NEW YORK - Today, IVIX, a company that builds technology to help tax administrations improve compliance, released a new report analyzing the United States’ potential tax revenue losses through crypto exchanges such as Bitcoin. “Overview of Potential Tax Revenue in the US Crypto Market” is the first report of its kind, providing tax authorities insight into the rapidly expanding cryptocurrency industry and policy recommendations to improve tax collection. The study finds that realized capital gains from Bitcoin total approximately $30 billion per year, which could generate billions in tax revenue annually based on an 18 percent capital gains tax rate.
The U.S. has one of the largest and fastest-growing crypto markets in the world and accounts for 20 percent of the world’s crypto transactions. The rise in popularity, coupled with the decentralized nature of cryptocurrency, has challenged financial regulators and tax authorities. For example, while deposits and withdrawals from exchanges are documented on the Bitcoin blockchain, transactions within an exchange are only documented on that specific exchange – further limiting visibility into potential tax revenue.
“While crypto provides a great opportunity in democratizing finance, it’s become a challenge for governments to collect revenue that’s essential for public services,” said Matan Fattal Co-Founder & CEO of IVIX. “Cryptocurrency is here to stay, and just as business and investors have used technology to evolve, it’s time tax authorities do the same. This report highlights just how urgent that challenge is but also how there’s significant opportunity for tax authorities to realize potential tax revenue.”
"This is a very timely report from IVIX,” said Charles Rossotti, former IRS Commissioner. “First, there is currently an enormous amount of attention in the Administration and in Congress on regulating crypto currencies, as shown in recent Treasury announcements and the Responsible Financial Innovation Act which was just introduced by Sens. Lummis and Gillibrand. Second, the urgent need to enhance the technology tools at the Internal Revenue Service has been widely discussed in the Administration and on the Hill. This report from IVIX adds important insights to these discussions.”
This report, which was based on an analysis of publicly available data on Bitcoin blockchain and exchanges, found that capital gains from Bitcoin total approximately $30 billion per year in the U.S.. IVIX focused on Bitcoin because it is by far the most popular cryptocurrency, with almost 50 percent of the total market cap at the time research was conducted.
Other findings include:
Every year, at least $20 trillion in global business activity goes unreported, and the United States loses nearly $1 trillion worth of taxes from the shadow economy. While the U.S. crypto market is estimated to have realized gains of nearly $30 billion per year, these gains are only the tip of the iceberg as more investors enter the market and begin to cash out. Governments should begin the process of forming policies that capture this massive loss of revenue as it impacts their ability to provide essential public services.
IVIX's full report, "Overview of Potential Tax Revenue in The U.S. Crypto Market" can be viewed online here.
To conduct its analysis, IVIX used publicly available business data for estimating characteristics such as transaction size and capital gains from transaction data from the Bitcoin blockchain. IVIX also set up Bitcoin nodes in order to capture additional information directly from the blockchain, such as the volume of nodes in a certain geolocation.
While deposits and withdrawals from exchanges are documented on the Bitcoin blockchain, transactions within an exchange are only documented on that exchange. IVIX was able to collect this data using deposits and withdrawals from exchanges documented on the Bitcoin blockchain, collecting data from exchanges themselves and by monitoring changes in the market capitalization of Stablecoins, which are used primarily by market makers to cash out of crypto. IVIX then validated their findings by cross-referencing other publicly available data, such as reports, and data provided by industry, media, and other OECD countries.
IVIX helps tax authorities gain insight into the shadow economy so they can strengthen compliance and support public services. With off-the-shelf solutions for high-priority use cases, the IVIX platform provides tax authorities complete and continuous visibility into the shadow economy that’s estimated to reach $20 trillion annually around the world. Powered by artificial intelligence and machine learning, IVIX gathers and enriches publicly available business activity data to accurately identify businesses, their revenue, and the taxpayer entities. For more information visit: https://www.ivix.ai/.