Lyn Alden, writer of Broken Money, has presented a compelling argument for fiscal dominance—the notion that governmental expenditure dictates monetary policy instead of the reverse. Her now-iconic meme, Nothing halts this train, summarizes the unyielding path of government obligation and intervention. But what if something—however improbable—could decelerate the train?
Enter austerity. Although it may not be realistically attainable in any significant manner, it is being suggested for the first time in years. Markets are adjusting, not because they truly believe it will occur, but because they are beginning to contemplate whether policymakers are genuinely serious. With the upheaval caused by Trump, Musk, and recent revelations from USAID, the dialogue has shifted. For the first time in a considerable while, there’s unpredictability regarding whether fiscal dominance can progress unrestrained.
When a nation is overwhelmed by debt, policymakers have four primary levers they can manipulate:
- Inflation: Subtly diminishing debt (and savings) by reducing the worth of each dollar.
- Economic Growth: Broadening the tax base and aspiring for a productivity surge.
- Debt Restructuring or Default: A combination of extending, renegotiating, or outright failing to repay creditors.
- Austerity: Reducing expenditure and raising taxes—whether the public approves or not.
For numerous years, the austerity lever was a joke. Now? It’s at least part of the dialogue – and likely part of a mixed strategy. And if the period of fiscal dominance persists, tax policy will likely be the initial area where genuine, implementable changes will manifest.
For bitcoin investors, this isn’t merely another macroeconomic transition to observe passively. Unlike inflation or debt restructuring—forces that are primarily beyond individual influence—a shift in tax policy is one realm where proactive preparation can truly impact your financial situation. The correct strategies could transform impending changes into prospects instead of financial pitfalls.
Five Potential Tax Scenarios for 2025
With fiscal dominance in control, tax policy is experiencing uncertainty. The next 6-12 months will probably fall into one of these five tax frameworks—each possessing unique ramifications for bitcoin investors.
1. TCJA Expiration (5% Probability)
The Tax Cuts and Jobs Act (TCJA) expires, and Congress does… nothing. Income taxes soar, estate tax exemptions diminish, and capital gains become pricier. The bureaucratic equivalent of ghosting your tax obligation.
2. TCJA Continuation (10% Probability)
Congress prolongs the prevailing tax cuts without introducing any new features. A genuine “kick the can” tactic, maintaining the existing structure for a few more years.
3. TCJA Continuation with Adjustments (70% Probability)
This is the baseline scenario: TCJA persists, but with adjustments. Trump has indicated eliminating taxes on tips, exempting Social Security benefits from taxation, excluding overtime pay, and permitting deductions for auto loan interest on domestically produced vehicles. Further incentives for local production, such as lowering the corporate tax rate and reinstating 100% bonus depreciation, might also be considered. The possibility of decreasing capital gains taxes or extending estate tax exemptions could further influence tax planning prospects. And the grand-daddy of them all…
4. Bitcoin Capital Gains Exemption (10% Probability)
A genuine surprise: bitcoin receives special recognition, exempting it from capital gains tax, similar to the treatment of gold in the past. This would create vast tax planning possibilities, from harvesting gains to repositioning retirement accounts.
5. The End of the IRS (5% Probability)
We never predicted we’d say this, but discussions about replacing the IRS with an “External Revenue Service” have emerged. What would that entail for enforcement? Audits? Loopholes? It’s uncharted waters, but worth monitoring.
Three Game Changers That Could Disrupt Everything
Aside from these five scenarios, three unforeseen forces could overturn the situation—and each carries considerable tax ramifications for bitcoin investors.
1. A Liquidity Emergency and Urgent Tax Legislation
Picture an abrupt financial turmoil. The government panics, money printers roar to life, and emergency stimulus checks commence. If the Federal Reserve acts decisively, scarce assets like bitcoin could soar—making timing and tax preparation for gains extremely crucial.
2. A U.S. Strategic Bitcoin Reserve
What was once mere speculation has now become policy. A U.S. strategic bitcoin reserve has been discreetly established via executive order—but as of now, only as a holding, not an active acquisition strategy. The implications? The federal government now officially holds bitcoin, a substantial alteration in its attitude toward the asset.
