The government is betting on cryptocurrencies to make cash, but risks an own goal: Double taxation on capital gains

In an effort to boost budget revenues without causing discontent among the various electoral lobbies, the government has chosen to focus on the cryptocurrency world. The proposal, which is included in the budget law, provides for a doubling of the tax on capital gains from cryptocurrency trading. According to the current text of the standard, if an investor obtains a profit, the state will collect 42% net on capital gains over 2,000 euros, that is the difference between the purchase price of the cryptocurrency and its sale price. However, if the investor makes a loss, the damage remains entirely at his expense. Like: partners only in gains.

The cryptocurrency market in Italy involves a large pool of investors: it is estimated that over 3.6 million Italian citizens, for a value of more than 2.7 billion euros, hold cryptocurrencies. Many of them have chosen this asset as a form of speculative investment, with the hope of obtaining significant gain in case of an increase in value of cryptocurrencies. This speculative vision is far from the original idea of Satoshi Nakamoto, the creator of Bitcoin, who imagined a currency independent of national states and traditional banking systems.

"Cryptocurrencies in Italy - explains an analyst at iSwiss Bank - are seen by many as a cross between an exotic curiosity and a kind of digital 'scratch'. Many dream of getting rich quickly, attracted by stories of sudden upswings in value. In addition, buying cryptocurrencies online allows Italians to feel technologically advanced and free to invest without being forced to turn to traditional banks, which often offer only their own investment products."

This aspect of perceived freedom in cryptocurrency purchases has contributed to their spread across the country, especially among the younger generation, which represents a large share of crypto investors. Equal, according to the latest data, 16% of millennials and 13% of generation Z. However, according to Christopher Aleo, CEO of iSwiss, the Government’s proposal could turn out to be an "announced failure" for several reasons.

The first problem is related to the difficulty of taxing transactions effectively. Most cryptocurrency investors do not realize the gains in Italy, and their actual reporting only comes through an ex post entry in the RW box of the tax return or following any verification. "If you trade in cryptocurrencies on an exchange, most likely this will happen on the main international players and not necessarily on Italian platforms" explains the CEO of iSwiss Bank. This means that already today many investors prefer to use foreign wallets and platforms, thus remaining off the radar of the Italian tax authorities. This trend is bound to grow.

The second problem is related to the unequal tax treatment between different types of investment in cryptocurrencies. Cryptocurrency ETFs, financial instruments offered by foreign issuers, would remain taxed at 26% on capital gains, while direct holdings of cryptocurrencies would be taxed at 42%. This unequal treatment could push professional investors to move to foreign ETFs, bringing a capital flow out of the country.

Finally, the third critical issue concerns the impact this measure would have on young investors, who represent the majority of users in the cryptocurrency market in Italy. Targeting this demographic could slow down the development of the entire innovative ecosystem linked to cryptocurrencies, blockchain technologies and emerging digital projects, This is a sector which Italy desperately needs to keep up with the world’s major economies.

According to Christopher Aleo, the new tax risks bringing "only a few coins in the coffers of the state in front of much greater damage to the economic system". In the face of uncertain and limited tax revenue, costs in terms of loss of competitiveness and innovation could be very high.

Meanwhile, iSwiss, the platform of which Christopher is CEO, continues to operate following the original vision of cryptocurrencies as a means of payment rather than simply a speculative instrument. "Our platform allows for payments in cryptocurrencies, with instant conversions based on the exchange rate at the time of transaction, for almost all payments that would normally be made by credit cards. We also continue to support the use of stablecoins, despite many other platforms having started to remove them from their offering portfolio due to European regulations such as MICAR," concludes Christopher Aleo.

The government’s proposal to double the tax on cryptocurrencies thus opens up a heated debate about the long-term consequences for the Italian economy. On the one hand, the need for new revenue is clear, but on the other, the measure risks undermining an emerging sector, stealing capital and skills from the country at a crucial moment for its digital transformation.