Who in their right mind would waste their Bitcoin on taxes or buying random stuff?

Question

First of all, I very much get the "argument" that Bitcoin has to be used as a currency for it to function long-term and it's a good thing if it is, etc. Not arguing against that.

But when I keep hearing about this company and that government/state/town "accepting" Bitcoin for payments of random stuff or taxes, I can't help but wonder to myself: Who in their right mind would be wasting their hard-earned Bitcoins like that? Why would they not pay taxes/stuff with fiat and hold on to their BTC?

Of course, excluding the remote possibility that they are all doing it "for the greater good", which sounds extremely unlikely.

The only explanation I can possibly think of is that maybe they expect it to go up in value, so if they buy some Bitcoin now, even if at a premium, and then wait for some time, and then use it to pay for taxes/stuff later, they would still waste less money even including the capital gains taxes that they have to pay to pay for the taxes... in fiat... because they used their Bitcoin to pay for... taxes... ugh... my head starts spinning just trying to make sense of that.

Answer 1

Paying taxes / buying goods / etc with Bitcoin, is equivalent to selling the Bitcoin and paying with fiat, except that it might be more convenient and save transaction costs to do it in one step. Thus your question boils down to "Why would anyone 'waste' Bitcoin by selling it?" And of course there are many rational reasons to sell Bitcoin:

• you believe its price will go down

• you want to reduce your exposure to its volatility

• you need to pay your taxes / buy your goods right now, and you don't have, or don't want to use, enough fiat or other assets to do so.

So there's an implicit bias in your question: you're assuming that holding a given amount of Bitcoin is "better" than holding an equivalently-valued amount of fiat - in other words, you're assuming that Bitcoin is undervalued. Whether that's true is a matter of opinion, and certainly there are people who wouldn't share that opinion. They might just as well ask the opposite question: "Who in their right mind would waste their hard-earned fiat currency paying taxes, when they could instead take the opportunity to unload a bunch of crappy Bitcoins on the government?" Only time will show which of the two of you was correct.

Note that the "hard earned" part is irrelevant (ignoring the effect of capital gains tax and the like). Whether it's a good idea to sell Bitcoin is a function only of its current price, together with your personal model as to how its price will behave in the future. How much you paid to get it is immaterial, except psychologically.

Answer 2

Who in their right mind would waste their Bitcoin on taxes or buying random stuff?

Can't comment on taxes because it's different in every country and depends on individual how they manage it.

Who would use their bitcoin for payments?

1. Holds only bitcoin and no fiat
2. Not interested to see few things in bank/card statement
3. Merchant accepts only bitcoin or other cryptocurrencies
4. Want to avoid payments being censored by governments

Also using bitcoin for payments allows you to buy more things over a long period of time especially bull markets:

https://link.medium.com/p8oVGwGWAgb

Normally people manage fiat in bank account, credit card, long term savings, investments etc. If someone wants to buy ice cream, most probably they will use cash/card and not withdraw money invested in markets or long term savings. Similarly, bitcoin can be managed in cold storage (long term savings), hot wallet on-chain (for payments, trading, etc.) and LN wallet(for quick payments with low fees). Don't need to use cold storage for payments.

Answer 3

But when I keep hearing about this company and that government/state/town "accepting" Bitcoin for payments of random stuff or taxes, I can't help but wonder to myself: Who in their right mind would be wasting their hard-earned Bitcoins like that? Why would they not pay taxes/stuff with fiat and hold on to their BTC?

Why wouldn't I pay my taxes with my used tissues? I don't want to keep them at all. And yet I pay my taxes with my hard earned dollars. Why?

Abstractly, it makes sense to use for payments whatever the person you are paying most wants. If I go to a car dealership and offer to pay them with dollars or toilet paper, they might be willing to accept either. But they're sure not going to give me a great deal if I pay with toilet paper because they don't want it as much.

So if everyone really wants to hold bitcoin, then it makes the most sense to use bitcoin as a means of payment. Sure, I could hold bitcoin and eventually benefit from its appreciation. But I can also use that bitcoin to pay right now and still benefit from its appreciation because I am giving that benefit to the seller in exchange for its full, current value.

Also, because bitcoin is easy to buy and sell, it makes sense to be fairly indifferent to what asset you buy with or sell with. If you pay with me dollars and I want bitcoin, I can buy them. If you really want bitcoin and I'd prefer to pay with dollars, I can just buy them.

So if you really like bitcoin, it makes sense to use them for payments whenever you can because that reduce the amount of dollars you have to hold.

The important thing to understand is that future appreciation is always already priced in if it is reliable. If bitcoin is sure to be worth $50,000 in a year, nobody will sell it for $25,000 today because it will be easy to find people who will pay more than that. Bitcoin has the price today because that is a fair consensus estimate of the present value of its future value.