlement, we don’t just need 24/7 and cheaper rails. We need clarity and compliance – and the companies that deliver both will be the ones that succeed.

1. https://www.thebusinessresearchcompany.com/market-insights/crypto-tax-software-market-insights-2025 ↩︎
2. Though the IRS has said stablecoins are also property, meaning USDC > USDT swaps (for example) could technically be taxable, even if de minimis. ↩︎
3. https://visaonchainanalytics.com/ ↩︎
4. Per current de minimis tax exemption proposals in U.S. Congress (the “Virtual Currency Tax Fairness Act”). ↩︎