US Group Proposes Tax-Free Bitcoin Zone to Boost Digital Economy

A policy group calling itself USABTC has proposed the creation of a special tax-free digital economic zone (DEZ) in the US, intended to encourage the use of Bitcoin and boost blockchain innovation while protecting the US dollar from the threats posed by cryptocurrencies.

The proposal would allow Bitcoin to be traded and accumulated without any capital gains tax, however the planned DEZ would include a redemption tax to be paid when Bitcoin is converted back into fiat currency. USABTC says this kind of arrangement could allow the US to take the lead in Bitcoin adoption and innovation while at the same time safeguarding the preeminence of the US dollar.

Related: Senator Lummis Presents Official Strategic Bitcoin Reserve Bill

USABTC Claims DEZ Neutralises Threat to USD And Boosts Innovation

In its proposal, USABTC claims that Bitcoin presents a significant threat to the US dollar and that the government would need to purchase over US$200 billion (AU$303 billion) worth of BTC to counter this threat, which it claims is politically unviable:

To neutralize Bitcoin’s threat to the dollar, the USA would need to buy $200B in BTC at today’s price—more than the Ukraine war cost. Congress will vote no.

USABTC Proposal

As an alternative, USABTC proposes the creation of the tax-free DEZ, which it claims “ensures instant market fit, strengthens the dollar, and positions the US as a leader in a vital industry, at no cost to taxpayers.” Inside the DEZ investors could convert their BTC into a special version of Bitcoin, also called USABTC, which would allow them to enjoy the special tax privileges of the DEZ.

Proposal Attracts Criticism from Pundits

On X / Twitter many have responded negatively to USABTC’s proposal — crypto thought leader @DavidShares suggested it’s simply a plan by insiders to increase the use of their preferred Bitcoin layer 2 network:

Don’t be fooled by the new “USABTC” initiative to neuter Bitcoin while making the U.S. government and dollar stronger. It’s actually an initiative to push BTC @Stacks layer two solution. Yet another grift and has no benefit to Bitcoiners.

@DavidShares on X / Twitter

Related: Trump Proposes Using Cryptocurrency to Eliminate $35T US National Debt

While @AaronRDay, a fellow of the outspokenly libertarian Brownstone Institute, claimed that the proposal is a “grotesque parody of a free market innovation, and a stark reminder that the most fervent advocates of state control are often to be found among the ranks of the ostensibly libertarian.”

USABTC’s Roadmap to DEZ

USABTC’s proposal lays out a rough roadmap for creating this tax-free Bitcoin regime. The process would begin with the President issuing an executive directive to create the DEZ. 

Following that, USABTC says the government should “leverage” the Exchange Stabilization Fund (ESF), which was established by the 1934 Gold Reserve Act, in order to “facilitate the establishment and initial operations of the USABTC system within the DEZ.” 

USABTC also proposes that a layer 2 network be used to allow for faster and cheaper transactions, with the redemption tax automatically paid into Treasury-controlled Bitcoin accounts when the Bitcoin is converted back into US dollars.

Buy-in from the IRS and legislators will be crucial, according to USABTC, with new laws required to remove capital gains tax from Bitcoin transactions inside the DEZ.