But that would put bitcoin above every other currency. As far as the United States is concerned, one dollar is one dollar and dollar is the unit of currency. Whether you own bitcoin, Mexican Pesos, Canadian dollars, etc, holding another currency as an American citizen means you are subject to appreciation of that currency when compared against the dollar, which is the unit of currency in which the IRS collects tax.
You are right you are not taxed (in nominal terms) if your dollar appreciates. That is because payment to the IRS is rendered in dollars, and dollars only. If your dollar increases, well so does the amount you lose when you give that dollar to the IRS.
Not above any foreign currency. Transactions below $200 would be exempt from capital gains. When they made that decision, the implication was that it cannot be used for liquid payments, i.e. be a "currency".
You are right you are not taxed (in nominal terms) if your dollar appreciates. That is because payment to the IRS is rendered in dollars, and dollars only. If your dollar increases, well so does the amount you lose when you give that dollar to the IRS.