Crypto is here to stay?

That is the theme of my latest Bloomberg column, here is one excerpt:

One reason for the rise in Bitcoin’s price may have to do with the U.S. and China and the trade war. It no longer seems that China will join the international economic order as that term might have been understood 15 years ago. Instead, there will be an ongoing cold war; China will not liberalize, and capital controls may persist. In that world, Bitcoin will continue to prove a useful way of getting funds out of China. The Chinese Communist government may or may not crack down on that practice, but outright liberalization would have ended this use of Bitcoin altogether.

For related reasons, a China that does not liberalize may influence the broader tenor of the global economy away from freedom, again giving Bitcoin additional uses around the world for evading central authorities.

A second development is that the Democratic Party in the U.S. continues to shift to the left, including on the possibility of a wealth tax. As America’s fiscal deficits grow (due often to the Republicans, I might add), there will be a long-term need to restore fiscal sanity. Presidential candidate Elizabeth Warren, for one, advocates a 2% wealth tax (over $50 million) toward this end.

No matter what you think of this idea, it likely would boost the demand for Bitcoin and other crypto assets, as cryptocurrencies are potentially a way to store assets out of reach of many tax authorities. And the U.S. is hardly the only nation that may be looking to a wealth tax in the future to balance the books. In essence, the new and higher price of Bitcoin is telling us that fiscal solvency will be hard to come by, and the wealthy will not give up their assets without a fight.

Do read the whole thing.


This is completely clueless. You can't get into and out of Bitcoin without Treasury knowing about it. You have to report all foreign assets annually. Bitcoin cannot be used at any scale to avoid taxes. Post-Patriot Act, post-FATCA this kind of tax fraud is obsolete.

LOL, nice troll dude. My Greek lawyer says the "Belt-and-Road" is nothing more than an elaborate road show to enable rich Chinese (party) members to launder their money in Europe, where the art of money laundering is well developed.

He's mostly off but not completely. Bitcoin shows every transaction ever but someone has to do the hard work to match each address to the beneficial owner. This is similar to shell companies domiciled in the usual tax havens. Finding the owner is possible but not easy. Tyler is correct though, the rich will use Bitcoin and other cryptocurrencies to hide and launder their assets.

Really informative! Looking forward to more updates on this.

The US is the only country that can impose a FATCA on non-residents and force the rest of the world to police it, because America is the financial hegemon that controls the world's reserve currency.

But will that hegemony long survive a sharp lurch to the left? Wall Street won't thrive under wealth taxes and 70% income tax rates and taxes on all its financial transactions. If money sprouts legs and starts walking, someone might put out a welcome mat.

If a full-blown trade war becomes the new status quo, the new crop of Democrats won't make concessions to end it. One way or another, targeted countries will have to bite the bullet and figure out a way to circumvent permanent US sanctions. Once they do that, they could lure US expatriate money without further consequence.

China in particular might find it useful to turn Hong Kong into a FATCA tax haven; that might be the best hope for the survival of democracy there. Interesting that they made unexpected concessions in the recent protests there. If forced to choose sides in a trade war, Singapore might do the same under a Chinese umbrella. Even Russia might try something with Crimea, which will be under sanctions forever and has nothing to lose.

'China in particular might find it useful to turn Hong Kong into a FATCA tax haven'

Meaning that Hong Kong will be cut off from the American financial framework. Considering that this threat worked in terms of Switzerland, do you really think that Hong Kong/China would be able to do better?

'The FATCA agreement currently in force between Switzerland and the US is based on the so-called Model 2. According to this model, Swiss financial institutions provide the US tax authorities (IRS) directly with the account information that is subject to reporting with the consent of the clients concerned. In cases where no consent has been granted, an anonymous, aggregated report containing certain account information is provided. On the basis of the aggregated notification, the US tax authorities can then seek disclosure of specific client and account information by means of a request for administrative assistance, if this is provided for under the double taxation agreement between Switzerland and the US.'

