There are often multiple causes for an asset’s sharp decline, but Bitcoin’s (BTC) 10% “nosedive,” which took place on April 22, may be blamed on the Biden Administration’s reported plan to tax capital gains at double the current rate on America’s wealthiest.
Bitcoin is habitually volatile, so one probably shouldn’t read too much into a double-digit swoon in any given week, but this might be as good a place as any to reflect upon the possible impact of the United States capital gains taxes, and taxes in general, upon the future growth of cryptocurrencies and blockchain technology.
Could it hinder long-term adoption? If so, in what ways? Will the Biden plan even reach fruition, given the vagaries of U.S. politics? How, too, does one explain the mini-market eruption in the face of the mere possibility of more taxes in a single nation? What sorts of misperceptions might we be harboring with regard to crypto taxation generally?
“The price drop can probably be attributed to a number of factors and rumors — chiefly, the month-end expiration of future positions, which resulted in a liquidation of positions that triggered a slide,” Markus Veith, a partner in the audit practice at Grant Thornton LLP and leader of the firm’s digital assets practice, told Cointelegraph.
There were also reports, generally thought to be false, that Treasury Secretary Janet Yellen was spearheading an effort to impose an 80% capital gains tax rate on cryptocurrencies, “as well as rumors that the U.S. Treasury was investigating financial institutions for illicit use of cryptocurrencies, which the DoJ would do, not the Treasury,” added Veith, continuing: “Then, there were also comments about a drop in Chinese mining capacity.”
A lot was happening that week
David Trainer, CEO of investment research firm New Constructs, downplayed the BTC price gyrations, stating: “10% volatility is nothing new for BTC and crypto in general.” Meanwhile, Tyler Menzer, a CPA and doctoral student in accounting at the University of Iowa, noted: “While the tax news does coincide with the drop, it may only be one of many contributing factors.”
But taxes do matter. “The [Biden] proposal would put the effective tax rate at 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 would continue to accelerate the move from states like California and New York to more tax-friendly states like Florida and Texas that have no state income tax.”
This is still an early stage in a new administration, of course, and there is some question whether a doubling of the capital gains on the wealthiest to 39.6% — as proposed — will even make it through Congress intact, or if that rate will eventually be reduced.
“Someone needs to pay for all the stimulus, deficits, and national debt, so very likely you would see a tax increase in the near future — whether on capital gains or something else is still to be decided,” Mazhar Wani, a PricewaterhouseCoopers tax partner in San Francisco, told Cointelegraph.
However, Omri Marian, professor of law at the University of California, Irvine School of Law, said that the proposal will unlikely be accepted in its current form. “The Democratic majority in Congress is just too narrow for this,” Marian informed Cointelegraph. Chris Weston, head of research at the Pepperstone Group — a forex broker — said: “The numbers being proposed at this juncture will unlikely pass the Senate in its current form, and centrist Democrats will not back the touted numbers.”
But casting rumors aside, if a doubling of the capital gains tax does pass through Congress intact, would it necessarily 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 co-author on BTC taxation matters, Christina Lewellen — that the new capital gains taxes are geared to the wealthiest — those with more than $1 million in annual income — and they would be paid only upon the sale of the digital asset:
“As a result, it is not clear whether the proposed changes would significantly affect most cryptocurrency holders.”
Still, “taxes likely do have an effect on Bitcoin prices,” said Menzer, continuing, “as we have a lot of prior research on a wide variety of outcomes and aspects of life that are affected by tax rates, especially in the financial sector.”
Moreover, they could push crypto and blockchain technology in some interesting directions. Wani, for example, would expect to see more “short-term volatility due to certain investors cashing out at the lower rates, but long term, you may see more demand for DeFi applications and other collateralized use cases to create liquidity and avoid triggering gains.”
What about murmurs surrounding Yellen’s so-called 80% capital gains tax — which would be “punitive and unprecedented”? Goldman told Cointelegraph, “I do not believe there is strong merit to the rumors of an 80% capital gains tax on cryptocurrency” — a position echoed elsewhere. But some still believe that Yellen hasn’t really warmed to crypto.
“My own view is Yellen fundamentally doesn’t get Bitcoin,” Weston said, continuing, “and to go after digital assets to protect against criminal activity in an asset that leaves a record is odd” particularly because cash is usually favored in such transactions, given its untraceability. Meanwhile, Trainer added:
“I think Janet Yellen was looking to minimize the speculation in crypto. She believes that rampant speculation, like what we see in crypto, is not healthy for investors or the underlying asset over time.”
