The Dutch Bitcoin Tax Trap: How a 36% Rate on Unrealized Gains Could Wipe Out 28% of Your Portfolio
TL;DR
The Netherlands is moving toward taxing unrealized cryptocurrency gains — meaning you’d owe taxes on profits you haven’t actually pocketed yet. Dutch MP Michel Hoogeveen has done the math, and it’s alarming: the new structure could effectively destroy 28% of your portfolio value. This isn’t just a high tax rate — it’s a mechanism that can leave you materially poorer than before Bitcoin ever went up. If you hold crypto in the Netherlands, this is the tax policy change you can’t afford to ignore.
What the Sources Say
A highly-upvoted Reddit thread in r/CryptoCurrency (664 upvotes, 172 comments) is making waves with a detailed breakdown of what’s being called “The 36% Trap” — a reference to the Netherlands’ approach to taxing Bitcoin and other crypto assets on unrealized gains.
The core issue is deceptively simple but mathematically devastating: you’re taxed on gains that exist only on paper, before you’ve sold anything.
The Mechanics of the Trap
Here’s how the problem unfolds, based on Hoogeveen’s mathematical proof as described in the source:
Imagine Bitcoin rises significantly in value. Under the Dutch tax framework, you’re assessed tax on that increase in value — even if you haven’t sold a single coin. So you’re forced to either:
- Sell some of your Bitcoin to pay the tax bill, or
- Pay out of pocket from other funds (if you even have them)
Here’s where it gets brutal. If Bitcoin’s price then drops after you’ve paid tax on those paper gains, you’ve locked in a real, tangible loss. You sold coins (or spent cash) to cover a tax on gains that subsequently evaporated. You’re left with fewer coins, less cash, and a portfolio worth less than what you started with.
That’s not a theoretical edge case — it’s a predictable outcome in a volatile asset class. And Hoogeveen’s math reportedly shows this mechanism can destroy 28% of your portfolio value in realistic scenarios, even when Bitcoin ends up roughly where it started.
Why 36%?
The “36% trap” figure refers to the effective tax burden created by this unrealized gains structure. The Netherlands has historically used a “box 3” wealth tax system, which taxes a deemed return on assets — essentially assuming your assets generate a fixed return each year and taxing that assumed income, whether or not you actually made it. For crypto assets, which can swing 50-80% in a year in either direction, applying a fixed-return assumption is wildly misaligned with reality.
The result is a tax rate that doesn’t just feel high — it actively works against holders in volatile markets.
Community Reaction
The Reddit thread drew significant engagement (172 comments), which suggests this isn’t just academic concern — it’s hitting the crypto community where it hurts. The discussion reflects a broader frustration: conventional tax frameworks weren’t designed for assets that can double or halve in value within months.
There’s a growing consensus in the thread that taxing unrealized gains on volatile assets is fundamentally different from taxing unrealized gains on, say, a stable real estate portfolio. With property, prices move slowly and predictably enough that you can plan around tax obligations. With Bitcoin, the window between “profitable on paper” and “underwater” can be days or weeks.
The Political Angle
The fact that a sitting MP — Michel Hoogeveen — is presenting this as a mathematical proof rather than just political opinion is significant. It suggests the concern has reached legislative levels, not just retail investor forums. Whether this leads to policy reconsideration remains to be seen, but the argument being made isn’t ideological — it’s arithmetic.
Pricing & Alternatives
There’s no direct product comparison here, but it’s worth laying out what different tax approaches look like for crypto holders, since the Netherlands’ model sits at one extreme end of the spectrum:
| Tax Approach | How It Works | Volatility Risk for Holder |
|---|---|---|
| Capital Gains on Realization (e.g., US, Germany) | Tax triggered only when you sell | Low — you control timing |
| Wealth/Deemed Return Tax (Netherlands Box 3) | Annual tax on assumed return, regardless of actual gains | High — you may owe on gains that reverse |
| Flat Annual Crypto Tax (some proposals) | Fixed percentage of holdings each year | Medium — predictable but potentially unfair |
| No Crypto Tax (some jurisdictions) | Zero tax on crypto gains | None |
The Dutch model falls into the second category — and for a volatile asset like Bitcoin, it creates the worst possible mismatch between tax liability and actual economic gain.
For Dutch crypto holders specifically, the “alternatives” are largely jurisdictional: some investors in high-tax environments with unfavorable crypto rules have opted to relocate to countries with more favorable treatment. Portugal, the UAE, and certain Eastern European countries have historically attracted crypto investors for this reason — though the source package doesn’t address this directly, so the specifics of those regimes are beyond the scope of what we can confirm here.
The Bottom Line: Who Should Care?
If you hold crypto in the Netherlands, this is a five-alarm issue. Hoogeveen’s analysis isn’t scare-mongering — it’s a documented mathematical scenario showing that the current tax structure can produce outcomes where you end up worse off despite Bitcoin appreciating. That’s a broken incentive structure, and it deserves attention.
If you’re outside the Netherlands, this still matters — and here’s why:
- Policy precedent: Governments worldwide are watching each other’s moves on crypto taxation. If the Netherlands proceeds with this model, others may follow. If it proves disastrous, that’s evidence that influences debates elsewhere.
- Portfolio strategy: The “unrealized gains tax” concept is being floated in multiple jurisdictions as governments scramble to capture crypto revenue. Understanding the mathematical consequences matters wherever you are.
- The broader principle: Taxing paper profits on volatile assets is qualitatively different from taxing realized gains. The Dutch case is the clearest real-world demonstration of why that distinction matters — not just philosophically, but arithmetically.
For investors and policymakers alike, Hoogeveen’s work is a useful reference point. The argument isn’t “crypto shouldn’t be taxed.” It’s “taxing volatile unrealized gains creates perverse outcomes that punish holders even when markets don’t crash.” That’s a distinction worth understanding regardless of your views on crypto taxation in principle.
The 36% trap isn’t just a Dutch problem. It’s a preview of what happens when tax policy designed for stable assets gets applied to a volatile one — and the numbers don’t lie.