And do note that this was a 'compromise' allowing Switzerland to say it still protects the identity of its banking customers.

In the event of a trade war China might find itself cut off from the American financial framework regardless.

And yes, China certainly might do better than tiny Switzerland.

We may be talking at two different levels. Yours, reasonably enugh, is what might China do, in which case Hong Kong is more or less irrelevant except it is part of China with a number of financial institutions.

However, the second level involves 'to turn Hong Kong into a FATCA tax haven,' in which case the idea would be akin to Switzerland - that is, Hong Kong as a banking center that would be trusted by all parties. What destroyed Switzerland as a FATCA tax haven (among other things - the Swiss were also facing extreme EU pressure too, in part based on data deliverd to EU authorities in violation of Swiss banking laws) was the fact that the U.S. can basically reach enough of the parties that trusting Switzerland to be able to hide the transactions was impossible. And the Swiss were trusted - does anybody trust the Chinese to that extent, particularly as the Chinese are demionstrating their determination to make sure that Hong Kong will not be a neutral entity able to withstand external pressure.

Could China deal with FATCA, particularly in light of a major trade war? Sure - FATCA applies to American citizens and whatever financial institutions do any business with the U.S. (which is why basically all financial institutions in Germany will have nothing to do with American citizens). FATCA would have minimal impact on Chinese-EU trade, particularly if that trade is handled by European or Chinese banks using euros. Would anyone trust the Chinese government to run an effective and efficient tax haven? Let us just say that the question is open, but would you deposit a few million dollars there with the same unthinking confidence that Switzerland enjoys today, even with FATCA compliance?

People have been deploying business investments to China in large amounts, despite a non-level playing field and weak intellectual property protection. They might take a leap of faith with their personal money to escape wealth taxes and 1950s-level income taxes.

In a trade war scenario, a vengeful China might try to starve the US of tax revenues as a kind of counter-sanctions. They've been tightening the screws on Hong Kong lately but might deliberately reverse course if they see some advantage to doing so. In any case, expatriates will only care about the economic climate, not so much about the political freedoms of the locals.

Switzerland, as you say, was tag-teamed by the US and by the EU and couldn't withstand the pressure. The EU was surely the bigger factor for the landlocked and surrounded Swiss. China is in a different position.

'They might take a leap of faith with their personal money to escape wealth taxes and 1950s-level income taxes.'

In the middle of a major trade war where China is cut off from the American financial system?

'a vengeful China might try to starve the US of tax revenues as a kind of counter-sanctions'

The tax revenues would be trivial - it isn't as if the money flowing out would not be eminently trackable.

'The EU was surely the bigger factor for the landlocked and surrounded Swiss.'

Depends on how you view the importance of the American financial system to Swiss bankers. Though those stolen CDs detailing massive tax evasion did not help the Swiss case with the EU in the least.

However, their is a country that has suggested setting itself up as a tax haven, though not in terms of the U.S. - it will be interesting to see just how far the UK will go in that direction, considering how the City is bleeding at this point.

> 'In the middle of a major trade war where China is cut off from the American financial system?'

If America lurches hard left and imposes wealth taxes and raises income taxes to 1950s levels, there may be those who seek to avoid those taxes by first expatriating themselves and then trying to find some way to escape FATCA. In that case, being cut off from the American financial system... would be the whole point.

America would severely retaliate against any country that facilitated FATCA evasion. But on the other hand, a newfangled hard-left America would likely start to lose its status as the leading financial center and home of the world's reserve currency. So there may be a first-mover advantage for any country that sets itself up as the go-to destination for fleeing US expats, even if it takes a big hit in the short term during the initial time period when American still retains the financial clout for meaningful retaliation. China might go for it, because they would probably be under heavy trade-war sanctions anyway and have little to lose. They are the only ones who might conceivably put together an alternative global financial system, and then third-party countries would have to choose their camp.

Radical-left progressives would likely not only continue Trump's trade war with China (if it actually unfolds as it threatens to) but pursue it in greater earnest, without Trump's penchant for showy dealmaking in exchange for window-dressing concessions.

