Bitcoin (BTC) Feels Pressure as IRS Issues Tax Penalty Letters, Congress Debates Regulation
Bitcoin is feeling the pressure lately as U.S. Congress continues its debate regarding crypto regulation and the IRS sends out warning letters to crypto holders.
The golden boy of cryptocurrency is down five percent since last week after dropping below $10,000 on the weekend. Analysts are forecasting further losses for the asset as technical indicators suggest a bearish trend forming. The break below the 50-day moving average is a strong sign that the epic rally we enjoyed in June has come to an end. This, combined with a series of negative developments from the U.S. and other countries, means it could be a while before the market recovers.
Several negative issues have been highlighted by U.S. lawmakers during their investigation into Facebook’s plans to launch its Libra cryptocurrency. As a result, the U.S.Department of Justice (DoJ) has announced it will be scrutinizing the activities of big tech companies that it feels may wield too great an influence on the economy. The ongoing investigation has led Facebook to admit a lack of experience in blockchain technology that may affect its ability to successfully launch the Libra platform.
While the news undoubtedly brought some losses to the overall cryptocurrency market, it has also forced the hand of regulators to finally define how cryptocurrencies fit into the current global economy. In response to the news, regulators in France announced plans to develop a ‘crypto task force’ in conjunction with the G7 nations.
IRS Issues Warning Letters
Adding salt to the wounds, several cryptocurrency investors have recently received scathing letters from the Internal Revenue Service (IRS) suggesting that they may owe additional tax on their assets. Letters appear to have been sent only to investors with over $20,000 worth of Bitcoin purchased between 2013 and 2015.
While the letters don’t necessarily serve as penalties, they warn crypto holders in the U.S. that the IRS is aware of their investments and may investigate further. In a press release regarding the letters, IRS Commissioner Chuck Rettig warned: “Taxpayers should take these letters very seriously by reviewing their tax filings and when appropriate, amend past returns and pay back taxes, interest, and penalties.”
While the letters have only been sent out to certain investors, all U.S. citizens who hold digital assets are expected to declare and pay taxes on those assets.
Long term benefits
While Bitcoin and the overall cryptocurrency market may suffer some losses in the short term, the long term picture still looks good. Following mainstream media coverage of Facebook’s plans, more people now know about cryptocurrency than ever before. As further understanding and acceptance of the industry begin to enter everyday life, new money will undoubtedly flow into the market.
The current downward movement will likely taper off in the next few weeks and then trade sideways into September before making a strong recovery. Even some of the most bullish analysts foresee a drop to the $7,200 (the 61.8% Fibonacci extension) level before a period of accumulation and then a new rally towards year-end. However, others believe that if BTC can hold support above $9,000 then we could continue upwards from here.