Arch Launches TaxShield Product to Aid High-Income Bitcoin Holders in US Tax Reduction via Mining Investments

Executive Summary

Arch Lending, in collaboration with Bitcoin educator Mark Moss and Blockware, has launched TaxShield, a product designed to enable high-income Bitcoin holders to reduce U.S. tax burdens through strategic investments in mining hardware. This initiative leverages IRS §168(k), permitting full first-year depreciation deductions on mining equipment costs, while allowing investors to maintain their Bitcoin (BTC) exposure. Arch co-founders Himanshu Sahay and Dhruv Patel indicate that clients with $1 million in taxable income could potentially achieve federal tax reductions of approximately $400,000.

The Event in Detail

On October 21, 2025, Arch Lending, an overcollateralized Bitcoin-backed lending platform, officially introduced TaxShield. This product is a result of collaboration with Mark Moss, a prominent Bitcoin educator, and Blockware, which provides hosted mining services. TaxShield is structured as a turnkey, fully compliant solution aimed at converting taxes owed into income-producing Bitcoin mining assets.

The operational process involves several key steps: users collateralize their existing Bitcoin (BTC) holdings for an overcollateralized loan from Arch. The capital obtained through this loan is then utilized to purchase and host Bitcoin mining machines through Blockware. This investment in mining equipment qualifies for 100% bonus depreciation under the U.S. tax code's IRS §168(k) provision, allowing investors to deduct the entire cost of the equipment from their taxable income in the first year. Throughout this arrangement, investors maintain full exposure to the BTC upside, and mining rewards are paid monthly directly to the client's crypto wallet. Arch Lending operates under U.S. regulatory licensing and is supported by firms including Galaxy Ventures, Morgan Creek Digital, and Castle Island Ventures. Blockware Solutions, founded in 2017, specializes in blockchain infrastructure, including hardware sales and secure data center hosting.

Financial Mechanics and Strategic Positioning

TaxShield directly addresses the financial burden of taxes for high-net-worth Bitcoin investors by deconstructing the traditional tax liability into an asset-generating mechanism. The core financial instrument is an overcollateralized loan, where BTC serves as collateral, enabling investors to access capital without selling their Bitcoin holdings. This preserves their long-term exposure to the asset's potential appreciation. The strategic use of IRS §168(k) is central, a provision designed to incentivize business investment by allowing immediate deduction of asset purchases, thereby reducing taxable income. This differs significantly from simply holding Bitcoin, where gains are subject to capital gains tax upon sale, or traditional tax-loss harvesting strategies.

The product's design aims to make a sophisticated tax strategy accessible. Arch ensures customer assets are stored in qualified custody, are not rehypothecated, and remain bankruptcy remote, aiming to mitigate counterparty risk. This approach positions TaxShield not merely as a tax avoidance scheme, but as a mechanism for wealth management and asset compounding within a compliant framework. This strategy bears some resemblance to certain corporate treasury strategies, such as those adopted by MicroStrategy, which leverage corporate capital to acquire Bitcoin, though TaxShield focuses on individual investors utilizing a different financial mechanism to achieve tax efficiency and asset growth.

Market Implications and Broader Context

The introduction of TaxShield by Arch carries several implications for the broader Web3 ecosystem and investor sentiment. It signals a maturation of financial products tailored for high-net-worth digital asset holders, moving beyond simple custody or trading to more complex, tax-efficient investment strategies. This development could increase the attractiveness of Bitcoin as an asset class for wealthy individuals and family offices seeking methods to optimize their tax positions while gaining or maintaining BTC exposure.

The product's reliance on IRS §168(k) may also draw increased attention to existing tax code provisions and their applicability to digital asset investments. Success of TaxShield could set a precedent, encouraging the development of similar innovative financial products that bridge traditional tax planning with cryptocurrency investments, potentially driving further adoption of Bitcoin mining hardware and services. However, the long-term regulatory scrutiny of such tax optimization strategies, particularly in the evolving landscape of digital asset regulation, remains a factor for market participants to monitor. The product indirectly supports the Bitcoin mining industry by increasing demand for hardware and hosting services, thus contributing to the network's decentralization and security.