France is weighing a proposal to expand its 31.4% crypto capital gains tax to include trades involving EU-regulated stablecoins. Chainalysis CEO in France Francois Volpoet has warned this could drive investors toward unmonitored offshore channels, essentially undermining the regulatory framework the European Union has been building. The logic is straightforward: if using a transparent, audited stablecoin becomes significantly more expensive than using an unregulated one, rational market participants will choose the cheaper path, and regulators will lose the visibility they sought.
This is a classic case of policy intent colliding with incentive design. The French proposal aims to close a perceived loophole where stablecoins are used to avoid triggering tax events, but the solution treats regulated and unregulated stablecoins differently, creating a perverse incentive. Instead of taxing the activity itself, it penalises the use of compliant instruments. The outcome may be the opposite of what legislators intend: less transparency, fewer tax declarations, and more capital flowing into offshore venues where enforcement is nearly impossible. As the Prophet ﷺ said, “Do not harm and do not reciprocate harm.” Regulation that causes harm by pushing activity into the shadows needs rethinking.
There is an alternative path. Today, Standard Chartered announced it is offering direct bitcoin and ether trading to wealthy UAE clients through a closed-loop model with in-house custody, regulated by Dubai’s VARA. This shows that traditional finance can integrate crypto without punitive tax structures, providing a safe, transparent environment for investors. The UAE approach — clear licensing, reasonable taxation, and institutional-grade custody — offers a blueprint. France could learn from it: tax the gain, not the instrument. The goal should be to bring activity into the light, not to levy the shadows deeper. Balanced taxation that rewards compliance while making it costly to evade through clear rules and low friction for compliant users. That would serve both the treasury and the integrity of the market.