With regard to the capital gains issue in general, Menzner commented: “To the extent that higher taxes make it more expensive to use cryptocurrency or adopt it for new uses, it will be a setback.” However, he added: “It could also accelerate the use of stablecoins for certain cryptocurrency projects, as they are designed to minimize price fluctuations and thus minimize any gain or loss from a tax perspective.”
“We don’t often see tax as the controlling decision of whether to exit a position, but it may drive when an exit occurs; for example, if any corresponding losses should be harvested, when long-term/short-term holding periods are met, etc.,” Paul Beecy, tax services partner at Grant Thornton LLP, told Cointelegraph.
Does U.S. tax policy matter globally?
To what extent, though, is this all just a U.S. issue? Does it really even matter in Singapore or France what happens in the U.S. with regard to tax policy — especially for a globally purchased and held asset like Bitcoin?
“Competitive advantage is key here,” according to Wani, who added: “It matters if other countries follow similar policies for taxation.” Also, he believes other countries may try to become more competitive by offering “more incentives — i.e., less taxation — to attract more talent and businesses from this growing industry to their jurisdictions.”
“The only thing I can definitively say on how much U.S. tax policy affects crypto is that we don’t know,” added Menzer, but “U.S. policy can cause real changes in crypto-exchange economics.” Many global exchanges do not allow U.S. residents and citizens to trade, for example, thanks to U.S. policy, “thus effectively separating non-U.S. traders from U.S. traders, which slightly breaks down the idea that Bitcoin or other cryptocurrencies are uniformly global.”
It matters, said Marian, because “if you are a U.S. taxpayer, you owe U.S. taxes on your crypto trades no matter how you make them. It may be more difficult for the IRS to enforce if you hold your assets with a foreign custodian. But if you cheat on purpose, you wouldn’t care very much about a change in tax rates.”
What does seem clear is the lack of clarity with regard to taxes and cryptocurrencies, starting with the common misperception that you do not need to pay taxes on crypto. According to Goldman:
“You still need to pay taxes on the appreciation of your cryptocurrency assets. For example, if you bought a single Bitcoin on Jan. 1, 2016, for $434 and used that Bitcoin to buy a Tesla on April 1, 2021 — value $58,726 — you owe capital gains taxes on the difference.”
No hard and fast rules
More problematic still, there is no standard tax treatment for all cryptocurrency uses. As Beecy told Cointelegraph: “When digital currency is held [in the U.S.] by individual retail investors as a capital asset, the tax rules on buying and selling it are reasonably understood, and the capital gains tax that applies ought to impact digital currency transactions in a manner very similar to other financial capital assets.”
But when, by contrast, digital currency is structured as part of more complex transactions “and mimics other and more esoteric financial instruments — like derivatives, NFTs [nonfungible tokens], and certain security tokens — then the tax rules on those digital currency transactions are not really clear,” said Beecy.
All in all, last week’s BTC’s price gyrations might have been an over-reaction to some preliminary tax plans, but this response was probably predictable, given that “regulation is obviously a major grey cloud” that begets anxiety, as Weston noted, “but as we’ve seen many times of late, the market sells first, thinks about it, and calmer heads generally prevail.”
Taxation, of course, is a serious business, and even if doubling of the capital gains tax only directly impacts the wealthiest, history teaches that taxes can have a leveraged impact on long-term growth — so, one needs to pay attention.
Taxation is a form of regulation, and the mere fact that discussions like this are taking place in crypto’s only 12th year of existence may provide some confidence, arguably, that the U.S. is not going to ban or attempt to “shut down” cryptocurrencies. Indeed, the net effect could be an “increase [in] adoption as people feel more confident,” submitted Menzer.
Dogecoin Resumes Fresh Uptrend as Buyers Recoup Above $0.40 Support
For the past 48 hours, Dogecoin has been rising after its recent fall to $0.35. The altcoin reached a high of $0.59 but faced rejection at the $0.60 resistance zone.
On May 4, Dogecoin faced similar rejection, but buyers overcame the resistance level. The market rose to a high of $0.65 and pulled back to a $0.60 low before reaching the previous high of $0.70. Today, DOGE is resuming upward after a minor retracement. The altcoin is likely to rise and retest the previous high of $0.73. Conversely, if buyers fail to overcome the $0.60 resistance, the market will be compelled to sideways move below the resistance level. DOGE/USD is trading at $0.536 at the time of writing.
Dogecoin indicator reading
Despite the retracement, the DOGE price is above the 21-day and 50-day SMAs. This indicates that the altcoin is in the bullish trend zone and capable of rising. The market is above the 40% range of the daily stochastic. The price indicator is contrary to the price action as the market is in a bearish momentum at the time of writing.
