( Cryptocurrency Edition ) How to Never Pay Taxes for a Lifetime: The Buy, Borrow, Die Trilogy

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This article should not be considered as any investment, financial, or tax advice; it is purely for entertainment.

I don't particularly like the ambiguous translation of cryptocurrency, so in this article, I will refer to it as digital currency.

Countries around the world generally impose taxes on digital currencies ranging from 0% to 30%. For those held for a certain period, there are usually corresponding tax rate benefits and exemptions.

In the ancient and distant East, in the land of the rising sun, the birthplace of the creator god of the metaverse — サトシ・ナカモトSatoshi Nakamoto , the tax rate on digital currencies can reach as high as

110%#

Tax Mini-Drama#

A friend talked about the taxes on trading coins in Japan, which is even funnier. If you bought a coin for 1 yen and it rises to 1 billion yen.

When you sell it, you have to pay about 550 million yen in taxes. So many people can't sell.
They end up passing it on as an inheritance to their children. If the children want to access these coins, they also have to pay 550 million yen in inheritance tax.

But the children have no money and need to pay 550 million yen in cash within 10 months, so they can only sell the coins, and when selling coins worth 1 billion yen, they also incur 550 million yen in income tax.

So leaving 1 billion yen in coins for the children, with inheritance tax and income tax totaling 1.1 billion yen, the double taxation means the children end up owing the government 100 million yen, leading to personal bankruptcy and confiscation of assets.

Source:

https://x.com/yibingdebing/status/1874718198052057386

Currently, borrowing dollars has a relatively high interest rate, which can be painful for consumption, but looking at Japan's tax rate, borrowing money to pay interest suddenly seems more cost-effective.

Step One: Buy.#

All funds All IN $BTC.

As for whether to buy an ETF or actual BTC, it depends on your beliefs; different choices lead to different subsequent developments.

With Bitcoin and Ethereum, the solid Bitcoin is always there, while the second-tier coins come and go.

In the fast-paced metaverse, despite the passage of millions of years, no other digital currency has yet been born that can outperform BTC over two cycles.

Step Two: Borrow.#

Let’s assume you have $10M (about 100 BTC), then after going all in on BTC, according to the FIRE community's typical safe withdrawal rate of 4%, you can spend $400k annually.

Considering the borrowing we will discuss later, with interest, let’s assume you can only spend 3%, which is $300k.

If all your money is all in BTC, where does the spending money come from?

Borrow money, don’t sell BTC!

Borrowed money should not be repaid. Money borrowed based on your ability, why should you repay it?

Of course, this is under the premise of a relatively safe leverage ratio.

Because this money is borrowed, it is debt, not income, so this money does not need to be taxed (and does not even need to be actively reported).

What, worried about Bitcoin dropping? Listen to what BTC Maxi Hu Yilin has to say:

Holding 10% (in fiat) is already a lot, enough to be anxious.

For example, a family with an 8 million yen property taking out 800,000 yen to invest in stocks is also a lot. If they suddenly buy 80,000 yen worth of lottery tickets, that would be quite extravagant. Bitcoin is long-term savings, playing altcoins is short-term speculation, and some is just gambling.

I think it's quite aggressive for Bitcoin players to use 1% of their assets for gambling; do they need more stimulation?

A 10% position not in Bitcoin is very stimulating. You wouldn't think holding Bitcoin is stimulating, would you?

ETF Version#

Although Japan has high taxes, the good thing is that borrowing yen has low interest rates. You can almost borrow yen for consumption at zero interest by pledging directly with a brokerage to purchase ETFs.

A friend borrows a few million yen from his stock account every time he travels to Japan, only needing to pay almost no interest each year, which is equivalent to free travel.

The only problem is that it seems Japanese people are not allowed to purchase BTC-related ETFs due to KYC regulations.

Degen Version#

There are roughly the following paths:

Overseas CEX pledging BTC -> borrowing USD stablecoins -> exchanging on-chain for JPYC -> JPY
On-chain WBTC -> borrowing USD stablecoins -> exchanging on-chain for JPYC -> JPY
Overseas CEX pledging BTC -> borrowing altcoins supported by local Japanese exchanges -> selling on local Japanese exchanges -> JPY

Although using JPYC can be a bit cumbersome for consumption, it can generally cover daily use.

The third path, equivalent to shorting the BTC-altcoin exchange rate, carries higher risks than the other options.

Japan has a unique situation where various stablecoins are banned locally, and taxes are calculated based on the profit and loss of each transaction converted into yen, rather than looking at how much you deposited, withdrew, or ultimately profited.

So the above paths may still incur a small amount of tax:

USD stablecoin -> JPYC -> JPY, during the exchange period, if the USD/JPY exchange rate appreciates, it may generate profits and taxes.
The specific tax calculation method is quite complex; it doesn't matter if you don't understand it, I don't understand it either; let the Japanese netizens who do taxes worry about it. Also, any amount less than 200,000 yen can be tax-exempt, so generally, a few instances of momentary fluctuations won't generate that much profit.

To avoid the final tax on stablecoins, it seems there was a path of "pledging stablecoins to borrow JPYC" a few years ago, but it no longer exists.
Reference: https://x.com/noritaka_okabe/status/1413520934795812870

Step Three: Die.#

Honest Person Version#

The "death" step in Japanese tax law has issues; the inheritance tax on digital currencies can reach as high as 110%, although this is an extreme case.

As mentioned in the earlier "Tax Mini-Drama," this version of "death" is how it can be a trap for children.

Many people wonder why; here are some explanations regarding tax law:

The profits from selling digital currencies are currently classified as "miscellaneous income" under Japanese tax law.

Miscellaneous income is different from independent taxable items like stocks; the tax amount is calculated based on the selling price minus the original acquisition cost of the deceased, which leads to this absurd situation.

ETF Version#

As stock inheritance, the tax rate is lower, and there is a certain tax exemption limit, but unlike the United States, there is no step-up in basis, and taxes are charged based on the asset valuation at the time of inheritance.

While it won't lead to absurd events like 110%, when inherited assets exceed 600 million yen, the highest tax rate still reaches 55%.

Outlaw Version#

I just inherited a USB drive from my father; tax? What tax?

Future#

The high tax rates have led many Japanese cryptocurrency enthusiasts to choose to immigrate to countries with more favorable tax rates, such as Malaysia or Dubai.
Or they choose stocks related to MSTR, Coin, etc., as substitutes for BTC.

The Japanese government is also seeking reforms; for example, this year (2025), they will actively discuss some proposals, hoping to implement separate taxation to achieve lower tax rates and retain more talent.

Key Points of Cryptocurrency Tax Reform, the Future of Separate Taxation, and the Impact of the Payment Services Act Reform?

r0k1s#i