Crypto may be collapsing because of tax time woes

Posted: 17 January 2018 12:38 pm

Every year, during January, the cryptocurrency market takes a significant hit in terms of overall value.

As the global cryptocurrency market continues to suffer tumbling price movements, industry experts and social commentators have been speculating as to what is causing the current digital currency downgrade.

Much of the social media chatter pointed to fresh reports that China was imposing new crypto regulations. That was largely fueled by a Reuters report quoting a senior Chinese banking official who said that centralized trading of virtual currencies would be banned in China. Nonetheless, crypto dealings continue to persist.

A number of the world’s central banks, and the governments responsible for them, have called for tighter regulation of cryptocurrencies in order to prevent misuse, deter anonymous trading and boost transparency.

However, there might be a simpler explanation for the crash. Every year, during the month of January, the cryptocurrency market takes a significant hit in terms of value, as can be seen in the market cap charts below.

January 2018

Chart: CoinMarketCap

January 2017

Chart: CoinMarketCap

January 2016

Chart: CoinMarketCap

January 2015

Chart: CoinMarketCap

January 2014

Chart: CoinMarketCap

The theory was proposed by a crypto trader on reddit through a series of graphs dating back four years.

The pattern may suggest that the digital currency market is being clobbered annually in January as a result of individuals converting assets in order to have enough fiat currency to cover what they owe on their tax returns.

The new United States tax code – introduced January 1, 2018 – excludes cryptocurrencies from a previous legal loophole and now considers all trades a taxable event. Since 2014, the Internal Revenue Service (IRS) has said virtual currency is treated as property for US federal tax purposes, issuing a guide for proper implementation.

One Twitter user also noted the trend, followed by a suggestion that a recovery would follow the dip.

However, it’s important to note that there is no statistical evidence to suggest that tax season is the definitive reason the market fluctuates so wildly in January. Americans have until mid-April to submit their tax returns.

It’s essential to understand your income bracket and it’s easy to file your taxes online quickly and easily.

Keen to discover more about cryptocurrencies? Check out our A-Z list of the most popular altcoins.

How to calculate taxes on your crypto profits

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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