>Some of these people would have their lives ruined if the taxable event happens before they're able to cash out to a currency that is "real".
Sure this is a downside of tax law on the US, but it’s not unique to crypto. Suppose you sold one stock and used the proceeds to buy another stock, which then went to zero. It doesn’t matter whether you went to cash at some point, or if somebody exchanged the stocks with you directly. Either way, you owe taxes on the gains in the initial investment. Depending on timing, the gains and losses might cancel each other out, or you might end up with a tax liability in some year. You still need to report it.
This is a special case of an even more general problem: “I was rich, paid taxes, then later became poor.” A lot of the time, the tax man is unsympathetic.
Sure this is a downside of tax law on the US, but it’s not unique to crypto. Suppose you sold one stock and used the proceeds to buy another stock, which then went to zero. It doesn’t matter whether you went to cash at some point, or if somebody exchanged the stocks with you directly. Either way, you owe taxes on the gains in the initial investment. Depending on timing, the gains and losses might cancel each other out, or you might end up with a tax liability in some year. You still need to report it.
This is a special case of an even more general problem: “I was rich, paid taxes, then later became poor.” A lot of the time, the tax man is unsympathetic.