A Bitcoin Rally After Tax Day? Don't Bet the Farm

"We may look back on this time as the 'Crypto Tax Crisis of 2018,' as thanks to tax liabilities we're witnessing the most concentrated period of net fiat outflows that the crypto asset ecosystem has experienced in its short life," Chris Burniske, a partner at Placeholder VC, and Jonathan Cheesman wrote in a recent, highly detailed Medium post.

Tax-related selling, judging from posts on Reddit and various cryptocurrency forums from investors who had cashed out cryptocurrency during the December run-up and became concerned about their tax liability.

Further, Japan's tax deadline was March 15th. Like, the U.S., Japan is a huge participant in the crypto market, so this would further support the thesis.

There are several reasons to discount the contribution of such selling to the recent market rout - and thus the probability that prices will suddenly surge again after Tax Day.

First of all, investors who sold during the slump would not likely have raised enough to cover their tax liability.

"If that individual sold one bitcoin in December of 2017 they could have realized a gain of ~$18,000. This short term gain is taxed as ordinary income in the U.S. Assuming a tax rate of ~30 percent, the tax liability would be about $5,400."

Woodin said, in his hypothetical example, "The remaining 0.5 bitcoin is not enough to pay the $5,400 tax liability."

Trevor Gerszt, CEO of CoinIRA, a company that specializes in digital currency individual retirement accounts, gave another reason to doubt a strong connection between the crypto slump and tax selling.

"If tax selling were really a driver of bitcoin prices, we would expect to see a spike in selling, yet confirmed transactions have been relatively low and have remained that way for the past two months," Gerszt said on Tuesday.

If you're going to buy in anticipation of a recovery, don't hold your breath for it to happen right after Tax Day.