Yes you can get into BTC without Treasury knowing it. Where do you get this nonsense?

"Yes you can get into BTC without Treasury knowing it."

I could sell something on the web and ask for payment in BitCoin. I could make my own "account" using a private key math utility and not use online services. And I could use that BitCoin to in turn buy something online.

If what I buy and sell is digital, I'm home free. If they are goods that have to be shipped to physical addresses, I'm probably home free unless for some reason there is scrutiny on me, or unless there is a sting operation. If I need cash, I might be able to do an exchange in a BitCoin meetup up to a certain threshold.

But I can't do anything that would be of the scale worth tax evasion. I cannot get paid a salary in BitCoin, nor buy or sell real estate, nor buy a boat, without going to or from cash. Even if I could do it somehow, my counterpart couldn't. Once cash or financial institutions are involved, there are all kinds of tracking and reporting, domestically, and, for any bank with a SWIFT number, internationally. As an American living in Japan, whenever I get any sort of deposit from abroad I get a phone call from a nice lady wanting to know in detail where the money came from, and by-the-way, do you have any documents relating to the transaction that you could fax me right now?

Any sort of BitCoin outfit has to register with Treasury. In fact, any sort of financial "institution" at all does, including all those ethnic remittance systems. Below that level, banks are really, really paranoid about getting in trouble these days, and they ignore money laundering reporting levels and just report anything they think is fishy, since it may be structuring.

And let's say there is some circuitous route to do this. You'd need a bunch of advisors to help you out. How do you find them? How much can you trust them? How long until their systems are hacked and the data sold to the IRS?

So I stand by my statement that "You can't get into and out of Bitcoin without Treasury knowing about it" for any degree or level of transaction that would save you any meaningful taxes.

There's a lot of Chinese using BTC to export their money out of China. We can be sure that they're doing it on a degree similar to what is required for tax evasion. They're bypassing capital controls of a formally communist nation. It's not just doable, it's being done.

All that hyper-reporting you mention may be part of why: when there's that much noise signal is lost even when you're not looking for signal with a cumbersome government bureaucracy.

u sed
"You can't get into and out of bitcoin without treasury knowing about it"
sounds like a easily falsifiable sociologists assertion
Dr. Cownes column +1
smithcollegechurchladies 0

Dr. Cowen
not Cowne

Put cash into Bitcoin ATM. Transfer to a wallet.

Treasury is monitoring that how?

3D printing is here to stay to - well, not here, but in the mundane world where real people live.

Including the sort fully aware of what FATCA stands for - and who decide to simply deal with it by giving up American citizenship, in growing numbers, without caring in the least about how the Democratic Party in the U.S. continues to shift to the left.

This is a fairly recent article about one class of Americans (with better claim to be accidental than someone like Boris Johnson) who have to deal with how the U.S. taxes all Americans - 'Because the United States imposes taxes based on both residence and citizenship (and automatically makes almost all children born within its borders or to an American parent US citizens from birth) it is quite possible for a French citizen who has never been to the United States to be required to annually file US tax and information returns that carry heavy monetary penalties if not timely submitted.

This can be true even if the individual owes little or no actual US tax because of credits granted for French taxes paid and regardless of whether the person ever held a US passport or registered with the US government.

And hiding is increasingly difficult: since France and the United States signed an intergovernmental agreement implementing the US Foreign Account Tax Compliance Act (FATCA) in 2014, the French Ministry of Finance shares with the US Department of the Treasury and Internal Revenue Service (IRS) information on US individuals who own French financial accounts and who may not be compliant with their US taxes.

Faced with these realities, many dual citizens look to renounce US citizenship.'

It is almost (as someone in Germany remarked almost a quarter of a century ago) as if the American government/establishment does not wants American citizens to have any idea of what life outside of the U.S. is like.

When are you giving up your US citizenship and moving back to Germany?

Whenever you stop being a cuck. So never I guess.

Can't tell if troll impersonator or not. Well played.