The critical question: Will the U.S. shift from being a passive holder to an active purchaser? If this happens, it would represent the first instance in which a major nation-state has become a consistent, strategic participant in bitcoin markets. A consistent sovereign buyer would constitute a structural alteration, potentially lessening bitcoin’s volatility and reinforcing its functionality as a macroeconomic hedge.
Would this accumulation persist even through a period of Federal Reserve balance sheet expansion? If so, it would effectively amount to a form of money creation to acquire bitcoin—an undeniably accelerationist move. Whether accumulation starts or not, the mere existence of bitcoin on the government balance sheet modifies its future tax and regulatory treatment, a factor investors need to contemplate in long-term planning.
3. Tariff Shockwaves and Commodity Inflation
The COVID period experienced numerous anomalies in supply chain pricing—lumber shortages, semiconductor scarcity, and spikes in food prices. Now envision those disruptions returning in sporadic and persistent waves.
As tariffs escalate and geopolitical tensions rise, supply chains remain delicate. Shortages in essential commodities could incite rolling inflationary shocks, sending ripple effects throughout global markets. Bitcoin, as a scarce asset, would likely respond, but it also introduces new tax implications. Investors should be ready for capital gains occurrences resulting from price volatility, alongside potential shifts in regulatory treatment if bitcoin is increasingly perceived as a strategic reserve asset.
What Should Bitcoin Investors Do Now?
Regardless of which tax regime or wildcard materializes, here’s what you can manage:
- Roth Conversions – Securing today’s lower rates before potential increases.
- Capital Gains/Loss Harvesting – Leveraging market dips and tax brackets to your advantage.
- Estate Planning – Adapting before and/or after any exemption changes occur using suitable structures and transfers.
- Income Structuring – Keeping taxable events as efficient as possible.
Expanding Tax Strategies for Bitcoin Investors
1. Roth Conversions: Ensuring Tax-Free Growth
A Roth conversion allows you to transfer assets from a traditional IRA to a Roth IRA, paying taxes now to benefit from tax-free growth in the future. If you anticipate bitcoin to soar, this move locks in today’s (lower) tax rate. Convert methodically during market downturns to lessen your tax bill.
2. Capital Gains Harvesting:
Securing Reduced Rates
If you possess substantial unrealized profits, do not postpone action until tax rates increase. Liquidating during a year with diminished taxable revenue might result in lower payments (in certain situations 0%) on long-term capital gains. Pair this with Roth conversions or other strategies aimed at lowering income for maximum effectiveness.
3. Inheritance Tax Planning: The Prospects of Bitcoin Inheritance
If estate tax exemptions are reduced, passing down bitcoin could become significantly costlier. Organizing assets in trusts or family partnerships can aid in alleviating that burden. Gradually gifting bitcoin—utilizing the annual exclusion limit—can also help lessen tax exposure.
4. Income Organization: Fine-Tuning Your Tax Composition
To reach the highest level of tax efficiency, integrating various account types—traditional IRAs, Roth IRAs, and non-retirement accounts—is essential. A thoughtfully organized mix provides tax diversification, which permits you to strategically withdraw resources at lower tax rates in retirement. By balancing taxable, tax-deferred, and tax-free income streams, you can enhance your overall tax responsibilities, smoothing over fluctuations in tax rates throughout time. For bitcoin holders, selling strategically from various account types based on tax categories can greatly influence long-term wealth preservation.
The Next Move: Concentrate on What You Can Influence
Instead of fretting about external forces and their decisions, concentrate on the aspects you can influence. Even if the fiscal situation appears chaotic, you can strive to maintain your family’s stability. While lawmakers deliberate on their choices, your tax approach remains one of the few elements within your control. The opportunity to act will likely arise between October and December 2025—when laws are finalized and before new rates are implemented.
Stay ahead of the impending challenges. Schedule an introduction with our team of Advisors and CPAs to develop a strategy that maximizes the forthcoming opportunities.
This is a guest post by Jessy Gilger, senior advisor at Sound Advisory. The views expressed are solely their own and do not necessarily represent those of BTC Inc or Bitcoin Magazine.
