The Danish government plans to introduce a tax on unrealized crypto gains starting in early 2025, which means that investors would be taxed on the annual increase in the value of their assets, even without selling them.
Part of the proposed legislation also includes a requirement for crypto service providers to report their clients’ transactions.
Critics are emerging regarding the potential impact of this measure, with experts like Mads Eberhardt estimating that the tax rate could reach 42%, affecting past and future investments, and risking discouraging innovation and growth in the crypto sector.
Denmark is poised to take a crucial step in crypto taxation regulation.
The proposal, set to begin in 2025, could introduce a system of taxing unrealized gains on cryptocurrencies, a move that is sure to provoke strong reactions within the crypto community.
The mark-to-market taxation at the heart of the crypto reform in Denmark
The central recommendation of the Danish Tax Council is based on a so-called ‘mark-to-market’ taxation for cryptographic assets. This mechanism involves taxing the annual variations in the value of assets, whether they are sold or not. In other words, even if a crypto investor does not sell their assets, they will still be taxed on the theoretical increase, calculated each year.
According to the report published by the Council, this new approach aims to ‘eliminate the asymmetry in the taxation of gains and losses.’ This asymmetry arises from the decentralized nature of cryptocurrencies, which are not regulated by central entities such as banks or governments, making it difficult to implement traditional tax regulations. With this reform, Denmark aims to harmonize the tax treatment of digital assets with that of other financial asset classes.
Scheduled implementation for 2026
If this proposal is incorporated into law, the mark-to-market taxation would only take effect on January 1, 2026, allowing for a transition period for investors and market participants. In parallel, the Danish Minister of Taxation plans to submit a bill in early 2025 that would incorporate the recommendations of the Tax Council.
This bill is also expected to include a requirement for crypto service providers to report their clients’ transactions. This measure aims to improve tax transparency and facilitate data collection by the Danish tax administration, thereby reducing the risk of tax evasion on cryptocurrency gains.
42% tax on unrealized crypto gains? A concerning rate
The initial reactions to this announcement were quick to come. Mads Eberhardt, a senior analyst at Steno Research, sharply criticized this proposal (without specifying that it was currently only a proposal) on X (formerly Twitter). He believes that the tax rate on unrealized gains could reach 42%, a figure that could have a significant impact on crypto investors in Denmark.
Eberhardt stated that this reform would not only affect crypto assets acquired after the implementation of the law but also those obtained from Bitcoin’s ‘genesis block’ dating back to January 2009. According to him, ‘the gauntlet has been thrown, it’s a war against cryptocurrencies.’
Potential consequences for investors and the crypto market
The introduction of this tax on unrealized gains could have major repercussions for Danish investors. Indeed, the extreme price fluctuations of cryptocurrencies, already well-known in the industry, could lead to situations where investors are taxed on gains that could quickly be lost in the event of a market downturn.
From a broader perspective, this proposed legislation could also influence other European countries to adopt similar approaches, increasing the tax pressure on crypto holders. Some experts fear that this could discourage innovation and growth in the cryptocurrency sector, especially for young companies and blockchain startups.
A new battle for the crypto industry
If this reform comes to fruition, it will mark a decisive turning point in the relationship between governments and cryptocurrencies. Denmark seems ready to impose strict tax measures to regulate digital assets, a move that could be seen as an attempt to control a crypto sector that has so far eluded many traditional regulations.
The coming months will be crucial for Danish crypto investors, who will closely follow the evolution of this legislation and the ensuing debates. For many, this proposal symbolizes a rise in cryptocurrency regulation worldwide, with potential impact on the entire digital ecosystem.
