US policy group proposes tax-free Bitcoin economic zone: Is it feasible?

A newly formed policy group in the United States has proposed creating a Bitcoin tax-free digital economic zone (DEZ).

The USABTC policy group is leading the proposal and aims to create a tax-free haven for trading and accumulating Bitcoin without incurring any capital gains taxes. The initiative aims to boost the nation’s economy.

According to the group’s website, the US needs “new solutions” to counter the rising national debt, and Bitcoin is being hailed as an “opportunity” that could “secure the financial future of America and its citizens.”

However, the proposal doesn’t plan to undermine the role of the US dollar but rather strengthen it.

A phased approach

The proposal advocates for creating a DEZ instead of an outright purchase of Bitcoin. The economic area would allow for tax-free Bitcoin transactions, hoping to attract investors and facilitate wealth generation within a regulated environment.

The proposal urges the creation of a token dubbed USABTC, which functions as a pegged Bitcoin system.

It would be powered by a layer 2 network, with the group highlighting Stacks, a layer 2 blockchain for the Bitcoin network, as a possible solution.

A tax redemption policy would be established by installing an exit tax on converting the acquired Bitcoin into fiat currency, thus creating a new revenue channel for the government.

All redemption processes would be direct and won’t involve third-party exchanges.

Tax payments would be directly transferred to a controlled wallet via a smart contract.

USABTC plans to deploy the DEA in phases, with the first phase expected to launch in 2025.

As an initial step, the President is expected to issue an executive directive authorizing the use of the Exchange Stabilisation Fund (ESF) to buy and trade Bitcoin. 

The ESF is an emergency reserve fund established by Congress in 1934 under the Gold Reserve Act and is used during periods of economic stress to stabilize the value of the U.S. dollar.

After this, the next phase would involve drafting legal opinions to classify Bitcoin under the Gold Reserve Act of 1934, initiating legislative efforts to establish the DEZ, and collaborating with the IRS to develop the framework for special tax treatment and tax-free capital gains within the DEZ.

Other initiatives in subsequent phases include plans to launch public education campaigns and implement “necessary technology infrastructure, including blockchain integration, smart contracts, and secure wallets.”

The group expects the DEZ to be operational by 2026 if all regulatory approvals are met.

The proposal comes amidst a lot of activity within the United States around Bitcoin and cryptocurrencies lately. 

Bitcoin buzz in the US

Last week, Senator Cynthia Lummis introduced the Boosting Innovation, Technology and Competitiveness through Optimised Investment Nationwide (BITCOIN) Act, which seeks to establish a reserve fund using Bitcoin.

However, unlike the USABTC proposal, the bill urges the creation of a “decentralized network” of secure Bitcoin storage facilities to hold a maximum of 1,000,000 Bitcoins acquired by the government over at least 20 years.

The idea of using Bitcoin to address the US debt was also floated by Presidential hopeful Donald Trump during the Bitcoin Nashville conference. Meanwhile, his son, Trump Jr., has also teased an upcoming announcement related to cryptocurrencies, which he claims will  “shake up” the market.