With the tax season currently running in the US market, it has been reported that the US investors have over $25 billion capital gain taxation liability for their cryptocurrency investments. This cryptocurrency tax obligation is expected to bring a huge slump in the crypto market as sell out will be in order which will reportedly abate after tax season.
About $25 billion cryptocurrency tax, 20% boost to what IRS receives!
Currently, the taxation season is in full bloom in the US. This is a regular occurrence of course but unlike the previous years, this will be the first time the crypto investor will also be paying huge taxes.
According to the Wall Street analyst, Thomas Lee, who was also the former chief strategist at JP Morgan Chase, the US individuals with digital currency holdings owe about $25 billion in capital gains taxes.
This would be the first time that such a massive amount of the cryptocurrencies would be sold into the US dollars in order to pay the income tax by the mid-April deadline of tax filing.
Last year, cryptocurrencies gained a lot of profit and the US Internal Revenue Service (IRS) are ready to cash in on them. With cryptocurrencies being treated as property for the taxation purpose, every profit made from the trading of bitcoin or any other cryptocurrency or through any other method is now taxable for every US citizen.
Reportedly, this cryptocurrency tax on capital gains of $25 billion would be over 20 percent in comparison to other investment options like equities, stock, and precious metals, so much so that the current bear scenario of the crypto market could have been primed by taxation.
A massive crypto sell out as exchanges prepare to pay taxes
The tax-related selling will further add to the market’s tough start. In the first quarter, the plunge of about 50 percent was due to regulatory uncertainty as mentioned by Lee:
“Regulatory headline risk is still substantial. And sentiment remains awful, as measured by our bitcoin misery index, which is still reading misery.”
The taxation obligations of individual investors would lead to the need to sell. Based on the historical stats, the capital gain realized by the US households is somewhere around $1.04 trillion that means the tax liability of about $25 billion for last year.
According to Thomas Lee:
“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.”
He further states that:
“This is a massive outflow from crypto to USD and historical estimates are each $1 of USD outflow is $20-$25 impacts on crypto market value.”
BUT, once tax season is over, Bitcoin prices likely to fly high
Having said that, Lee clarifies that the selling around the tax season is likely to die down in about two weeks and it is expected of “bitcoin to find footing after April , tax day.”
The tax season might lead to a massive drop down in the crypto market but it’s a high possibility that once the tax season is over, the bitcoin prices will rise three-fold, forecasted to go over $20,000 by the mid of this year and the altcoins will see the somewhat of a similar fate.
What are your views on the price estimate of bitcoin? Do you think it will break it’s all-time high of $20,000 price value this year? Share your thoughts with us!
I am an entrepreneur and a writer with a bachelors degree in Computer Science. I manage the blockchain technology and crypto coverages at Coingape. follow me on Twitter at @arya_achal or reach out to me at achal[at]coingape.com.