Bitcoin selling pressure could lift after tax day, Tom Lee says

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Tom Lee.Bloomberg TV

  • Bitcoin investors owe an estimated $25 billion in US taxes, according to Tom Lee, the cofounder of Fundstrat.
  • As Tax Day approaches, many bitcoin owners are selling their digital coins in exchange for dollars. Lee therefore believes some of the selling pressure on bitcoin will lift after the April 17 tax deadline.
  • Bitcoin is down about 65% from its mid-December peak.

US tax returns for 2017 are due April 17.

Many people who bought bitcoin as it soared last year are not looking forward to that day. That’s because anyone who sold their cryptocurrencies for profit will owe taxes on those earnings.

Tom Lee, the cofounder of Fundstrat, estimates that US bitcoin investors owe $25 billion in capital-gains taxes, or about 20% of all such payments due for 2017.

“The $25 billion would represent 20% of capital gain tax receipts (payments) to Treasury, which explains why the IRS cares so much about collecting crypto taxes,” Lee said in a note on Thursday. “Total receipts for capital gains should hit a record $168 billion (for income tax year 2017), exceeding the $137 billion of receipts in 2007.”

That has driven some of the selling in bitcoin, he said, because some cryptocurrency-exchange operators with large crypto holdings could have been pressured to sell even as both bitcoin and Ethereum crashed as a way to raise money to pay taxes on 2017 profits. Also, some individual investors most likely bought bitcoin and Ethereum to sell their alternative cryptos, or alt-coins, but dumped both for dollars as tax season approached.

“As a consequence, if this analysis is correct, selling pressure for bitcoin should be alleviated after April 15th,” Lee said. Tax Day falls on April 17 this year because April 15 is a Sunday and the Emancipation Day holiday in Washington, DC, is being observed the following day.

But a few things could go wrong. “Regulatory headline risk is still substantial,” Lee said. “And sentiment remains awful, as measured by our bitcoin misery index, which is still reading misery.”

Bitcoin has tumbled 65% from its peak in December, and it traded near $6,690 on Thursday, according to Markets Insider data.

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