Bitcoin continued to hover around $8,200 on Wednesday, the level where it’s traded for much of the past week. The flat trading pattern is a bit of surprise, given that Tuesday’s tax deadline (later extended to Wednesday because of IRS tech troubles) has now come and gone.
Bitcoin bulls have argued that tax season was a bummer for the digital coin, because owners were forced to sell their coins for cash and hand it over to the government. The IRS views bitcoin as an asset, so every time someone sold it for a gain in 2017, they were supposed to pay taxes on that gain.
Fundstrat’s Thomas Lee has estimated that U.S. households owed $25 billion worth of crypto taxes this year, a whopping 20% of all U.S. capital gains taxes.
“This is a massive outflow from crypto to U.S. dollars and historical estimates are each $1 outflow is $20-$25 impact on crypto market value,” Lee wrote in early April.
It’s not clear if taxes induced one of the biggest currency owners to sell $50 million in bitcoin on Tuesday just before the deadline. That sale helped force the price of bitcoin down by $200 in less than 20 minutes.
The tax-induced selling pressure is over now, but the flat trading pattern remains. Of course, taxes aren’t the only thing holding bitcoin back. The mania last year that fueled a buying spree by retail investors has died down, and regulators have since grown much more active. Just this week, New York Attorney General Eric T. Schneiderman sent letters to 13 major trading platforms — including big players like Coinbase, Gemini Trust and Bitfinex — inquiring about their internal controls and safeguards to protect assets. Traders have complained that it’s sometimes difficult to get their money out of exchanges, which also may crash during active trading periods.
Inquiries by state and federal regulators could lead to new requirements that make it harder for bitcoin owners to remain anonymous, for instance. While that may unsettle markets in the near term, it could draw bigger money later on, one industry expert predicted.
“If you really want to get institutional players in the game, you need to have parallel lines, you need regulation,” said Alan Kostrinsky, Principal Advisor & Co-Founder at Maco.la, a blockchain fund and advisory firm, in an interview. “That will bring in bigger and bigger investors.”
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