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/
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