People are wondering why Bitcoin suddenly tanked, losing some 20% of its value practically overnight.
With Bitcoin currently under $5000 on this dark Tuesday, investors are pretty nervous and looking for reasons why.
Some analysts have an interesting rationale for the sudden price drop – it’s a specific kind of profit-taking, they say, driven by concerns around taxation.
The idea goes like this – cryptocurrency investors, in having stocked up on Bitcoin during former rallies, now realize the need to pay taxes on their assets. Or they can sell some of the Bitcoin and use that money to pay taxes.
“Bitcoin investors in the United States are selling off their crypto to pay off capital gain tax,” writes Andreas Kaplan today at Smartereum, noting how the IRS views Bitcoin as an asset, and what that means for holders. “First-time investors in Bitcoin are faced with large capital gain taxes from the profit they made in 2017. Reports show that they are now selling off quickly before they file their April taxes.”
Many of us might remember the plight of Willie Nelson – the country and western star who, after amassing millions of dollars with chart-topping records, realized he still owed the IRS.
They had to do a “Willie aid” concert and a bunch of other stuff to raise money for this beleaguered songster. It should be noted, too, that Willie is far from the only superstar in either music or sports to be taken down by a big tax bill…
Now, some are suggesting that many of the Bitcoin investors who bought in over the past two years find themselves in a similar situation, where they just didn’t anticipate having to pay the amount of taxes that they owe.
If you buy into this notion, it kind of sounds like a financial bubble. If that bubble is popping, as some analysts have concluded, we’re not going to see a quick resurgence.
The moral of the story is that no one should invest in anything without checking out potential tax burdens. Experienced investors know this – but apparently, if you take this path toward explaining in the Bitcoin/crypto crunch, a whole bunch of people just didn’t think about taxes on the backend.
It’s also important to note that the problem looms wider than just concerns over BTC USD (although it’s the most prominent loser this week) it’s not just Bitcoin that’s down, – you can see how Ethereum (ETH) and EOS and Litecoin and Cardano and many of the biggest coins across the board have sunk over the last week or so – even Dogecoin, proud standard bearer of the intrepid Shiba Inu, is down significantly month-over-month.
If there’s any silver lining in on this cloud, it could be that people who do factor in their tax burdens have an opportunity to establish a core position lower. If the selloff is just about taxes, that suggests cyclical activity.
It suggests that if you buy in after Bitcoin or any of these other coins are finished falling, you have a pretty nice potential upside. Look for changes in today’s market bloodbath and potentially new reports down the lane that Bitcoin or another crypto may be undervalued. For now, though, take cover – $4800, or $4600, or wherever BTC lands today – it’s going to be a real sad trombone!
