What is the de minimis exemption, and why does it matter for Bitcoin?

After the initial uproar from a March 11 report that claimed that Coinbase was lobbying Capitol Hill against a de minimis tax exemption for Bitcoin, the rhetoric has since been dialed as strong denials and context have been applied to the legislative conversation around the CLARITY Act — Armstrong and Coinbase may simply not prioritize the Bitcoin de minimis exemption because it is not its business. 

Within hours of the allegation, Coinbase’s entire policy executive bench had issued categorical denials, Jack Dorsey had nudged Coinbase CEO Brian Armstrong publicly for a response, and swaths of the Bitcoin community had drawn their conclusions.

Armstrong responded to a TFTC post that stated that Coinbase was trying to kill the Bitcoin de minimis exemption, calling the allegations “totally false.” He wrote, “I’ve spent a bunch of time lobbying for Bitcoin’s de minimis tax exemption, and will continue doing so. It’s obviously the right thing.”

What is the de minimis exemption, and why does it matter for Bitcoin?

Bitcoin is currently classified as property under the United States tax law. That means every time a holder spends it, including on routine purchases, it constitutes a taxable disposal event, requiring cost-basis tracking and capital gains reporting. 

That classification makes Bitcoin impractical as everyday money. A de minimis exemption would carve out small transactions from this requirement, treating them similarly to minor foreign currency exchanges, which already receive such relief. 

Senator Cynthia Lummis has been the most prominent champion of this reform. Her bill, introduced last July, proposed a $300 per-transaction threshold with a $5,000 annual cap on everyday crypto transactions. 

The current House framework, the CLARITY Act discussion draft, includes a stablecoin-only exemption capped at $200 for regulated, dollar-pegged tokens; however, there was no provision for Bitcoin. 

Advocacy platforms like the Bitcoin Policy Institute (BPI) called out the absence of Bitcoin in this draft. The BPI has been active in their engagement with Congress, reaching an understanding that a de minimis exemption for stablecoins is not sufficient. The nonprofit organization is working to get the Hill to consider the exemption for Bitcoin. 

Did Coinbase actually lobby against the Bitcoin exemption?

So far, there’s no concrete evidence that Coinbase was lobbying against the Bitcoin de minimis exemption other than reports attributed to Marty Bent. 

Bent responded to Armstrong’s denial on X, stating, “I have sources that say otherwise, not you personally, but your team and/or lobbyists. Will you commit to walk away from the market structure bill if it doesn’t include the de minimis exemption for bitcoin like you did stablecoin yield?”

Coinbase Chief Policy Officer Faryar Shirzad called it “a total lie.” Vice President of US policy at Coinbase, Kara Calvert, said the claims were “categorically false,” adding that Coinbase has advocated for a de minimis exemption covering all digital assets since 2017. 

Chief Legal Officer Paul Grewal stated that Coinbase had never lobbied against Bitcoin.

So far, Bent has not retracted the claim.

Frank Corva, content producer and strategist at Fedi, writing on X, may have the most logical opinion in this wildly swinging situation. 

He stated that Armstrong simply may not prioritize the Bitcoin de minimis exemption because it does not benefit Coinbase or the businesses he has interests in. Corva recalled Armstrong’s stated view that “stablecoins are the best form of money,” which would explain why Bitcoin’s inclusion in a US payments tax exemption may not be top of mind for him. 

Corva noted separately that from conversations with people close to the negotiations, the de minimis question was not even the central focus; the Blockchain Regulatory Certainty Act (BRCA) was the bigger fight.

The BRCA, which would protect non-custodial software developers from Bank Secrecy Act obligations, is the legislation that Coinbase and much of the industry have staked as a red line, as Corva says it seems to potentially be on the chopping block in the bill.

Where does Tether stand in this fight?

Through the entirety of the controversy, Tether, the issuer of USDT, the world’s largest stablecoin by market capitalization, has said nothing on the matter.

Tether does not share yields with USDT holders, unlike Circle with its USDC, so it doesn’t “have much beef in this fight.” It has no direct financial stake in whether Bitcoin gets a de minimis exemption or not, either, unlike The Bitcoin Policy Institute, Jack Dorsey’s Block, whose “Bitcoin is Everyday Money” campaign has invested in Lightning Network infrastructure, and Senator Lummis. 

The fury directed at Coinbase came from an unstated assumption that it is obligated to champion Bitcoin’s cause in Washington at all times, at the expense of its own commercial priorities.

The truth may be that you can’t run a successful company in the crypto industry while being your brother’s keeper all the time, every time.

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