Starting a few tax seasons ago, the IRS started to ask the question. “At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?” What does this have to do with the price direction of Bitcoin? Let me explain.
Tax preparers have to ask this question when preparing tax returns and check the box as “Yes” or “No.” But how is this relevant to the price of Bitcoin? The answer is simple, and even though many clients had purchased and did not sell, it showed an enormous interest in cryptocurrencies. Bitcoin peaked during the year 2021, which was the same year of requiring disclosure on tax returns, and after the observation of so much interest in virtual currencies.
A related example was during the Great Financial Crises during 2007 – 2008, when many people were flipping houses and buying investment properties. Interest in real estate was extremely high and a frequent topic of discussion. We all know how that ended.
Maybe the price of Bitcoin will go back up once many taxpayers have sold all of their positions and no longer need to answer “Yes” to the virtual currency question on their tax return. We’ll see.
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