Bitcoin has tumbled from its December 2017 highs, and traders blame multiple culprits: the Mt Gox liquidation, regulatory pressure mounting from Washington, and U.S. tax season. Some observers say th
Bitcoin has tumbled from its December 2017 highs, and traders blame multiple culprits: the Mt Gox liquidation, regulatory pressure mounting from Washington, and U.S. tax season.
Some observers say the rally ended. Tom Lee, head of research at Fundstrat Global Advisors, disagrees. Lee follows both traditional trading and cryptocurrency markets. He sees the boom in its early stages.
Lee predicted that tax-loss selling would shrink Bitcoin's market capitalization by $20 to $25 for every $1 of Bitcoin sold. With the April 17 tax deadline now behind the market, he argues selling pressure from three major sources has subsided. Bitcoin should climb to $20,000 by June, Lee said, and reach $25,000 by December.
Data from some sources challenges this view, suggesting few cryptocurrency investors filed gains on their 2017 earnings. But traders may have been holding back anyway, waiting for the tax-selling wave to pass. Once that selling stops, buyers return.
Pantera Capital, a cryptocurrency hedge fund with $800 million under management, saw the tax deadline as a major turning point. The firm connected the April filing deadline to selling pressure in a letter to investors: "I could imagine that a portion of the selling pressure on the market, in general, has been unintended tax positions. Imagine a trader actively buying and selling BTC, ETH, XRP, etc. Great year. Made a ton of money. Kept it all in the markets. Come the spring their accountants tell them that every sale at a profit created a taxable gain."
Lee put U.S. Bitcoin investors' capital-gains taxes at $25 billion. That burden forced liquidations as people raised cash to pay what they owed. "As a consequence, if this analysis is correct, selling pressure for bitcoin should be alleviated after April 15th," he said.
Lee acknowledged in early April that regulatory risk remained "substantial" and sentiment was "awful." But momentum shifted by this week. On Friday, April 20, he sent clients a note: "The U.S. tax day is behind us (April 17th) and since then, the overall tone in the crypto market has improved. We believe the 'winter' is ending for Bitcoin, as the crypto to fiat pressures from tax day subside, and as headline risks seem to be fading."
Frank Cappelleri, executive director of institutional equities at Nomura Instinet, offers a more cautious technical reading. Bitcoin is testing a downtrend line that rejected the price in January and again in March. "Bitcoin now is testing a very important downtrend line, the same one that the Cryptocurrency failed at in January and again in March," Cappelleri said. If Bitcoin breaks above the line, prices could climb toward $9,173, he predicted on April 20.
Over the weekend, Bitcoin reached $8,962. It has traded around the $8,900 level since then.
