Is the Trump tax plan hurting the value of cryptocurrency? In a recent article, CryptoSlate, a digital currency news and information site, wrote that President Donald Trump’s new tax plan is having an adverse effect on bitcoin and other cryptocurrencies.
Trump’s tax cuts and reforms were passed in December 2017, but the new rules did not go into effect until January 1, 2018. The new laws were expected to help spur economic growth by increasing consumer spending and business investment.
Instead, the opposite has happened. The Dow has lost more than 1,000 points since last Friday alone. And bitcoin dropped from over $16,000 to less than $10,000 per coin in the same time period.
The article goes on to say that “[i]t is possible that widespread fear of higher taxes could have contributed to the recent crash” that cryptocurrencies have experienced in 2018.
Is this true? Most investors don’t think so. There are a number of reasons why cryptocurrency investors should not be worried about Trump’s tax plan affecting their portfolios.
President Trump’s tax plan has been blamed for a lot of things. The latest is a cryptocurrency crash that has erased more than half of the market’s value in the last month.
The internal logic is simple: If Trump’s tax plan reduces taxes, it should also reduce demand for cryptocurrencies as a tax avoidance tool. The most vocal proponent of this theory is Tom Lee, head of research at Fundstrat Global Advisors. In an interview with Bloomberg Markets, Lee said that “the crypto market is pricing in a lot of bad news” and that “there had been a lot of speculation there was going to be a crackdown on crypto” under Trump’s presidency.
The theory sounds plausible, but it needs some help to stand up to scrutiny. The premise is that cryptocurrencies are used primarily as a way to avoid taxes. But while there certainly are people who buy and sell bitcoin as a way to move money around the world and avoid government oversight, it seems unlikely that many investors are using cryptocurrencies specifically because they’re cheaper than paying taxes.
President Trump’s tax plan is finally starting to take shape, and it could mean bad news for the cryptocurrency market.
Trump has been touting his tax plan for months, but things started to get a bit more real last week when he gave a speech about what he plans to do with the taxes. His plan is to cut the taxes for corporations from 35% down to 15%. He also wants to make it easier for companies to bring their money back from overseas at a 10% tax rate. His plan would also eliminate the estate tax and lower the tax rate for small businesses.
As you can imagine, this is pretty good news for everyone who has money in the stock market. Those who are rich enough to benefit from the cuts will be able to keep more of their cash, which means they’ll have more money to invest in stocks and other ventures. As you can see in this chart from CoinMarketCap, things looked pretty bad on Wednesday after Trump’s speech, with Bitcoin losing almost $500 in value:
Money is flowing out of Bitcoin and into stocks as investors try to capitalize on Trump’s tax plan. However, some investors think that Bitcoin might be taking a bigger hit than expected because of these new regulations.
A user on Reddit posted an interesting theory yesterday
The crypto market has been in a downward spiral for months now. With some attributing the crash to South Korea’s ban on crypto trading, others pointing to the SEC’s crackdown on ICOs, and yet others arguing that it’s just a natural correction after an unprecedented bull run.
However, there may be another reason for the sudden drop in value: President Trump’s tax plan. After all, this is the time of year when people have to pay taxes, which means selling off assets for cash—and now that cryptos are considered assets, they will incur capital gains taxes. This means that anyone who made a profit from investments in Bitcoin or any other cryptocurrency will have to sell their coins to pay the IRS.
Bitcoin alone saw its price drop below $7000 yesterday (March 19), recovering slightly to $7200 today (March 20). The overall market cap of cryptocurrencies was down by more than $60 billion in 24 hours. Ripple lost over 30% of its value in less than 24 hours as well. Ethereum fell to $400. Crypto investors are freaking out:
In addition, several exchanges including GDAX and Kraken froze customers’ accounts temporarily while they upgraded systems to meet new regulatory requirements. As a result, many were unable to sell their positions to
The cryptocurrency market has been in a funk since the beginning of the month. But could there be another reason for the slide in prices, beyond the usual?
One prominent crypto trader thinks so.
Speaking to CNBC, Brian Kelly, a former hedge fund manager who now runs his own digital currency fund, said he believes that the market is being affected by the Trump administration’s attempts at tax reform.
Kelly said that this theory was based on anecdotal evidence: traders telling him that they were selling their crypto holdings because of the proposed changes. The Trump administration originally floated an idea to take away the ability for investors to defer paying taxes when they sell an asset for a profit. Investors would instead have to pay taxes on those gains immediately.
The proposal has since been dropped from plans to reform tax law, but as Kelly told CNBC, it might already have damaged investor confidence and caused many people to sell off some of their holdings. It’s likely that many of these investors had been waiting until after April 15 to sell their crypto assets in order to defer paying tax on them. With this plan now potentially off the table, people may be speeding up their sales and moving back into traditional markets like stocks and bonds.
In the past few weeks, cryptocurrencies have taken a beating. It began with a hacker stealing hundreds of millions of dollars worth of tokens from Tokyo-based cryptocurrency exchange Coincheck. Shortly thereafter, China’s central bank announced that it would crack down on citizens’ ability to trade digital currencies. And then U.S. regulators hit mining company BitFunder with fraud charges. All this has happened just as a new study suggested that nearly half of all crypto transactions involve illegal activity in one form or another.
On top of all that, there is President Donald Trump’s recently unveiled tax reform plan, which proposes slashing the corporate tax rate to 20 percent from 35 percent and eliminating several key tax loopholes that corporations use to lower their effective tax rates even further. The administration claims its plan will boost economic growth and increase investment in the U.S., but it may have an unintended consequence: making cryptocurrency more attractive to investors than traditional equity markets.
As the crypto market’s slow but steady recovery comes to a halt, traders are wondering what is causing this sudden change in momentum. Crypto investors have been dealing with these types of scenarios for nearly a year now and have grown accustomed to the wild rides that accompany this market. However, Thursday’s drop marks the fifth straight day of losses. According to CoinMarketCap, the entire crypto market lost around $50 billion in value, which is nearly 20% of its total market cap.
The reason behind Thursday’s crash has yet to be discovered, but some analysts believe that President Trump’s tax return leak may have something to do with it. The New York Times reported on Tuesday that Trump only paid $750 in federal income taxes in 2016, which received a lot of criticism from politicians and other world leaders.
However, there may be more reason for the crypto market’s current downturn than Trump’s tax return leak. According to a tweet published by Joe McCann – founder and CEO of NodeWise – it seems that “large wallets” have been selling their Bitcoin (BTC) holdings over the past two days.