Bitcoin has historically underperformed during the United States tax season as traders sell to pay the tax bills
A new analysis by CoinDesk revealed that Bitcoin (BTC) has historically underperformed during the tax season. This is because most traders who earned profits during the previous year sell their BTC stash to settle tax bills.
The tax season usually gains momentum from January and the leading cryptocurrency has generally underperformed in this month more than the others. According to the analysis, from 2014 to 2020, Bitcoin has massively underperformed in four out of the seven January months. It also recorded losses in six out of the seven March months between that period.
Some analysts believe BTC underperforming during those periods isn’t a coincidence. Delphi Digital revealed that average losses for BTC in January are around 5.24% while higher in March, with 12.59%.
Paul Burlage, an analyst at Delphi Digital, stated that although the tax season isn’t the main reason Bitcoin underperforms during this period, it is essential to note it. The leading cryptocurrency has been struggling to rally after it reached an all-time high of $42,000 earlier this year. It briefly dropped below $30,000 yesterday, but it is currently trading at $31,500 per coin. Despite the recent decline in prices, Bitcoin is still up by nearly 400% over the past year.
The Delphi Digital Bitcoin January outlook report revealed that the major reason BTC underperforms during this period is that most traders who earned profits during the previous year sell some of their coins to settle the tax bill.
Kevin Kelly, the co-founder at Delphi Digital, pointed out that it is almost impossible to predict how much selling pressure Bitcoin would face during this season since some jurisdictions treat capital gains more favourably than others.
Kelly noted that Bitcoin’s market cap rose by more than $400 billion last year. Some of the returns are for traders and speculators who might have realised some profits or diverted them into other sections of the crypto market. Hence, triggering taxable events.
Currently, only realised gains are taxed, but that might soon change. Recent reports suggest that Janet Yellen, the US President Joe Biden’s nominee for Treasury Secretary, is proposing taxing unrealised capital gains.