$25 Billion US Tax Liabilities on Crypto Gains Might Be Forcing Bitcoin Price Down

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The tax payable on cryptocurrency gains varies across the globe and investors should review the laws applicable in their specific jurisdiction. In the US, the IRS taxes classifies cryptocurrencies as property for most investors. Profits made on the sale of a cryptocurrency, like bitcoin, is therefore subject to capital gains tax in the US. For a small minority of US investors, there is a special Trader Tax Status (TTS) with more generous tax allowances. To qualify for TTS, an investor needs to provide evidence of the following:

  • Regular trading for short-term profit
  • Hundreds, and in some cases thousands, of sell orders
  • More than 750 hours per annum trading
  • Detailed records of investment plans

Most casual investors will not be eligible for TTS, but it doesn’t mean that that taxes due will be negligible. In 2017, the most popular cryptocurrency, bitcoin, increased in value from $1,000 to almost $20,000 leaving some speculators with sizeable tax liabilities. If a US investor purchased bitcoin in 2017 but hasn’t sold until 2018, or still holds the investment, there is no tax due for 2017.

For some investors, the rapid rise in the price of bitcoin during 2017 persuaded them to sell all or part of their investment for fiat currency. Selling bitcoin for fiat currency though is not the only taxable event giving rise to capital gains tax. There are two other events that trigger a liability – purchasing altcoins with bitcoin and buying goods with bitcoin. ICOs were very popular in 2017, so some investors will have traded bitcoin to buy into them, and others will have simply chosen to diversify their portfolio by purchasing altcoins. If an investor has purchased anything during 2017 with a cryptocurrency, they may have tax to pay. If goods or altcoins were purchased with bitcoin, and the value of bitcoin was higher than when it was initially purchased, a capital gain has been made.


Thomas Lee of Fundstrat Global Advisors has calculated that the IRS may be in for a $25 billion windfall in 2018 from cryptocurrency gains made in 2017. Lee believes some investors will have to sell bitcoin to pay their taxes and this may be part of the reason the price fell sharply in Q1 2018. The normal deadline for filing US tax returns is April 15 but, as that is a Sunday in 2018 and Monday is Emancipation Day, the deadline is extended to April 17, 2018.

Financial analyst, smartphone app designer, technical writer, and crypto enthusiast. Blockchain verified graduate of MOOC 9, DFIN-511: Introduction to Digital Currencies, run by the University of Nicosia.

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