It is remarkable how often policymakers fail to anticipate the unintended consequences of their own frameworks. The premise of taxing unrealized gains might seem straightforward in a theoretical sense but in practice it opens the door to valuation absurdities on a scale most people cannot imagine. When you tie tax obligations to market values without requiring a realized transaction you instantly create incentives for manipulation creativity and distortion. The thought experiments with synthetic coins circular dependencies or valuations based on unreachable assets highlight the fragility of such a system.

One of the core weaknesses here is the assumption that market values are stable objective and easily measurable. In reality market prices can be engineered whether through thin trading environments or mutually reinforcing structures that push valuations to extremes. The moment those valuations are recorded for tax purposes you have created liabilities that may be completely disconnected from the actual capacity to pay them. That is not merely an accounting headache it is a potential systemic risk.