Things may start looking up for the cryptocurrency markets after mid-April. According to Wall Street analyst Tom Lee, the current market slump is partially due to U.S. households which are currently selling their crypto as this year’s April 17 tax deadline approaches.
Massive selloff impacting the market
Bitcoin has seen a price drop of over 40% over the past few weeks, including a 1.2% drop on Thursday. In a note published yesterday, Lee, who serves as the head of research at Fundstrat Global Advisors, attributed the recent fall in Bitcoin’s price to a few factors.
One of the main causes of the current market slump is a “massive outflow” from cryptocurrency to U.S. dollars. Those who gained from the crypto market spike last December must now pay capital gains on their earnings. Lee stated that U.S. households owe $25 billion in taxes on cryptocurrencies this year. To cope with tax payments, many are selling their remaining holdings. Crypto exchanges are also selling cryptocurrency in order to pay their taxes in fiat. Lee wrote:
“We believe there is selling pressure by crypto exchanges who are subject to income tax in U.S. jurisdictions. Many exchanges have net income in 2017 [of more than] $1 billion and keep working capital in [Bitcoin]/[Ethereum], not USD — hence, to meet these tax liabilities, are selling BTC/ETH.”
Last month, the U.S. Internal Revenue Service issued a release to remind U.S. taxpayers to include cryptocurrency income in their tax forms or face penalties for tax evasion. Lee highlighted that historical estimates indicate that “each $1 USD of outflow is $20-$25 impact on crypto market value.”
In addition to the current selloff, regulatory risks coupled with the negative sentiment surrounding Bitcoin are stalling growth in the crypto market.
Still bullish on Bitcoin
Lee is well-known in the crypto community for his bullish price predictions. Earlier this year, he said he expects Bitcoin to reach $25,000 by the end of 2018, and more recently stated its price will climb to $91,000 by March 2020.
Despite the current state of crypto, Lee remains optimistic that the market will pick back up soon. Once Tax Day has passed and the selloff is over, it is possible that Bitcoin will find footing and resume an upward trend.