Major Resistance Levels – $0.80 and $0.85
Major Support Levels – $0.45 and $0.40
What is the next direction for Dogecoin?
DOGE/USD has resumed a fresh uptrend. If the altcoin breaks above the $0.60 resistance, it will signal the resumption of the uptrend. On May 7 uptrend; a retraced candle body tested the 50 % Fibonacci retracement level. This retracement indicates that the altcoin will rise to level 2.0 Fibonacci extension or the high of $1.29.
Disclaimer. This analysis and forecast are the author’s personal opinions, are not a recommendation to buy or sell cryptocurrency and should not be viewed as an endorsement by Coin Idol. Readers should do their own research before investing funds.
CoinZoom Joins Visa’s Fintech Fast Track Program
Leading U.S based cryptocurrency exchange CoinZoom has announced that it has joined Visa’s Fintech Fast Track Program. This development is expected to speed the process of integrating with Visa and expand CoinZoom’s capability to leverage the capabilities and security of the Visa global payment network.
CoinZoom to Launch New Products in Collaboration With Visa
The crypto exchange made this announcement in a press release on Friday, May 14, 2021, with key details. CoinZoom customers will be able to send funds from their wallets to their debit cards in real-time using the Fast Track technology. The collaboration will also enable CoinZoom to integrate Visa Direct, a real-time push payment platform.
CoinZoom will utilize Visa Direct and launch a new service called CoinZoom Instant. With CoinZoom Instant, users will be able to convert their crypto to fiat and send funds to their debit cards. The innovative service will also allow money to be sent to eligible debit card and prepaid card accounts to complete payouts, P2P transfers, app withdrawals, and many more. CoinZoom estimates that the service will reduce the confirmation times for transactions from 2-3 days to within a few hours.
CoinZoom customers will also be eligible to receive up to 3% moneyback in crypto when they send their funds using CoinZoom Instant. Currently, CoinZoom offers Visa debit card that allows U.S customers to exchange their crypto for fiat and spend in over 53 million merchants and ATMs globally. This development is expected to take the level of collaborations between the two companies to the next level.
Visa’s Fintech Fast Track Program is a bootstrap program that provides startups with the ability to access Visa’s partner network and resources. Startups like CoinZoom will be able to build new products with the support of Visa and expand payment services in the most efficient way possible.
Speaking on the partnership with Visa, CoinZoom CEO Todd Crosland revealed his delight and stated that it represents a major milestone for the exchange.
“Our customers can currently send fiat or crypto instantly to other users for free via our peer-to-peer transfer feature, ZoomMe, and now through our expanded collaboration with Visa, we will be able to provide a premier service to global customers in the peer-to-peer marketplace that totals over $20T per year.’’
He also added that the integration would reduce the wait time for crypto to fiat transfers.
“Through the integration with Visa Direct, our U.S. customers will be able to convert crypto and send their fiat to their eligible debit cards in real-time, as opposed to waiting 2-3 days for a bank wire. With CoinZoom Instant, customers will be able to easily send fiat or crypto from one account to another, one bank to another, or one country to another in real-time,” Crosland concluded.
Terry Angelos, SVP and Global Head of Fintech, stated that CoinZoom had a lot to gain within the Visa Fast Track program.
“Fast Track lets us provide new resources that rapidly growing companies need to scale with efficiency.”
CoinZoom is a U.S registered exchange and available in 50 states. The exchange also has subsidiaries in Australia and Ireland. The digital asset exchange uses novel technology to provide a user-friendly experience for traders. It offers customer-focused tools and trading features to ensure that customers can access the best trading opportunities. CoinZoom offers buying, selling, and transaction services for crypto assets and supports popular assets like Bitcoin, Ripple, and Ethereum. Its primary product is the CoinZoom Visa card that allows users to instantly convert crypto to fiat and use it in over 100 countries globally.
Crypto Scam Watchdog Group Wants To Get Back At Vitalik Buterin
A crypto scam watchdog group wants to get back at Ethereum’s creator after he got rid of all of his SHIB token holdings. Now, the group created a token that dumps ETH for rival BNB as we can see more in our latest Ethereum news today.
The market for SHIB collapsed after Buterin got rid of all of his tokens and now one crypto scam watchdog group wants revenge. The Telegram group War on Rugs hates rug pulls but now they are trying to rug pull Ethereum. The group says it’s composed of developers and auditors that created the Rug Ethereum token in retaliation for the ETH co-founder Vitalik Buterin’s decisions o transfer millions of his SHIB tokens to charity while at the same time he crashed the market for the token:
“Vitalik rug pulled Shiba, innocent investors have been hurt. He should never be shown as a hero for this.”
