This happened in 2000. 1999 was a heck of a year for amateur daytraders.
Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day
21–30 of 83 posts
Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day
#22Someone used a throwaway account to share their recent personal experience on this matter at /personalfinance, titled "I just discovered that I owe the IRS $50k that I don't have, because I traded in cryptos." Original: https://www.reddit.com/r/personalfinance/comments/84huks/i_j... Update: https://www.reddit.com/r/personalfinance/comments/89ipyu/upd... They removed the story inside their update, but Google cached it…
That makes NO sense at all and I continue to be surprised at the fundamental misunderstanding of the US tax system by techies (it's really not that complicated for individuals).
You pay tax on the GAINS, not on the value of the trade. If he owes the IRS $50k, it means he has a realized gain of ~$333,000. Where did that money go?
The only possibility here is that he took $330,000 and reinvested ALL of it into 'altcoins' just before the end of the year and is still holding them.
Sorry, but that has bullshit written all over it (throwaway account, too)
Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day
#23Due to the massive amount of capital gains taxes owed on crypto, Tom Lee believes there will be a sell off in order to pay these taxes. Following tax day, he believes Bitcoin will find footing again.
A decrease of $20 for every $1 pulled from the market seems a little steep...
I agree. It's suspect because the numbers don't add up. From the article:
" [...]Tom Lee notes that U.S. households owe an estimated twenty five billion dollars in capital gains taxes due to crypto gains."
Total market capitalization of all cryptocurrencies, as of 12:18PM EST on April 6, 2018 is $248,821,531,204.
According to Mr. Lee, each $1 taken from the market will result in a $22.50 decrease in aggregated market value (avg. of his estimated range, "$20 - $25").
25B * $22.50 = $562.5B
The alternative explanation I can come up with is if the statement was poorly formed and what he was really talking about was $25B in investment income will need to be reported and the appropriate short-term or long-term tax rates would need to be applied.
Rough, back of napkin estimation, assuming an even distribution between short-term and long-term capital gains tax rates--which isn't going to be accurate, but I don't have a better way to estimate for this analysis--would be:
Short-term: $12.5B * 28%[1] = $3.5B
Long-term: $12.5B * 15%[2] = $1.875B
Total Estimated Taxes Due: $5.375B
Estimated impact on total market capitalization:
5.375B * $22.50 = $121B
That doesn't sound right, either. Am I totally off-base for both interpretations?
---
[1] Making an educated guess about the "typical" cryptocurrency investors' income bracket, but without actual numbers I'm open to this estimate being higher than reality.
[2] https://www.fool.com/retirement/2016/12/11/long-term-capital...
Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day
#24A couple related observations:
1) With the dramatic rise and then fall of the Nasdaq back in 2001, with similar timing (peak right around New Years Day [0]), and a similar amount of new and uninformed market participants (online day trading just beginning to become a thing), could some of the early 2001 market performance be due to a similar dynamic? Noob traders make bank in 2000, log in to H&R block, start doing their taxes, and then have an oh shit moment when they come to the question about "have you bought or sold any stocks this year?"
2) Stock trading happened through United States institutions. Much of crypto trading does not. Many people may have started with $1k in Binance or Bitfinex, and seen that go up by more than a multiple of 10. Many of those people, I feel, are likely to accidentally commit a felony this year by failing to report their foreign account holdings because they are similarly unaware of the consequences of having money outside their down the street bank. FBAR is a real thing, people face serious fines (at least up to 10k for any infringement, 10k plus half your offshore assets and potential jail time if willfully [1]).
[0]http://futures.tradingcharts.com/historical/ND/2001/0/contin... [1]https://www.irs.gov/businesses/small-businesses-self-employe...
Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day
#25Earlier quoted context omitted.
Won't the capital gains only be owned when people try to convert to fiat currency in the first place? If you're leaving your stuff in cryptocoin form I don't think you would pay capital gains. So this is only a problem for the people cashing out, and if they've cashed out then they should have the cash to cover their tax bill. And this assumes they didn't cash out to the Cayman Islands account. Probably not a lot of…
https://www.bizfilings.com/toolkit/research-topics/managing-... What I'm saying is that trading btc for ltc is barter- and it is taxible.
Lol this misunderstanding is exactly why everyone will suddenly realize they need liquidity before tax day.
Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day
#26How come the wording? Cryptocurrencies are inherently no less fiat currencies than government mandated ones.
That's a good question, and I too would like to know why people consider Cryptocurrencies to be "not fiat" ?
Currencies either have value from
1) Being made of a commodity (e.g. gold coin) or exchangeable for the commodity.
2) Because someone says so. This is "Fiat". Usually this is a government, not not necessarily so. See "company scrip" for another example.
Lack of an issuing government does not magically create a backing commodity.
Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day
#27Earlier quoted context omitted.
https://www.bizfilings.com/toolkit/research-topics/managing-... What I'm saying is that trading btc for ltc is barter- and it is taxible.
Lol this misunderstanding is exactly why everyone will suddenly realize they need liquidity before tax day.
the general rule "If you can afford an accountant, you should probably hire one" applies generally, and keeps you out of a lot of trouble.
Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day
#28Someone used a throwaway account to share their recent personal experience on this matter at /personalfinance, titled "I just discovered that I owe the IRS $50k that I don't have, because I traded in cryptos." Original: https://www.reddit.com/r/personalfinance/comments/84huks/i_j... Update: https://www.reddit.com/r/personalfinance/comments/89ipyu/upd... They removed the story inside their update, but Google cached it…
That makes NO sense at all and I continue to be surprised at the fundamental misunderstanding of the US tax system by techies (it's really not that complicated for individuals). You pay tax on the GAINS, not on the value of the trade. If he owes the IRS $50k, it means he has a realized gain of ~$333,000. Where did that money go? The only possibility here is that he took $330,000 and reinvested ALL of it into 'altcoin…
Anecdotally, it's my understanding that rolling all gains forward isn't an uncommon practice for non-professional traders -- especially during bull markets.
Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day
#29How come the wording? Cryptocurrencies are inherently no less fiat currencies than government mandated ones.
That's a good question, and I too would like to know why people consider Cryptocurrencies to be "not fiat" ? Currencies either have value from 1) Being made of a commodity (e.g. gold coin) or exchangeable for the commodity. 2) Because someone says so. This is "Fiat". Usually this is a government, not not necessarily so. See "company scrip" for another example. Lack of an issuing government does not magically create a…
Because I can't actually buy anything with them, outside of a few niche markets.
Re: Tom Lee Predicts Cyrptocurrency Market Outflow to Fiat Currency Before Tax Day
#30Someone used a throwaway account to share their recent personal experience on this matter at /personalfinance, titled "I just discovered that I owe the IRS $50k that I don't have, because I traded in cryptos." Original: https://www.reddit.com/r/personalfinance/comments/84huks/i_j... Update: https://www.reddit.com/r/personalfinance/comments/89ipyu/upd... They removed the story inside their update, but Google cached it…
That makes NO sense at all and I continue to be surprised at the fundamental misunderstanding of the US tax system by techies (it's really not that complicated for individuals). You pay tax on the GAINS, not on the value of the trade. If he owes the IRS $50k, it means he has a realized gain of ~$333,000. Where did that money go? The only possibility here is that he took $330,000 and reinvested ALL of it into 'altcoin…
It doesn't necessarily have BS written all over it - in fact, I think there are MANY people who got left holding the bag with alts.