There are often multiple reasons for an asset to plummet, but the 10% “slump” in Bitcoin (BTC) that occurred on April 22nd. This can be traced back to the Biden government’s alleged plan to tax capital gains twice the current rate for the richest Americans.
Bitcoin is routinely volatile, so a double-digit crash in any given week probably shouldn’t be given too much thought. However, this could be an equally good place to ponder the potential impact of taxes on stocks in general on the future growth of cryptocurrencies and blockchain technology.
Could it hinder long-term adoption? If so, in what way? Given the whims of US politics, will Biden’s plan be carried out? How can the outbreak of the mini market be explained by the mere possibility of more taxes in a single nation? What kind of misperceptions we might have about crypto taxes in general?
“”The drop in prices is likely due to a number of factors and rumors – mainly the expiration of future positions at the end of the month, which resulted in a liquidation of positions which triggered a slip“Markus Veith, partner in the audit practice at Grant Thornton LLP and a leader in the firm’s digital assets practice, told Cointelegraph.
There have also been reports, widely believed to be false, that Treasury Secretary Janet Yellen led efforts to impose an 80% tax rate on capital gains on cryptocurrencies. “as well as rumors that the US Treasury Department is investigating financial institutions for illegal use of cryptocurrencies, which is what the Justice Department would do, not the Treasury Department.“Veith added and continued:”Then there were comments about a decline in Chinese mining capacity.“.
A lot has happened this week
David Trainer, CEO of investment research firm New Constructs, downplayed BTC price volatility, stating, “10% volatility is nothing new to BTC and cryptocurrencies in general.” Meanwhile, Tyler Menzer, a chartered accountant and graduate student in accounting at the University of Iowa noted: “While the tax news coincides with the decline, it may just be one of many factors that are contributing to it“.
But taxes are important. “”The application [de Biden] would bring the effective tax rate above 50% in certain states and would be detrimental to job creation“Carlos Betancourt, co-founder of BKCoin Capital in Miami, told Newsweek, adding:”and it would further accelerate the transition from states like California and New York to more tax-friendly states like Florida and Texas, which have no state income tax. “
This is, of course, an early stage in a new administration, and there are some doubts as to whether the capital gains of the richest could double to 39.6% – as suggested – will go to Congress intact, or when that rate is finally lowered.
“”Someone has to pay for all the incentives, the deficits and the national debt, so there will be a very likely tax hike in the near future, either on capital gains or anything else that has yet to be decidedMazhar Wani, a PricewaterhouseCoopers partner who specializes in taxes in San Francisco, told Cointelegraph.
However, Omri Marian, a law professor at the University of California’s Irvine School of Law, said the proposal in its current form is unlikely to be adopted. “”The democratic majority in Congress is too small for that“Marian briefed Cointelegraph. Chris Weston, director of research at Pepperstone Group – a forex trader – said:”The numbers currently proposed are unlikely to be approved by the Senate in their current form, and centrist Democrats will not support the numbers touted.“.
But rumors aside, if the capital gains tax doubling in Congress stays intact, Would it inevitably mean stormy weather for cryptocurrencies and blockchain technology?
Maybe not. Nathan Goldman, assistant professor of accounting at North Carolina State University, told Cointelegraph – after consulting with his BTC tax co-author, Christina Lewellen – that the new capital gains taxes will target the richest – those with an annual income of more than $ 1 in Millions of dollars – and would only be paid if the digital asset was sold:
“As a result, it is unclear whether the proposed changes would significantly affect the majority of cryptocurrency holders.”
“Taxes are likely to have an impact on Bitcoin prices, however,” Menzer said and continued: “We have a wealth of previous research on a wide variety of outcomes and aspects of life that are influenced by tax rates, particularly in the financial sector.“”
What about the rumors about Yellen’s so-called 80% capital gains tax, the would “punitive and unprecedented”? Goldman said to Cointelegraph: “I don’t think the rumors of an 80% capital gains tax on cryptocurrencies have much grounding“A position that has been confirmed by other media. However, some continue to believe that Yellen has not come very close to cryptocurrencies.
