Legit concerns over the threats to BTC of government confiscation and taxation of unrealised gains.

TLDR: with 95% of crypto today being sold through exchanges relaying KYC data to governments, the vulnerability of holders to government confiscation (as opposed to the ban of transactions I.e. China) and taxation on unrealised capital gains is making me very worried.

1. The case for confiscation risk:

95% of Bitcoin on-ramps today require KYC information (Source and exchanges are now required to relay these info to national tax agencies (IRS, HMRC). Therefore, governments are essentially aware of who holds Bitcoin (along with their address and bank account), how much they own and the address in which it is kept (using the public ledger to track transactions).

This makes BTC no longer even pseudo-anonymous (since KYC ties addresses to real-life identities and is relayed to governments) and very seizable with legal pressure applied on the individual holding the private keys of said address. In this circumstance, the BTC holders would have no choice but surrender their BTC to the (clearly authoritarian at this point) government or risk legal repercussions. Unlike confiscation of gold in the US in 1933 (Executive Order 6102) the public blockchain makes it very clear who owns what and where. Even if the user declares having lost their keys, the funds would essentially be frozen forever as any subsequent movement of crypto from this address would prove the user lied and risk further criminal actions.

This confiscation scenario is different from China’s ban on crypto which simply declared all crypto transactions illegal but users simply holding their crypto while moving jurisdiction can remain within the law and in control of their BTC.

If the government then sells the BTC the coins would be redistributed (with a temporary price crash) but the network survives. However, in the case that the US government actually understands BTC and decides to hoard it indefinitely, can it now not have a double-whammy of being able to print as much fiat as it want to consolidate global power while simultaneously pump its own BTC bags to infinity? Such manipulation of the BTC system would surely destroy the whole point of a “self-sovereign” and “outside-of-government-control” currency. Any BTC would now be further dis-incentivised from cashing out to fiat and spending their BTC would only surrender their “way out”

1. The case for unrealised capital gains tax risk:

A second threat from a majority of new crypto holders going through KYC exchanges is again the vulnerability of holders to a government (eyeing you US government) implementing annual capital gains tax on unrealised profits (I am assuming the current US proposal will eventually include a majority of BTC holders in the wealth threshold - gradually lowered as the government seeks more and more tax revenues - given that the central banks will continually inflate the BTC price by printing and devaluing fiat).

This scenario would force holders to sell their BTC to pay for the unrealised gains (plus additional capital gains tax on the now sold BTC??). Would that not make BTC unattractive for new holders? I.e. I buy 1 BTC for $1000 (for simplicity sake); the printing of fiat inflates that 1 BTC to $2000; I now owe 30% of the $1000 gain as tax (=$300); I now have to sell $300 of BTC (i.e. 0.15 BTC @$2000 spot price) to pay that tax (+ 30% of the $300 I just withdrew as realised capital gains tax? - unsure about this); i now am left with $1700 worth of BTC but only 0.85 BTC, which is more USD, but less BTC than I started with. In a world where USD is going to 0 and I want to put my life savings in BTC, this seems to me like a huge problem.

PS: I just wished I bought my crypto from P2P from the start.... Bitcoin has definitely made me more libertarian and suspicious of government/central banks than ever lol.