To be fair, life outside the US is usually worse than in it.

"capital controls MAY persist?"
giving up capital controls means CCP gives up power...chances of that happening?

They have no choice. Besides their desire to internationalize the Yuan, they have to liberalize or they will destabilize. They cannot say no!

Swiss bank accounts don't work anymore thanks to the war on terror which gave Bush and then later Obama enough reason to turn over the old Alpine tradition of taxman hide and seek. You don't need a numbered account anymore when such a thing exists in the world of cryptocurrencies.

yes everybody keeps saying this. If I put my money in a swiss bank account, it doesn't go up and down with wild gyrations as the underlying currency see saws its way. I think if you're using Bitcoin for money laundering (and there isn't much else to do with it), you're doing it because you are laundering so much money that you have no better way to deal with, and you just live with the crazy fluctuations.

Libra when it exists won't have crazy fluctuations because it is tied to a basket of currencies and designed to be stable. Bitcoin may be the wild West but it has more uses than laundering like the rich evading taxes as Tyler pointed out originally. You can also buy anything the internet offers for sale with it.

Bitcoin is tied to a basket of currencies via the exchanges around the world. That is its main function, currency exchange. The question is, why keep the old FX system when bitcoin does such a good job.

Trump also advocated a wealth tax when he ran for president 20 years ago:

"Trump proposes massive one-time tax on the rich"

"Billionaire businessman Donald Trump has a plan to pay off the national debt, grant a middle class a tax cut, and keep Social Security afloat: tax rich people like himself.

Trump, a prospective candidate for the Reform Party presidential nomination, is proposing a one-time "net worth tax" on individuals and trusts worth $10 million or more."

"The net worth tax is the cornerstone of Trump's economic plan released Tuesday morning."

"Trump would exempt the value of an individual's principal home from the net worth total.

"By my calculations, 1 percent of Americans, who control 90 percent of the wealth in this country, would be affected by my plan," Trump said.

"The other 99 percent of the people would get deep reductions in their federal income taxes," he said."

I don't know. How much Amazon stock would Bezos need to sell to raise cash needed to pay a wealth tax? Same same for Bill Gates, "The Wizard of Omaha."

I'm so old. I remember 1999, (Slick Willie was prez and repealed Glass-Steagall) the national debt was 58% of GDP. In 2016, it was 104%.

Little noted, 1998 was the year of the Long Term Capital Management Crisis. Was that a prototype for "too-big-to-fail?"

That's what you want. You want to force someone like Gares either to sell off his Microsoft stock or to make productive investments to maintain or increase his wealth. Otherwise you get the situation you have now, where Gates has been able to maintain his wealth through Microsoft's monopoly position and spend his money on virtue signaling in Africa.

FO slaver. It's really not the government's place to impose your nonsensical values on the populace.

So you want the government to impose Gates's property rights, while taxing everyone else? That's real slavery.

Rights aren't imposed their recognized.

If something must be taxed make it property or consumption. That's not remotely slavery but rather the opposite.

Interpreting blips in Bitcoin's price as proof of a long-term trend is like saying that a snowstorm means that global warming has been canceled.

Bitcoin is very thinly traded and the price is not hard to manipulate. A blip could be caused by anything. Maybe even some new series of big ransomware attacks.

Colorado = two feet of snow on the first day of Summer. Yoesmite NP snow covered on May 29. Headline: "Snowfalls Are(sic) A Thing Of The Past" (2000).

There is intelligent life on Earth. They know global warming is a hoax.

But regardless of which way you lean, a single snowstorm isn't sufficient to draw any conclusion. Nor is a single blip in Bitcoin's price, those have happened before. Seems like a pretty thin clickbait hook to base an article on.

Oh Christ just stop. Go back to yelling at clouds.

Bitcoin's entire history is not a blip. Everytime it's supposed to die it gets stronger, more valuable. Personally I think it has two huge weakness: it's not anonymous enough and not enough like gold ie not stable enough. BTC will only die at the hands of another superior crypto, like MySpace at the hands of FB.

