Research: Cryptocurrency tax liabilities of $25 billion cause sell-off

$25 billion US tax liability

Research: Cryptocurrency tax liabilities of $25 billion cause sell-off

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According to Fundstrat co-founder and cryptocurrency analyst Tom Lee, the US mid-April tax deadline has created recent selling pressure for bitcoin and cryptocurrencies. He expects market selling pressure to ease up after the deadline for filing.

 

US cryptocurrency market facts

 

Fundstrat researchHis April 5th research newsletter provides some interesting analysis of the US cryptocurrency market:

-total tax liability for cryptocurrency is estimated at $25 billion

-estimated taxable capital gains are $92 billion

-the increase in market value of cryptocurrencies in 2017 for US residents from 2016 highs is estimated at $187 billion.

 

Why IRS is excited?

 

IRS is excited about cryptocurrencyThis windfall in cryptocurrency capital gains for investors is also a windfall for the IRS. The $25 billion in new tax liability will represent an estimated 20% of expected income tax payments to the IRS.

 

That’s assuming all investors pay the capital gains taxes due on their cryptocurrency investments. Next year at tax time, it will be a different story when 2018 losses are calculated, unless a sudden bull run in cryptocurrency happens by the end of the year.

 

Cryptocurrency exchanges made billions

 

South Koreans are interested in cryptocurrencyLee says some US-based cryptocurrency exchanges made billions of dollars in profits in November and December as the market value of cryptocurrency peaked. Several showed net incomes of more than $1 billion although many keep their working capital in bitcoin and Ethereum.

 

He says exchanges have also been selling some cryptocurrency assets to cover the taxes due on their 2017 capital gains. Because the market value of BTC and ETH is down in 2018, even further selling pressure is created to cover tax liabilities.

 

Market cap changes in 2017

 

Lee points out a couple of interesting insights into market capitalization changes during 2017. Interestingly, bitcoin made up only 34% of market cap growth followed by Ripple at 14% and Ethereum at 12%. The top 20 contributors to market cap growth in 2017 follow below:

 

Market cap growth - Fundstrat

 

It will be fascinating to compare this year’s gains and losses with 2017.

 

Bitcoin Misery Index still high

 

Bitcoin Misery IndexFundstrat’s Bitcoin Misery Index is still high due to a combination of regulatory risks, negative news headlines, negative markets and general uncertainty about the big picture for cryptocurrency.

 

“We believe selling pressures have been amplified by capital gains tax-related selling this year. If this is correct, we should see improved dynamics after April 15th. We still like Bitcoin and large-caps and while we believe the bear market for alt coins is largely over, we do not see upside for alts until mid-August,” Lee says.

 

So, if you’re in the happy position of having to pay taxes to the IRS for your cryptocurrency gains, congratulations. I guess.

 

If you’re an investor looking out for where to enter the crazy cryptocurrency market, you might heed Lee’s advice to stick to the larger cap coins like bitcoin, Ethereum, Ethereum Classic and NEO in the short-term. Then watch for improvement in altcoins as summer arrives.

 

As always, do your research, assess the markets and get some professional investment advice. You don’t want to add to your own personal Bitcoin Misery Index, do you?

 

Editor’s note: Information on Blockcoin Today is not intended as investment advice. Please consult your own investment advisors for appropriate guidance and counsel.

 

Author: Jeff Domansky, Managing Editor

 

Chart courtesy of Fundstrat