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Tax season in the U.S. is here, and many citizens who use or hold cryptocurrencies are clamoring around trying to figure out how to file their capital gains taxes. According to reports from Fundstrat’s analyst Tom Lee, cryptocurrencies represent roughly 20 percent of last years U.S. capital gains.
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Cryptocurrency Selling Pressure Stemming from Tax-Related Sales
Cryptocurrencies were a great investment last year, and the tax man is interested in individuals who cashed out into fiat raking in some gains. The reason for this is because the U.S. Internal Revenue Service (IRS) treats cryptocurrencies as a commodity-like investment vehicle, which is subject to the nation’s tax laws. Further, nearly every bitcoin or alternative digital currency transactions, which includes the collection of airdrops, trades, spending, and almost every type of exchange is considered a taxable event for U.S. citizens.
Fundstrat’s Tom Lee believes Americans owe a lot of money for cryptocurrency investments in 2017, with owed capital gains topping roughly $25 billion USD. This means out of all the traditional investment vehicles like stocks, equities, and precious metals cryptocurrency-related capital gains taxes is estimated to be over 20 percent according to Lee’s findings. Lee details that the current digital currency bear market may have been primed by tax-related sales this year.
“We believe selling pressures have been amplified by capital gains tax-related selling this year,” Lee explains in his memo.
If this is correct, we should see improved dynamics after April 15. We still like bitcoin and large-caps and while we believe the bear market for altcoins is largely over, we do not see an upside for altcoins until mid-August.
Tom Lee is well known for his statements about bitcoin and other cryptocurrencies. Lee’s firm Fundstrat designed a Bitcoin Misery Index and says taxes may be a catalyst for the current crypto-sell off. However, Lee still expects BTC to capture a value of $25,000 USD by the end of 2018.
Americans Owe Roughly $25 Billion in Taxable Capital Gains
Lee’s estimates stem from the record $590 billion cryptocurrency market valuation accumulated last year, which was 60 times larger than the year before. The Fundstrat advisor states that roughly 30 percent of the digital asset holders worldwide are Americans, and this means a representation of approximately $187 billion. Lee believes that the capital gains in the U.S. adds up to around $92Bn and there’s $25Bn in taxable liabilities on the line.
Moreover, Lee reveals his study shows there’s been increased cryptocurrency exchange sell pressure. “This is a massive outflow from crypto to USD and historical estimates are each $1 of USD outflow is $20 to $25 impact on crypto market value,” Lee’s analysis explains.
We believe there is selling pressure by crypto exchanges who are subject to income tax in U.S. jurisdictions.
According to Lee’s estimates, the massive outflow deriving from digital asset sales back into fiat is perfectly timed around the U.S. tax season. Even though Lee and Fundstrat believe the tax situation may amplify the current ‘Crypto Winter’ the team still has a very optimistic outlook on the value of BTC in 2018. Fundstrat and Lee forecast BTC prices to surpass last year’s all-time high and touch $25,000 USD by the end of the year.
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