Are Taxes behind Bitcoin price dip?
Are Tax Effects behind Bitcoin Price dip?
Cryptos and taxes have come increasingly into the focus as they increasingly are heading toward mainstream acceptance.
In an article for Yahoo Finance an estimate that 25 billion dollars worth of taxes are owed on cryptocurrency sales in the US in 2017. This estimate came from Tom Lee a market strategist with Fundstrat Global Advisors. Lee arrived at this estimate through a top down calculation by:
Cryptocurrency Market gained $590 billion in 2017
~30% of cryptocurrency investors are American for $187 billion gains in America
US Average 52% on capital gains for 92 billion in crypto gains, and with an average capital gains tax of 27% which arrives at Lee's 25 Billion.
While there is not much verify this number against we find Lee's calculation to use valid metrics and its likely approximately right.
Lee also makes an interesting argument that Bitcoin values could be dropping in 2018 due to investors selling off portions of their cryptocurrency to pay taxes. By this rationale he expects the crypto market to improve after taxes are paid.
Daniel Roberts of Yahoo Finance argues against this by pointing out that only a fraction of coinbase users are reported to have paid taxes. However one thing we noted in Roberts argument was that he was using data from 2015 which is a literal eon ago in cryptocurrency terms.
In Roberts words:
What matters here is that fewer than 1,000 Americans disclosed bitcoin gains on their taxes in 2015. Yes, the value of bitcoin ballooned greatly since then, but don’t expect the number of people disclosing their gains to shoot up by the same order of magnitude as the value has.
“That only 800 to 900 taxpayers reported gains related to bitcoin in each of the relevant years, and that more than 14,000 Coinbase users have either bought, sold, sent or received at least $20,000 worth of bitcoin in a given year,” the IRS court summons reads, “suggests that many Coinbase users may not be reporting their bitcoin gains.”While Roberts may be right that the growth in value of Bitcoin may not have a perfect correlation with the number of tax payers. I would however expect some correlation there, and more over I would expect more correlation with 2 other factors:
1) The extreme increase in the number of cryptocurrency investors. I would expect a direct correlation here.
2) The talk of regulation in the market has greatly ramped up since 2015. I expect most investors in this environment to have given far more thought to paying taxes on cryptocurrency now than they did in 2015. I actually expect this to be a huge factor.
Generally I see the 2018 mainstreaming and regulation talk of cryptocurrency making the tax argument of Lee seem sound. I will also say anecdotally that I know people working on crypto tax issues as we speak so while not statistical evidence, I can say at least on some level Charlie Lee's theory playing out.
If you have cryptocurrency you should know that they are treated as property gains and should go onto the IRS from 8949. Everyone I know recommends that you pay the taxes that Uncle Sam says you own, in fact I would strongly recommend it. We would also recommend seeking out a financial and tax professional when filing taxes with cryptocurrency gains to make sure you have you are doing everything correctly.
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