A study released by the Minneapolis Fed on October 17 stated that assets like Bitcoin should be taxed or banned for governments to maintain deficits.

In an economy where the government is trying to run permanent deficits using nominal debt, the existence of Bitcoin creates problems in policy implementation. The Fed stated in the study that Bitcoin revealed a situation called the “balanced budget trap”, which forces the government to balance its budget.

Researchers have considered Bitcoin as an example of a fixed-supply, private sector security with “no real resource demands” and have argued that Bitcoin should be banned or taxed to solve this dilemma.

“A legal ban on Bitcoin could restore the implementation of permanent primary loopholes, and a tax on Bitcoin could achieve the same result.” A primary deficit is when a government spends more than it receives tax revenues, excluding interest payments on its debt.

The term “permanent” means that the government plans to consistently spend more than it receives.

The US has so far accumulated a massive national debt of $35.7 trillion. By contrast, the primary deficit, the difference between annual spending and tax revenues, currently stands at about $1.8 trillion.

The main driver of the fiscal year 2024 deficit, the largest outside the Covid-19 period, was a 29% increase in interest costs for Treasury debt to $1.13 trillion, Reuters reported on October 19. This increase was due to higher interest rates and more borrowing.

Matthew Sigel, head of digital asset research at VanEck, said on October 21 that the Minneapolis Fed has joined the European Central Bank (ECB) in attacking Bitcoin. Additionally, the Fed:

“He envisions legal bans and extra taxes on Bitcoin and tries to ensure that government debt remains the ‘only risk-free security,’” he said.

Meanwhile, Messari co-founder Dan McArdle uncovered a paper published in 1996 by the Minneapolis Fed called “Money is Memory.” Interestingly, this article advocated for Bitcoin 12 years before its emergence.

In the article, money was described as an object that “does not enter into production”, “exists in fixed supply” and is “equivalent to a primitive form of memory”. On October 12, the ECB published an article claiming that old Bitcoin owners were profiting at the expense of new owners and argued that the asset should be regulated to prevent price growth or ban it altogether.

ECB Senior Management advisor Jürgen Schaaf joined the calls for the elimination of Bitcoin in a post on X on October 20.

“Those who do not own Bitcoin must understand that Bitcoin’s rise is fueled by wealth redistribution to their detriment,” he said, adding, “There are strong reasons to advocate for policies that hinder or eliminate Bitcoin’s growth.”