US Policy Group Proposes Bitcoin Tax-Free Zone to Boost Digital Economy

The newly formed USABTC policy group aims to establish a Bitcoin tax-free Digital Economic Zone (DEZ) in the United States. The initiative is designed to position the country as a global leader in the digital economy by allowing Bitcoin transactions within this zone to be carried out without capital gains taxes. 

However, a tax would be imposed on the redemption of Bitcoin back into traditional currency, ensuring a revenue stream for the government.

A Vision for Economic Leadership

The USABTC proposal suggests that the creation of a DEZ would attract significant investment and encourage wealth growth within a regulated environment. The group argues that an outright government purchase of Bitcoin would be impractical and politically challenging. 

Instead, the DEZ would offer a tax-free environment for Bitcoin trading and accumulation, while the redemption tax would provide necessary revenue for both federal and state treasuries.

Ensuring Stability and Innovation

USABTC aims to build a pegged Bitcoin system built on a layer-2 solution to ensure efficient and secure transactions. This system would maintain the central role of the dollar while leveraging the potential of Bitcoin. 

The initiative also emphasizes the protection of self-custody rights, addressing concerns about government overreach that are prevalent within the cryptocurrency community

DEZ implementation would begin with President Joe Biden issuing an executive directive to authorize the use of the US Treasury's Exchange Stabilization Fund (ESF). The proposal outlines a phased approach that includes drafting legal opinions, legislative efforts, and extensive public outreach to gain broad support. 

The Internal Revenue Service (IRS) would collaborate in establishing a robust legal framework and approving the proposed tax structure.

Global Context and Future Implications

The concept of economic free zones for digital assets is not entirely new. Last October, the United Arab Emirates (UAE) launched the RAK Digital Assets Oasis (RAK DAO), a new economic free zone dedicated to the development of digital assets, Web3, and Artificial Intelligence (AI) companies. 

The RAK DAO offers businesses complete ownership and the ability to establish their own tax rules and regulatory frameworks, albeit within the constraints of existing UAE criminal laws.

Like the proposed U.S. DEZ, the RAK DAO aims to attract investors and foster innovation in the digital economy. It has already partnered with several organizations, including the HBAR Foundation and local bank RAKBANK, to support the growth of its ecosystem.