IRS sends warning letters to more than 10k cryptocurrency holders

Not true. It grants Congress the power to coin money (Article I §8 ¶5), and prohibits the states from doing the same (§10 ¶1), but it says nothing about private citizens. Coins can legally exist which were not created by Congress or by any state. Arcade tokens would be one obvious example.

In any case "to coin money" refers specifically to making coins, as in physically stamping them out of metal. Whether or not they're treated as "currency" in a legal sense, cryptocurrencies are obviously not physical coins so rules about coining money do not apply.

From a tax perspective, the special treatment applied to foreign currencies is a result of specific treaty obligations. It only applies to small amounts of income—under $200 IIRC—and is meant to avoid the need to report small fluctuations in value when you hold foreign currencies temporarily for travel. In other respects the rules are the same as for cryptocurrencies, or really any other kind of property apart from USD. It's not surprising that the currency rules are not applied to something like Bitcoin which we have no treaties about and whose use is not strongly correlated with travel outside the country.

Say you purchased X amount of CAD a few years back for $0.70 USD. It doesn't matter how much you purchased.

Now some time goes by, and the current market rate for CAD is $1.00 USD. You go ahead and purchase your $5 CAD coffee. By doing that, you've realized $5 CAD of your investment, which is currently worth $5 USD, but when you bought it it was only worth $3.50 USD. So you made a capital gain of $1.50, and you have to report and pay tax on that.

Whether you purchased a coffee or converted to USD doesn't matter -- the important part is that you made a gain on the CAD over time, then used it for something.

That assumes that the demand for cryptocurrencies remains constant. If the demand for cryptocurrencies drops faster than the deflation of the currency, then the value goes down.

I travel to India every year, and I always carry with me a few hundred USD worth of rupees (the local currency).

It would be insane for me to try and track the value of the rupees (in USD) for every time I bought something, and calculate the deltas between that and what I originally gave to the money changer. It is completely impractical to do that, and while I'm not an accountant, I have an intuition that for any reasonable amount of money that any traveller would be carrying with them, the fluctuations are irrelevant.

And yet this is what people using cryptocurrencies are expected to do.

Obviously if there is a large capital loss or gain, then this should be reported on your taxes, and I suspect the same is true for foreign currency exchange.

I guess to ask a question: are individuals expected to track the fluctuations in USD value of their cash while travelling? If so: is there a threshold? Why is crypto different (other than some belief that it might be more convenient).