Chainalysis: Cryptocurrency tax rules may omit 86% of $457 billion in chain activity

Summary

In 2025, potentially taxable online crypto activity globally will exceed US$457 billion.

Transactions covered by CARF accounted for only 14% of the activity identified by Chainalysis.

The United States ranks first among countries with a scale of approximately US$112.6 billion.

DeFi, private wallets, revenue sources, and peer-to-peer payments contributed to reporting gaps.

Potential taxable chain activity exceeds US$457 billion

Chainalysis pointed out in a cryptocurrency tax report on August 26 that the remaining 86% of activities include decentralized exchange transactions, point-to-point transfers, on-chain income and cryptocurrency payments. These are beyond the actual coverage of the Organization for Economic Co-operation and Development (OECD) Crypto Asset Reporting Framework.

The analytics firm examined realized gains, revenue and payments on Bitcoin, Ethereum, Solana, Wave Field, BNB Smart Chain and Base. Its revenue categories cover mining, pledge, lending and gambling, while payment estimates include merchant services and transfers similar to point-to-point payments.

Activities recorded internally by centralized exchanges are excluded because transactions, pledges and loans made in their internal systems do not appear on the public blockchain. The report also did not cover all blockchains, transaction types or trading venues, so Chainalysis described the $457 billion estimate as a "lower bound."

U.S. crypto activity reaches US$112.6 billion

The United States leads the world at $112.6 billion. Chainalysis breaks down the U.S. figures into $64.6 billion in payments,$30.1 billion in revenue and $17.9 billion in revenue. [TAG North America ranked first with $134.6 billion, ahead of the EU with $125.1 billion and East Asia with $54.7 billion. Germany followed the United States with US$24.1 billion, China with US$21 billion and the United Kingdom with US$19.4 billion. India ranked fifth with $19 billion, followed by Brazil ($16.1 billion), Canada ($15.1 billion) and Japan ($13.2 billion). Russia and Thailand are approximately US$13 billion and US$12.5 billion respectively.

These calculations represent activities that may be taxable under commonly used rules, rather than taxes actually payable or unpaid. Chainalysis pointed out that tax exemptions, tax rates and classification standards vary among countries, so tax authorities will not collect the entire value as income.

For U.S. taxpayers, conversion of cryptocurrencies into U.S. dollars, token swaps, and consumption using digital assets may all constitute taxable disposals under IRS rules. Mining and pledge rewards are also generally considered ordinary income, while purchasing cryptocurrency in U.S. dollars or transferring assets between wallets controlled by the same person usually do not constitute taxable events.

U.S. custodian brokers have begun filing Form 1099-DA for customer disposals for the 2025 tax year. Total revenue will be reported first, while cost-based reporting will cover compliance transactions in phases in 2026. According to Chainalysis, the U.S. cryptocurrency tax gap in 2022 is estimated to be approximately US$50 billion per year. The report cited congressional predictions that Form 1099-DA could generate $28 billion in federal revenue over 10 years.

CARF covers transactions processed by intermediaries

CARF was developed by the OECD in 2022 to establish an information exchange system for cross-border crypto transactions for tax authorities of participating countries. Reporting crypto asset service providers (mainly covering centralized exchanges and brokers) must collect customer details and submit transaction data to tax authorities with which they have qualified connections. Some retailers and wallet providers may also be included in the framework.

Data collection was launched on January 1, 2026 in 48 jurisdictions, including the UK and EU member states. Most participating countries expect to start exchanging the information collected in 2027, with other jurisdictions following in 2028 or 2029.

A centralized exchange's closed order book provides tax authorities with a clearer way to obtain customer records because the platform usually knows the operator of each transaction. CARF also covers some blockchain transactions, such as specific deposit and withdrawal operations between private wallets and exchanges related to sales.

However, even within this framework, CARF covers only 14% of reported potential taxable chain activity. Chainalysis did not advocate that the framework needed to be rewritten, but pointed out that its data could still provide authorities with information on transactions on the platforms where most cryptocurrency transactions occur. The European Union is also implementing DAC8, which has a scope similar to CARF, while adopting connection rules from the Crypto Asset Markets framework. Under both systems, tax authorities can obtain platform data even if users transact outside their country of residence.

DeFi and private wallets cause incomplete transaction records

CARF's reliance on reporting service providers has led to a large number of decentralized financial activities beyond its direct coverage. Decentralized exchanges may operate through smart contracts and lack centralized custodians to control customer assets or maintain complete identity records. Private wallets create another gap because users can hold assets, interact with agreements, and transfer funds without going through a reporting platform. Foreign services that are not qualified to be associated with the CARF jurisdiction may also not be subject to its requirements.

The cost base poses another problem. When a customer purchases cryptocurrency on one platform and then sends it to another for sale, the receiving exchange may know the benefits but not the original purchase price or the holding period. Since CARF does not retroactively, historical records may be missing. Chainalysis said the summary reports provided under the framework may also lack the transaction-level details needed to reconstruct the complete sequence of wallet activity.

Record-keeping problems may be exacerbated when investors use exchanges, self-custody, pledge and liquidity pools at the same time. The public blockchain records contract calls and token transfers, but does not automatically classify events for tax purposes and cannot determine the owner's intentions. The same law enforcement issues arise outside the jurisdictions in which CARF was first involved. South Korea has announced that its planned 22% cryptocurrency tax will cover income from private wallets and exchanges starting January 1, 2027, although its IRS acknowledges that it is difficult to detect all undeclared private wallet transactions in practice. South Korean officials plan to use CARF and its overseas financial account reporting system to obtain foreign platform records. As authorities prepare for the first declaration covering 2027 revenue, tax treatments for pledges, loans, airdrops and hard forks are still under review.

Blockchain records supplement platform reports

To address the issue of missing platform data, Chainalysis said tax authorities can use blockchain analytics to track transfers between wallet addresses, detect interactions with decentralized or foreign platforms, and identify income from mining, pledges, lending or liquidity provision. On-chain recording also helps rebuild the cost base as assets travel through multiple wallets and eventually reach the reporting exchange. Correlating these records to customer information on regulated platforms can provide investigators with a path from transaction history to identified taxpayers.

Such methods have been used in tax investigations. Italian authorities reportedly traced more than 1 million euros (about US$1.1 million) of suspected undeclared Ordinary proceeds after inspecting a seized hardware wallet. Chainalysis said investigators in Foga and Rome used exchange records and blockchain transaction models to track the proceeds of Bitcoin Ordinals and BRC-20 token sales. According to the company, the suspects allegedly created the assets, sold them for multiple times the original cost, and transferred the proceeds back to the main Bitcoin wallet.