Bitcoin prices collapsed this week amid a flurry of bearish cryptocurrency news, but the mass sell-off may simply be due to investors wanting to avoid the Tax Man.
Tax experts say cryptocurrency holders may be rabidly selling off their holdings in order to avoid paying capital gains taxes, which in some instances are substantial due to bitcoin’s soaring prices in 2017.
“People had huge gains last year, and they don’t have enough in crypto to pay those,” Cathie Wood, CEO & CIO at ARK Invest, told CNBC. ”For younger people who don’t have taxes top-of-mind, or have never invested before, they’re shocked.”
Vincenzo Villamena, founder and CEO of OnlineTaxman, agreed. “I see people that bet the farm on it,” he noted. “They’re stuck with a large tax bill and they’re doing payment plans, or they’re selling off crypto.”
Bradley Rotter, vice chairman of Rivetz, said the capital gains that U.S. investors earned from their cryptocurrency holdings could pay for President Trump’s border wall. (See also: Bitcoin IRS Tax Guide For Individual Filers.)
“The amount of capital gains from just U.S. investors in the rise of crypto pays for the damn wall. I think most people are just connecting those dots but its an important dot.”
Bitcoin Prices Started Crashing After IRS News Went Public
Circumstantial evidence seems to support this “tax-evasion” theory.
Indeed, the price of bitcoin and its sister cryptocurrencies all started to plummet in tandem starting in late-February, shortly after top crypto exchange Coinbase was ordered to turn over data on its customers. (See more: IRS Wants to Tax Your Bitcoin Gains: Orders Coinbase to Hand Over User Data.)
As of this writing, bitcoin prices hovered at $8,204.86, down 0.63%, in the last 24 hours. Today’s low is $7,924 per BTC token, according to CoinDesk.
Pursuant to a November 2017 court order obtained by the IRS, Coinbase was compelled to turn over taxpayer IDs, names, birth dates, addresses, and transaction records for customers who conducted transactions worth more than $20,000 on its platform between 2013 and 2015.
Many Coinbase customers were furious that the exchange had not given them more-advanced notice that they would have to pay taxes on their crypto investment gains.
Still others felt the decentralized and unregulated nature of cryptocurrencies made the investments immune to taxation, but apparently that is not the case.
Google Bans Crypto Ads, Joining Facebook
Other factors that contributed to crypto price drops this week was news that Google will ban cryptocurrency advertising, citing the need to restrict ads from financial products that are “frequently associated with misleading or deceptive promotional practices.”
The move follows a similar embargo by Facebook, which enacted a ban on crypto ads in January 2018. (See more: Google Bans Crypto Ads.)
Bitcoin prices, as well as those of its sister virtual currencies, will continue to come under pressure as regulators around the world step up scrutiny of the mushrooming asset class. So buckle up, it’s going to be a bumpy ride. (See also: Vladimir Putin Will Criminalize the Use of Bitcoin as a Money Substitute.)
Investing in cryptocurrencies and Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns no cryptocurrencies.
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