Bitcoin And Tax Havens

The Commission de Surveillance du Secteur Financier (CSSF), the government body responsible for financial regulation in Luxembourg,on 14 February, issued a release detailing its treatment of digital currencies as well as its expectations for bitcoin businesses.

…the communique included familiar consumer protection warnings, but also featured a unique invitation for interested entrepreneurs.

When one realizes the tremendous size and scope of the amount of money squirrelled away in tax havens, together with the stealth, security and pseudonymous nature of Bitcoin as a store of wealth, you begin to realise the enormous upside price potential of Bitcoins if/when some of that huge sum of hidden money ever starts to move into Bitcoin.

A 2012 report from the Tax Justice Network estimated that between USD $21 trillion and $32 trillion is sheltered from taxes in unreported tax havens worldwide.

The study only reports the US dollars involved but there are also many other currencies that are hidden such as the Euro, the British Pound, the Chinese Yuan and the Russian Ruble. Switzerland and Luxembourg are the two most famous tax havens but there are more.

Just as tax districts had started to make headway in reaching agreements to recapture some of that lost revenue Bitcoin entered the scene.

One of the most important aspects of tax haven money one should recognize is how intransient tax haven money is. Tax haven money isn’t speculative money (like currency traders and speculators would invest) that both enters and leaves the market but rather it is money that is invested for the long haul. If/when tax haven money comes into Bitcoin the investments will essentially remove those Bitcoin from circulation for a long time and, thus, make the price of the remaining coin go up.

If we take the rough average figure of $26 trillion from the article above and add, let’s say, 50% of that value to represent other currencies in tax havens we come up with $39 trillion dollars worth. The current market cap of Bitcoin is only 8 billion dollars (billion with “b” rather than trillion with a “t”). If only ten percent of that money were to flow into Bitcoin as an alternate tax haven it would be a multiple of 500 times the current market capitalization rate. Would that mean the price would go up by 500 times? Probably even more because, as stated, that money will remain parked in Bitcoin (or the Bitcoin will remain off the market) for a long time.

Perhaps an inflow of ten percent is too much to expect initially. Maybe a transition of one percent in the next year would be more realistic. Then it would mean Bitcoin would only increase by a factor of 50. Probably the main driving force affecting how quickly that money will flow into Bitcoin is the amount of enforcement effort that tax jurisdictions focus against the current havens. The stronger their efforts the quicker the exodus would likely become. But since there has been alot of effort focused in the last few years against these tax havens perhaps there is some stored up anxiety that could cause an even larger exodus than the originally offered 10% figure.

If Luxembourg’s open invitation for Bitcoin companies to locate there is sincere then it seems safe to assume the other tax haven locations will follow with similar offers of sanctuary to Bitcoin. And since one of Bitcoin’s biggest problem to date has been obtaining banking services it would seem likely that Bitcoin companies will flock to those locations.

New York’s recent announcement that they are beginning to accept Bitcoin exchange applications seems like a long-shot bet in this new race between financial centers to implement Bitcoin into the world’s financial system.

Russia’s Threat To Dump The Dollar Paltry In Comparison


We hold a decent amount of treasury bonds – more than $200 billion – and if the United States dares to freeze accounts of Russian businesses and citizens, we can no longer view America as a reliable partner,” he said. “We will encourage everybody to dump US Treasury bonds, get rid of dollars as an unreliable currency and leave the US market. 

The above remark by Russian presidential advisor Sergei Glazyev shows a belief that the dumping of their 200 billion dollars worth of US dollars will be detrimental. China seems to have allied itself with Russia in the Ukraine issue and if they joined in then the threats of the dumping are alot more serious. But even together Russia’s and China’s holdings are still smaller than the amount held in tax havens.

This entry was posted in Bitcoin and Government. Bookmark the permalink.

Comments are closed.