Some of the recent selling pressure in cryptocurrencies is due to unanticipated tax positions, hedge fund Pantera Capital said in its February blockchain letter. Tax day, April 18 in the U.S. this year, can influence crypto prices, it said.
Some $1.4 trillion of cryptocurrency capital gains were created last year, the fund said, adding that meeting the resulting tax bill could have caused a "decent chunk" of the recent sales.
The money manager noted that after previous big run-ups – in 2013, 2017 and 2020 – bitcoin peaked 35 days before tax day, and then fell as investors sold assets to cover taxes accrued. Cryptocurrency prices tend to fall leading up to tax day, it added, a pattern that's likely to be seen this year, too, after 2021's rally.
"A lot of crypto traders are new to investing," according to the letter. "You can imagine a person buying as much bitcoin as they can. Sometime later they decide to swap it for ether. And then their tax preparer tells them they owe 34% of the gains in taxes. ... Since the investor is 'all-in' on crypto, the only way to raise cash for the tax bill is to sell some crypto," the fund said.
A lack of guidance on everything from staking rewards to non-fungible tokens (NFT) means there's a certain amount of guesswork involved in tax filings.
In 2013 Pantera launched the first cryptocurrency fund in the U.S. It launched the first blockchain-only dedicated venture capital fund in the same year. The firm was founded by Dan Morehead in 2003. It currently has $4.6 billion in assets under management and has been involved in 95 venture investments.
Read more: 4 Crypto Tax Myths You Need to Know
CORRECTION (Feb. 24, 12:52 UTC): Corrects figure on capital gains to $1.4 trillion throughout.
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