This is an interesting and possibly correct argument by Tyler, but I suspect that the main reason for the recent surge in bitcoin and other leading cryptos has been because of the announcement of Libra, with the wild volatility going on due to how nobody really knows what will eventually come out of the whole Libra experiment.

But my forecast in an Econospeak post was that Libra (if successful) might destroy the regular cryptos, so maybe this surge is at least partly due to the reason being posited by Tyler in this column.

What trade war? Apple intends to build the new Mac Pro in China: I would suggest not to blame China for the motives of wealthy people in the U.S. to evade U.S. tax: it's in their DNA. What Cowen is saying about the future promise of Bitcoin is that lawlessness of the wealthy will rise like the sun: this isn't about just taxes, it's about disrespect for all law. The lawbreaker in chief sets the tone. What's different about Apple and other companies that shift production to China and other low cost places is that their lawlessness is, well, perfectly legal. But that form of lawlessness requires the cooperation of state actors: the country that loses the production, the U.S., and the country that grants Apple a tax-free free ride, the tax haven. With all the tax evasion and tax avoidance going on, at some point the chumps will revolt, and then we will experience a level of "disruption" that Cowen has only dreamed about. The liberal international order will be replaced by the illiberal international chaos. One should be careful what one asks for because one may regret it.

Laws that are immoral should be broken, and income and capital tax are such laws. Protip: it's not oppression when someone doesn't let you steal their stuff.

there will be a long-term need to restore fiscal sanity
Yuk, yuk.
He means an indefinite period of half point deflation while we pay for 50 years of debt. I do not think so, I fully expect us to implement a new form of Nixon shock.

So, a Chinese guy wants to move some of his wealth out of the country. He sells some of his assets in-country for Bitcoin, then uses the Bitcoin to buy assets overseas. The Bitcoin has now left China. But the cycle cannot be repeated unless there is a way for that Bitcoin to return to China. How does that happen? How many foreigners want to use Bitcoin to buy stuff in China? Why?

When I buy a bitcoin in China with yuan, two ledgers alter their shape, the yuan banking network and the bitcoin block chain. The wealthy Chines swapping yuan for bitcoin tends to distribute yuan down and blockchain up. The distribution changes, yuan is more balanced, the block chain more unbalance, it has skew.

As more wealthy yuan holders escape, the PBOC loses wholesale liquidity at the pyramid top, CB stimulus becomes difficult. On the other hand, the block chain tends to collect whales as Chinese welathy escape. The miners fees will change, go up as this continues and bitcoin exchanges become more costly so the system has to relax and revert to mean. Eventually wealthy Chinese withdrawal their currency into the currency of their destination.

Queue balancing is what is going on, not money transfer. Wealth is queue stability, Money is all about getting ledgers aligned in structure such that ratios work. Hen ratios work, pricing works.

Once the wealth tax is initially on the books, expect the 2% rate and $50 million exemption Warren is proposing to change. Higher rate and much lower exemption. Who's going to defend no wealth tax on $20 million new worth? $10 million? $5 million? Sanders? Warren? Harris?

IIRC, when the income tax was introduced in 1913, it was pitched as a "only the rich pay"; the tax rate started at 1% and reached 7% on income above about what would be $10 million in today's dollars.

The wealth tax should be applied to net assets above what a man would be able to defend in a state of nature without government provided property rights. Just like bankruptcy law has a homestead exemption.

The wealth tax is a use fee for government provided property rights. There's no reason for income tax.

"The wealth tax is a use fee for government provided property rights."

Mafia logic. This is literally just protection money. Sadly for you there's this thing called 'capital flight' and 'competing jurisdictions'.

The property owner has to protect his property himself, or have the police and military power of whatever jurisdiction he's in do it for him. If the latter, unless he pays a use fee for it, he's stealing. He's a thief.

Bitcoin will survive because it's a useful tool for the wealthy.

That's a compelling argument. Much better than wannabe anarchists believe they are changing the world.

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