Bitcoin (BTC) has been posting strong and consistent gains over the past several days, with its recent dip to lows of $6,800 being closely followed by a massive price surge that has allowed it to gain a position within the lower-$8,000 region.
There has been an abundance of different narratives regarding what could be behind this latest movement, but some investors are now noting that US-investors’ taxes may be playing a role in the recent rally, which could make sense when put into historical context.
Are Taxes the Unlikely Suspect Behind the Recent Bitcoin Rally?
Bitcoin ended 2019 on a positive note, climbing nearly 100% from where it started the year. In spite of this, not all BTC investors in 2019 ended the year with profits, as the crypto did reach highs of $13,800 at one point.
All investors who purchased Bitcoin above roughly $7,200 – where BTC ended the year – likely incurred some YTD losses, which means that selling their cryptocurrency could entitle them to a 2019 tax write off.
Pete Rizzo, a popular journalist within the cryptocurrency industry, mused this possibility in a recent tweet, saying:
“What if all this #BTC buying is just… investors who sold EOY for tax purposes buying back to start the year…”
— Pete Rizzo (@pete_rizzo_) January 8, 2020
Because BTC did decline during December 31st and continued to inch lower until January 2nd when it tapped lows of $6,800, this theory could be supported by Bitcoin’s price action.
If these investors did sell their holdings for a loss in order to get a tax write off, they would likely then buy back into their Bitcoin positions at the start of the new year, which could have been the spark that started the recent uptrend.
Does This Theory Make Sense from a Logical Standpoint?
Other theories regarding what the impetus behind the recent rally was have largely been focused on technical developments, as well as fundamental ones regarding Bitcoin’s potential status as a safe haven investment.
It is possible that the recent rally is a result of not one sole factor, but rather a combination of different factors.
Although individuals who sold their BTC at the end of last year could have sparked the recent uptrend, the lack of an equally sized sell-off prior to this rally signals that they could not have been the sole factor behind this move.
Furthermore, this narrative – which is clever and could hold sway over Bitcoin’s EOY price action in the future – appears to be more pertinent during years like 2018, when the cryptocurrency ends the year on a sour note and leaves the vast majority of investors at a loss – rather than just a small handful of ones who bought the top.
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