Bitcoin price appears to have switched course after a period spent on a downward path as it crossed the $8,000 mark last Friday before settling around that area on Monday.
According to CoinMarketCap, bitcoin price had a high of $8,371 on Monday, 9:16 a.m. UTC before settling at $8,151 as of press time for a gain of nearly 1% over the last 24 hours.
Bears claim that a short squeeze is behind what they call “a market correction” but the tax season offers a more rational explanation for a bullish outlook.
The cryptocurrency market soared to its peak in late 2017. Bitcoin investors were also surprised as massive gains also meant huge tax liabilities. Market participants who have sold cryptocurrencies or used them as a means of payment, as well as those who mined virtual currencies, are likely mandated to pay their due taxes. The IRS is expecting people within the space to declare their capital gains and income generated with cryptocurrencies.
The tax season has been pushing the price of Bitcoin as many investors were forced to sell a few to pay off their tax dues, according to experts. With Tax Day just sevearl days away, on April 17, 2018, traders are computing what is at stake in order to project the next bullish run in the digital currency market.
Tom Lee, the Head of Research at Fundstrat Global Advisors, approximates that cryptocurrencies rose in value by $590 billion during 2017, 30% of which were acquired by U.S. holders, totaling $177 billion.
He calculates the tax liability for U.S. bitcoin investors at $25 billion, using a 27% tax rate on a $92 billion taxable gain. Lee though, is not accounting for self-employment taxes from mining.
Lee has also projected the market impact of the tax season. Bitcoin’s market cap is affected by $20 to $25 for every $1 in U.S. dollar selling. The numbers check out as the market cap of bitcoin was valued at $135 billion by the end of March, according to data from CoinMarketCap.
The market cap lost $20 billion over the next two weeks, to $115 billion, before the rebound that began on Thursday last week. Tom Lee claims that $1 billion of U.S. based bitcoin selling is enough to account for the $20 billion plunge. Based on these estimates, the head researcher at Fundstrat Global predicts the price of bitcoin to reach $91,000 by early 2020.
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