According to Tom Lee of Fundstrat Global Advisors, there is roughly $25 billion USD flowing out of the crypto markets to pay for capital gains taxes.
That is a big number!
That is the largest USD outflow related to taxes for bitcoin since it has existed, and it's not even close.
For some perspective, the current cryptocurrency market cap is roughly $250 billion.
Which would mean at current levels, that would mean 10% coming out of the market. Though we have likely already seen a lot of that come out.
How does he come up with that number?
According to Lee, investors likely realized a record $1.04 trillion in capital gains for cryptocurrencies and stocks in 2017.
That combined number is the largest since 2007, when investors realized roughly $924 million in capital gains, a year before bitcoin was invented.
According to Lee's estimates, cryptocurrency investors have a tax liability of $25 billion for 2017, which is based on the historical tendency of U.S. households to realize about 52 percent of capital gains in any single year.
The exchanges aren't immune either.
It's not just retail traders and investors that are on the hook for capital gains taxes.
According to Lee, crypto exchanges are likely some of the biggest sellers right now.
Specifically, Lee had this to say:
"Additionally, we believe there is selling pressure by crypto exchanges who are subject to income tax in U.S. jurisdictions. Many exchanges have net income in 2017 [of more than] $1 billion and keep working capital in [bitcoin]/[ethereum], not USD — hence, to meet these tax liabilities, are selling BTC/ETH."
Which would explain why we have seen prices across the board dropping.
(Source: http://bitcoinist.com/cryptocurrency-investors-lose-tax-break/)
Cryptocurrency regarded as property.
The current US tax laws classify cryptocurrencies as property and as such are subject to capital gains taxes each and every time there is a transaction.
Whether that classification lasts much longer is anyone's guess, but it doesn't make much sense for something that possibly will be used as a currency.
Lee concluded his thoughts by sticking to his previous year end price target of $25k on bitcoin and said that he expects the selling to dissipate once we get past April 17th.
I have been thinking the same thing as some people are paying taxes for the first time on their crypto trades/investments from years prior.
After we get past tax day, there is a good chance an uptrend emerges again, at least in my opinion, as well as Tom's.
Stay informed my friends.
Image Source:
https://bitcoinmagazine.com/guides/bitcoin-and-taxes/
Follow me: @jrcornel
tax is exactly the reason why we want decentralized currency: the money is collected to feed fat and inefficient organization that does essentially nothing.
Oh taxes. How can you tax me on something you say has no value?
There was a stat that very few people actually report their crypto gains. Plus the US isn’t as big as Asian market so to say that the US is the primary reason for this decline doesn’t make any sense.
Funny thing is, if their fiat currency tax system was replaced by a totally transparent and open source encrypted distributed ledger system with basic kyc in this case C stands for citizen, based on the priciples of fair trade and democracy then we wouldnt see this because fraud would be impossible. But with a distributed ledger system we would never feel tax pains like we do with a debt based system anyhow, or have global market collapses. Etc
Tom Lee is the best one on CNBC and 1 of only 2 worth listening to on that station. Big fan!
Hi jrcornel,
Tax time affect us all even the big exchanges,,,
I did not think about the tax payments to affect the price of cryptos to stay bearish for the last 3 months.
Make sense after reading this valued content by you.
I can not wait til after April 17 th this year for the price to go up again, hopefully.
That makes sense, on some level. The first quarter is over and even though there was a brief upward blip in Steem and a number of coins, it doesn't seem to be holding. That the selloff is related to taxes makes a little more sense, especially since the current tax season comes on the back of a year of amazing gains.
At least it's a better sounding theory than simply settling in for a protracted Bear market because the "bloom has come off the rose" for cryptos, in general.
=^..^=
This is outrageous, Cryptocurrency refers to as a property. The tax are way too high. Anyway, thanks for the info
Mmh, in Belgium it is rather unclear what to do with the taxes. On one side they say if you did invest as a good dad, trying to protect the family funds, no taxes are required, on the other side if they can prove that you were trading to make a (fast) profit, they will claim 50% of the profit.
But were can we fill in the losses at the moment, can we deduct them from the taxes? Don't think so. The only reason the government wants to regulate things, is that they can have a share of the pie! The problem here in Belgium is that they already have more than half of my paycheck pie!
Thanks for sharing @jrcornel. This is a really important point. Tax period is a headache for me and seems to be the obstacle this march from an American point of view... but Korea is a different story. Tax day passed in the end of January and yes there was a correction in the exchange and some threats from the government for control.
@mineopoly
Also consider that other probably sold early January into February in order to defer payment of taxes on those gains until April 2019. Therefore, those sells can be continued by these sales to pay for taxes. Big pressure out of the market. It could lead to less seller going forward so resistance levels could be easier to bypass.
Hi--I am brand new here, showing only my Original Art. Thanks fr checking me out.
I was wondering what impact enforcing taxes would have on the crypto market and I guess now I have my answer. There are many things impacting the current price but I hadn't really thought of the tremendous impact pulling money out to pay taxes would have. Many have been scrambling the past few months thinking that crypto is dead but we have seen downtrends before and they haven't lasted so I haven't worried. I appreciate the crypto posts that you share and the great info!
Ivy
You are only taxed if you sell. Don't want to pay taxes? Don't sell.
Yes it makes sense and with the crypto market down the tax sellers are going to have some losses to apply against their gains for their 2018 tax bill.
good post...again..see my just up post..bitcoin and more..thanks
It seems like common sense that taxes are pushing the price down. I'm looking forward to a (hopeful) pump in late April / May after all that stuff is taken care of.