Besides costing investors a pretty packet, cryptocurrency taxes may also have a detrimental effect on the price of coins, according to Thomas Lee an analyst at Fundstrat Global Advisor.
In a CNBC interview, the analyst explained that massive selloffs by investors seeking to reduce their tax liabilities may put pressure on prices. President Trump’s new tax law encourages short-term holding by applying a lower tax rate to them. Long-term holdings, held for at least a year, are taxed at top rates of 20%. Cryptocurrency exchanges are expected to contribute to the selloff because they keep most of their working capital in bitcoin and ethereum. According to Lee, they had net income of more than a billion dollars last year and might be forced to sell some portion of their cryptocurrency holdings in order to meet tax obligations. (See also: How The New Tax Law Affects Cryptocurrencies).
Lee estimates that authorities may mop up as much as $25 billion in capital gains taxes this year. “This is a massive outflow from crypto to USD and historical estimates are each $1 of USD flow is $20 to $25 impact on crypto market value,” he said. According to him, capital gains from trading of cryptocurrencies and stocks last year amounted to $1.04 trillion. (See also: Few People Have Reported On Their Gains From Cryptocurrency Trades)
The good news is that Lee doesn’t expect the selloffs to continue after April 17. That should leave the path clear for a sustained recovery of markets.
After a stellar 2017 in which prices for a majority of cryptocurrencies skyrocketed, markets plunged during the first quarter this year. Bitcoin, the marquee cryptocurrency, has lost more than 50% this year. The top 10 cryptocurrencies lost an average of 55.23% as a wave of negative headlines relating to government regulation and scandals depressed prices. Lee has forecast a price target of $20,000 for cryptocurrencies by June this year and $25,000 by the end of this year.
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