@VitalikButerin rug pulled Shiba Inu $SHIB. Let’s rug Ethereum $ETH. Introducing Rug Ethereum $RETH on the Binance Smart Chain. A token that dumps ETH for BNB. The first @WARONRUGS token. #SellYourETHhttps://t.co/lZ7zckBqIG
— #WARONRUGS❌ (@WARONRUGS) May 14, 2021
Binance CEO Changpeng Zhao agreed to list the token on Binance’s Innovation Zone and called SHIB high risk. War on Rugs which looked at the smart contract said that this year Buterin had a huge stake in the token which meant it could be vulnerable. A rug pull is a type of scam where developers leave a project and take investors’ money with them. They are most common in the DeFi space where people can go to get crypto loans, earn interest, and trade assets without getting the help of a financial intermediary or insurance that intermediaries provide.
Buterin didn’t develop the token so now the creators of the meme token sent trillions of the asset to Buterin who is reversed among ETH acolytes for his intellectual capacity and lack of concern for the things money can buy. Sending the funds to Buterin’s wallet lent the project a veneer of legitimacy while also decreasing the supply because he wouldn’t touch the funds. DeFi researcher Chris Blec said:
“If you consider a ‘rug pull’ to be quickly, without notice, removing a damaging amount of liquidity from a pool, then I guess that’s what Vitalik did. The fact that he never asked for the liquidity in the first place definitely changes things though.The SHIB token project was originally deployed with a specific set of risks and a whole lot of inherent problems. Vitalik didn’t change any of that. He simply exposed the token for what it was.”
DC Forecasts is a leader in many crypto news categories, striving for the highest journalistic standards and abiding by a strict set of editorial policies. If you are interested to offer your expertise or contribute to our news website, feel free to contact us at [email protected]
Palantir Accepts Bitcoin for Payments and Considers Adding BTC to Balance Sheet
Billionaire Druckenmiller says ledger-based system could replace USD worldwide
Justin Sun Offers $50M Dogecoin For TRX And BTT SpaceX Satellite Launch
Bitcoin Vault inks major deal with ESE to co-produce Gaming & Esports Talent Show in five countries
XRP Lawsuit ramifications: Is the SEC hurting the same community it vows to protect?
Raze Network Kicks Off Testnet Phase With UI Community Voting
Sigmax.io introduces an innovative trading bot that simplifies arbitrage trading
First Spot: Coinbase’s App Surpassed TikTok, Instagram, and Facebook on iOS in the US
Binance Lists SHIB, Will It Become The Next DOGE?
Dfinity’s ICP token sees violent first day of trade on major exchanges
The challenges with designing a CBDC, explained
dotmoovs Raises $840,000 From Strategic Investors and Partners
Data Agnostic Oracle Network ORAO Chooses TRON’s Blockchain Over Ethereum’s
How did Internet Computer (ICP) become a top-10 cryptocurrency overnight?
Block.one and partners raise $10B to launch EOS-based crypto exchange: Bullish Global
Casper Network’s CSPR Spot Trading Now Open on OKEx
AI-powered crypto trading app BlockBank to use API3’s data feeds
When dollars meet the hype: The biggest NFT hits from celebrities
PARSIQ Integrated Into Polkadot For Smart Triggers Across the Relay Chain
Uniswap flips Bitcoin on daily revenue… and it’s more impressive than you think
Blockchain1 week ago
Major Law Firm CMS Adds Stratis (STRAX) to its Legal Accelerator Program
Blockchain1 week ago
Crypto Market Cap Added $300B in 7 Days as Altcoins Explode: The Weekly Recap
Blockchain4 days ago
Palantir Accepts Bitcoin for Payments and Considers Adding BTC to Balance Sheet
Blockchain7 days ago
Ray Dalio’s Bridgewater CFO leaves to work on Bitcoin full-time
Blockchain7 days ago
Ethereum price closes in on $4K as Shiba Inu (SHIB) steals Dogecoin’s thunder
Blockchain7 days ago
CFO of World’s Largest Hedge Fund Joins Institutional Bitcoin Firm NYDIG
Blockchain7 days ago
Ethereum (ETH) Hits $3800 ATH As Coinbase Premium Shoots With Institutional Interest
Blockchain6 days ago
Crypto Banter Will Give Away Over $500K To 10 Eligible Community Members