“I assume that Yellen does not understand Bitcoin fundamentally,” said Weston. “It’s strange looking for digital assets to protect yourself from criminal activity on an asset that is making a record.”This is especially true since cash is generally preferred in such transactions as it is not traceable. Meanwhile, Trainer added:
“I think Janet Yellen has tried to minimize speculation in cryptocurrencies. She believes rampant speculation like the one we see in crypto is not healthy for investors or the underlying asset over time.”
On the subject of capital gains in general, Menzner said: “To the extent that higher taxes make the use or introduction of crypto for new purposes more expensive, it will mean a setback.” However, he added: “This could also speed up the use of stablecoins for certain cryptocurrency projects as they are designed to minimize price fluctuations and therefore minimize profits or losses from a tax perspective.. “
“”We don’t usually see taxes as the decision that controls the exit of a position, but it can drive when an exit occurs. for example, if the corresponding losses are to be harvested, if the long / short-term holding periods are complied with, etc.Paul Beecy, a tax services partner at Grant Thornton LLP, told Cointelegraph.
Does US tax policy matter globally?
To what extent is this all just an American question? In Singapore or France, does it really matter what is happening in the US for tax policy, especially for an asset like Bitcoin that is acquired and held worldwide?
“”Competitive advantage is the key here“According to Wani, who added,” It is important when other countries have similar tax policies. “He also believes that other countries can try to become more competitive by offering them.”More incentives – that is, less taxes – to attract more talent and companies from this growing industry to their jurisdiction.“”
“”The only thing I can definitely say about how much US tax policy affects cryptocurrencies is that it doesn’t. we know“Menzer added, but” US politics can make real changes in the economy of exchanges. “Many global exchanges do not allow US citizens and citizens to operate thanks to US politics, for example.”This effectively separates non-US traders from Americans, which makes the idea that Bitcoin or other cryptocurrencies are uniformly global easy breaks.“”
It’s important, Marian said, because “if you’re a US taxpayer, you owe US taxes on your cryptocurrency operations no matter how you conduct them. It can be more difficult for the IRS to enforce when you have your assets.” feature.” a foreign administrator. But if you cheat on purpose, you wouldn’t mind if the tax rates change. “
What seems clear is the lack of clarity about taxes and cryptocurrencies, starting with the widespread misconception that cryptocurrencies do not need to be taxed. According to Goldman:
“You still have to pay taxes on the appreciation of your crypto assets. For example, if you bought a single bitcoin for $ 434 on January 1, 2016, and used that bitcoin on April 1, 2021 to buy a Tesla worth $ 58,726 – You have to pay capital gains tax on the difference. “
There are no hard and fast rules
What is even more problematic is that there is no standard tax treatment for all uses of cryptocurrencies. As Beecy Cointelegraph said “When the digital currency is held [en EE.UU.] Taxes on buying and selling are adequately understood by individual retail investors as an investment, and applicable capital gains tax should affect transactions in digital currencies in a manner very similar to other assets of financial capital.“”
If, on the contrary, the digital currency is structured as part of more complex transactions “and mimics other more esoteric financial instruments – like derivatives, NFTs [tokens no fungibles] and certain security tokens – so the tax rules for these digital currency transactions are not really clear“said Beecy.
All in all, last week’s BTC price swings might have been an overreaction to some preliminary financial plans, but that reaction was likely predictable given that “regulation is obviously a big gray cloud” that creates fear, as I said. Weston said: “But as we’ve seen many times lately, the market sells first, think about it, and generally calmer minds prevail.“”
Taxation is serious business, of course, and even if the doubling of capital gains tax affects only the richest directly, History teaches that taxes can leverage long-term growth, so be careful.
Taxation is a form of regulation, and the mere fact that such debates are happening in the twelfth year of cryptocurrencies’ existence can potentially instill some confidence The United States will not ban or attempt to “turn off” cryptocurrencies. In fact, the net effect could be an “increase” [en] Adoption as people feel safer “Menzer explained.