Bitcoiners Should Prepare for the Looming Tax Targeting of Their Holdings

Lyn Alden, author of Broken Money, has made a strong case for fiscal dominance—the idea that government spending dictates monetary policy

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. Not that it’s necessarily achievable in any meaningful sense, but for the first time in years, it’s being hinted at. Markets are adjusting, not because they believe it will happen, but because they’re starting to wonder if policymakers are actually serious. With the shakeup brought by Trump, Musk, and recent USAID revelations, the conversation has shifted. For the first time in a long time, there’s uncertainty around whether fiscal dominance can continue unchecked.

When a country is deep in a fibber-cutter, policymakers have four main levers they can pull:

For years, the austerity lever was a joke. Now? It’s at least part of the discussion—and likely part of a blended approach. And if the season of fiscal dominance continues, tax policy will be the first place where real, actionable changes show up.

For bitcoin holders, this isn’t just another macro shift to passively observe. Unlike inflation or debt restructuring—forces that are largely out of individual control—a tax policy change is one area where proactive planning can actually make a difference in your financial life. The right strategies could turn coming changes into opportunities rather than financial landmines.

Five Possible Taxation Scenarios for 2025

With fiscal dominance running the show, tax policy is 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. Income taxes jump, estate tax exemptions shrink, and capital gains get more expensive. The bureaucratic equivalent of ghosting your tax bill.

2. TCJA Extension (10% Probability)

Congress extends the existing tax cuts without any new bells or whistles. A true “kick the can” move, leaving the current framework in place for a few more years.

3. TCJA Extension with Adjustments (70% Probability)

This is the base case: TCJA remains, but with modifications. Trump has hinted at eliminating taxes on tips, removing taxes on Social Security benefits, exempting overtime pay, and allowing deductions for auto loan interest on American-made cars. Additional incentives for domestic production, such as reducing the corporate tax rate and reinstating 100% bonus depreciation, could also be on the TABLE. The possibility of reducing capital gains taxes or extending estate tax exemptions may further shape tax planning opportunities. And the grand-daddy of them all…

4. Bitcoin Capital Gains Exemption (10% Probability)

A true curveball: bitcoin gets a special status, exempting it from capital gains tax, much like gold once was. This would open up HUGE tax planning opportunities, from gain harvesting to retirement account repositioning.

5. The Death of the IRS (5% Probability)

We never thought we’d say it, but talk of replacing the IRS with an “External Revenue Service” has surfaced. What would that mean for enforcement? Audits? Loopholes? It’s uncharted territory, but worth watching.

Three Wild Cards That Could Shake Everything Up

Beyond these five scenarios, three unpredictable forces could upend everything—and each has significant tax implications for bitcoin holders.

1. A Liquidity Crisis and Emergency Tax Legislation

Imagine a sudden financial crisis. The government panics, money printers go brrrr, and emergency stimulus checks start flying. If the Federal Reserve intervenes aggressively, scarce assets like bitcoin could surge—making timing and tax planning for gains more important than ever.

2. A Strategic Bitcoin Reserve

What was once speculation has now become policy. A U.S. strategic bitcoin reserve has been established quietly via executive order—but so far, only as a holding, not an active accumulation strategy. The implications? The federal government now officially possesses bitcoin, a major shift in its stance toward the asset.

The key question: Will the U.S. transition from passive holder to active buyer? If so, this would mark the first time a major nation-state has become a consistent, strategic participant in bitcoin markets. A steady sovereign buyer would be a structural shift, potentially dampening bitcoin’s volatility and reinforcing its role as a macroeconomic hedge.

Would this accumulation continue even under a season of Federal Reserve balance sheet expansion? If so, it would amount to a form of money printing to acquire bitcoin—an undeniably accelerationist move. Whether accumulation begins or not, the mere presence of bitcoin on the government balance sheet alters its future tax and regulatory treatment, a factor investors must consider in long-term planning.

3. Tariff Shock