January heralds a new tax season. Historically, it is also a time when Bitcoin underperforms compared to the other months of the year. Some analysts say this may not be a coincidence.
From 2014 to 2020, Bitcoin was down in four out of January seven and six in the last seven brands. According to Delphi Digital, the average losses for these months were 5.24% and 12.59%, respectively.
“When we enter the tax season, [a period when] Bitcoin has historically underperformed in recent months. This is by no means predictable, but it is important to note, ”Paul Burlage, analyst at Delphi Digital, told CoinDesk.
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At press time, Bitcoin was priced at $ 31,571.54, down 1.22% over the past 24 hours. The # 1 cryptocurrency by market capitalization fell below USD 30,000 on Wednesday, according to CoinDesk BPI.
According to Delphi Digital’s January Bitcoin Forecast report, one of the main reasons behind the decline is that “these [investors and traders] Anyone who has made significant profits trading various crypto assets over the past year will likely have to sell at least a portion of their holdings to meet expected tax liabilities. “
“It is difficult to determine exactly how much pressure to sell, and different jurisdictions treat capital gains more favorably than others,” said Kevin Kelly, co-founder and head of global macro at Delphi Digital. “Bitcoin alone contributed more than $ 400 billion to total market value last year. A decent chunk of those returns went to speculators and traders who may have already made profits or rolled profits to other corners of the crypto market, triggering taxable events. “
The Internal Revenue Service (IRS) released updated instructions in late December with answers to questions about virtual currencies during taxpayers’ tax returns. Compared to 2019, the 2020 tax form asks a yes-or-no question (“At any point in 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in a virtual currency?”) Page, one of the first questions asked.
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The IRS guidelines also make it clear that “virtual currency” transactions include “buying a virtual currency”.
Future taxation of unrealized profits?
There has been market discussion in the past few days over Treasury Secretary Janet Yellen’s proposal to tax unrealized capital gains. Such a proposal would have a broader impact on crypto-related profits.
John Todaro, director of institutional research at TradeBlock, told CoinDesk last week that tax proposals on unrealized capital gains for almost any asset would have some impact on investors. The cryptocurrency analysis company TradeBlock is a subsidiary of CoinDesk.
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The Biden administration’s tax proposal also contains a few points that could affect crypto investors. For example, one of the proposals includes levying taxes on “long-term capital gains and qualified dividends at the normal income tax rate of 39.6% on income above $ 1 million,” which could affect larger crypto investors.
Bradley Keoun contributed to this report.