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Cryptocurrencies are purchased with income that has already been taxed

Why Many Investors View Taxation of Long-Term Bitcoin Gains as an Additional Burden

People who buy Bitcoin or other cryptocurrencies usually use money that has already been taxed.

The employee receives his salary, pays income tax and social security contributions, and then invests a portion of his remaining income in Bitcoin. Just as when buying gold, silver, works of art, or other assets, no new money is created; rather, income that has already been taxed is converted into another form of wealth.

That is why many investors view the current debate over the elimination of the holding period as problematic. They ask themselves:

Why should long-term capital gains on my Bitcoin be taxed, even though I already paid for the investment with income on which I’ve already paid taxes?

That’s a valid question—but it’s worth taking a closer look at the tax and economic implications.

An example from everyday life

Let’s say Sarah earns 60,000 euros gross per year.

After taxes and social security contributions, for example, she is left with 36,000 euros net.

She invests 10,000 euros of this money, which has already been taxed, in Bitcoin.

Ten years later, she sold her Bitcoin for 50,000 euros.

Under current law, this gain would be tax-free after the one-year holding period expires.

If the holding period were eliminated, the profit could become taxable in the future.

Many investors see this as an additional burden on their savings. After all, the initial investment comes from income that has already been taxed.

Double taxation or double burden?

In public discourse, there is often talk of “double taxation.”

From a legal standpoint, however, this term is not correct.

The income was taxed when the Bitcoin was purchased.

In the event of a subsequent sale, however, the capital gain would be taxed.

These are, therefore, two different tax transactions.

Therefore, it cannot be said that there is double taxation in the legal sense.

The more accurate term is:

The double burden of saving.

Anyone who spends their income immediately does not pay any additional tax on the purchased item.

On the other hand, those who save and invest will be taxed again on the resulting income or capital gains.

This is precisely what has been debated for decades in the fields of tax and financial studies.

The Often-Overlooked Point: Inflation and Illusory Gains

This question becomes particularly relevant when it comes to long-term investments.

This is because German tax law generally does not take inflation into account when calculating capital gains.

One euro in 2015 is treated the same for tax purposes as one euro in 2035.

In reality, however, money has lost purchasing power over the years.

As a result, part of an apparent profit may simply offset the loss of purchasing power of the money.

In this context, economists refer to these as “apparent gains.”

A simple example:

Someone invests 10,000 euros in an asset.

Ten years later, he sold it for 15,000 euros.

On paper, the profit is 5,000 euros.

However, if the purchasing power of money has declined significantly during this period, the actual increase in wealth may be considerably lower.

Nevertheless, the entire nominal profit would be taxed.

This effect can be particularly significant in the case of long-term investments.

The holding period prevents such long-term gains in value from being taxed again after many years.

Bitcoin is not a special case

Some critics argue that Bitcoin receives preferential tax treatment.

However, a look at the Income Tax Act shows that the holding period was by no means created specifically for cryptocurrencies.

The same rule applies to other private assets as well.

This includes, for example:

• Gold and Other Precious Metals
• Works of art
• Antiques
• Collectibles
• Foreign currencies

Anyone who holds these assets for more than one year can also realize capital gains tax-free.

Bitcoin is therefore not treated any better than gold or other comparable assets.

Rather, the current regulation follows a framework of German tax law that has been in place for decades.

Aren’t Bitcoins “generated for free”?

A common counterargument is that Bitcoin is created “out of thin air” and must therefore be treated differently.

In fact, this argument doesn’t affect most investors at all.

The vast majority of Bitcoin owners purchase their coins on exchanges or trading platforms using income that has already been taxed.

However, tax rules already exist today even for mining and staking.

Income from mining, staking, or lending may be subject to tax and must be reported for tax purposes under certain conditions.

Therefore, there is no question of tax-free creation of new assets.

But aren’t stocks taxed, too?

Another common objection is:

“Stocks are also purchased with income that has already been taxed. Why should it be any different with Bitcoin?”

In fact, capital gains on stocks have generally been subject to taxation since the introduction of the flat-rate withholding tax in 2009.

However, the legislature has deliberately placed shares under a separate tax regime.

Stocks represent ownership interests in a company and can generate ongoing income in the form of dividends.

Bitcoin works differently.

For tax purposes, Bitcoin is more similar to gold than to a stock. It is not a share in a company and does not generate ongoing income.

For this reason, Bitcoin is currently treated like other so-called “economic assets” under Section 23 of the Income Tax Act.

Whether this distinction will remain meaningful in the future is a political question.

However, this does not mean that the current regulation is an unwarranted privilege.

Why the holding period is important

The holding period ensures that long-term wealth accumulation is not subject to additional taxes on an ongoing basis.

It takes into account that investments are made from income that has already been taxed and that long-term increases in value often include inflation-related components.

This principle applies not only to Bitcoin, but also to gold, works of art, and foreign currencies.

The holding period is therefore not a special benefit for cryptocurrencies, but rather part of a tax system that has been in place for many years.

Conclusion

Bitcoin and other cryptocurrencies are generally purchased with income on which taxes have already been paid.

From a legal standpoint, while the deferred taxation of profits does not constitute double taxation, it does place an additional burden on long-term saving and investing.

Especially when holdings are long-term, part of the increase in value merely offsets the loss of purchasing power of the money. Nevertheless, this nominal gain would be taxed in full.

The current holding period takes these special circumstances into account. It ensures that private wealth accumulated over the long term—regardless of whether it was invested in gold, art, or Bitcoin—can be sold tax-free after a sufficient holding period.

Sources and Further Information

• § 23 of the Income Tax Act (Private Sales Transactions)
• § 20 and § 32d of the Income Tax Act (Withholding Tax)
• § 22, No. 3 of the Income Tax Act (Other Income)
• Letter from the Federal Ministry of Finance dated March 6, 2025, regarding cryptocurrencies
• BFH, Judgment of February 14, 2023 – IX R 3/22
• Federal Constitutional Court, BVerfGE 50, 57 (nominal value principle)
• OECD: Taxation of Household Savings
• Mirrlees Review: The Taxation of Household Savings