As Donald Trump’s potential policies remain a focal point of political discourse, discussions about his stance on cryptocurrencies have resurfaced. 

One of the more ambitious ideas speculated upon is whether Trump could move to eliminate the capital gains tax on US-based crypto projects. 

While this possibility has generated excitement in some corners of the crypto industry, analysts at TD Cowen highlight the complexities and challenges surrounding such a move.

The United States currently classifies cryptocurrencies as property, which means they are subject to capital gains taxes when sold or exchanged at a profit. 

This taxation structure has been criticized by many in the crypto industry as an obstacle to innovation and growth, particularly when compared to jurisdictions like Singapore or the UAE, which have more favorable regulatory frameworks. 

Proponents argue that removing capital gains tax could incentivize blockchain innovation and position the US as a global leader in the crypto space.

However, eliminating the capital gains tax on cryptocurrencies would not be a straightforward task. 

As TD Cowen analysts point out, such a policy shift would require significant legislative support. The capital gains tax is deeply embedded in the federal tax system, and changing it specifically for one asset class—crypto—would likely face resistance from both lawmakers and regulators. 

The Internal Revenue Service (IRS), which has been increasing its scrutiny of crypto transactions, may also raise concerns about tax evasion risks associated with exempting crypto from capital gains.

Even if Trump were to champion this policy as part of a broader deregulatory agenda, analysts at TD Cowen stress that the political landscape would play a decisive role. 

A Republican-controlled Congress might be more receptive to the idea, particularly if framed as a way to stimulate technological innovation and job creation. 

Yet, bipartisan support would be crucial for any meaningful tax reform, and Democrats are likely to push back, citing revenue losses and potential benefits skewed toward wealthy investors.

Another layer of complexity involves the broader implications for the US economy. Critics warn that a capital gains tax exemption for crypto could set a precedent, leading other industries to demand similar treatment. 

This could strain government revenues and deepen the federal deficit. Additionally, TD Cowen analysts note that such a policy might inadvertently encourage speculative trading rather than long-term investment in blockchain technology.

Despite these challenges, the crypto industry remains hopeful. Advocates believe that Trump, known for his pro-business stance, could at least pave the way for a more favorable tax environment, even if outright elimination of the capital gains tax proves unfeasible. 

This could involve measures like reduced rates for crypto gains, tax deferrals for long-term holding, or clearer guidelines on taxable events.