All good things eventually come to an end, and unfortunately, this is the case with Bitcoin. The Biden administration in the United States is continuing its assault on bitcoin and crypto, potentially removing the ability to tax ports. If you don’t know taxation means you sell your property at a loss and claim that loss on this year’s or even future tax returns. It allows you to deduct owed taxes from other capital gains or income.
While this may seem pessimistic, it’s like the US government is trying to destroy the cryptocurrency market. If this does pass the government, it could have an impact on prices, causing them to fall in the short term. However, it’s actually not as bad as you might think. Let me tell you why.
The first thing you need to know is that you can still claim tax losses by selling bitcoins for less than what you originally bought them for. The main goal of the government is to eliminate the wash trading that is prevalent in the cryptocurrency industry. A wash trade is when you sell an asset at a loss to file your taxes, but repurchase the same asset immediately after you sell. This type of trading is already illegal in other financial markets such as stocks and stocks. For stocks, you have to wait 30 days after selling to repurchase them for tax purposes. This all means that Bitcoin will be treated similarly to most other financial assets in the future. This seems like a good thing to me. it’
With markets open 24/7/365, wash trading has always been common in the cryptocurrency industry. One barrier that has prevented people from doing this in the past, however, has been cost. In order to do this on an exchange with a large amount of crypto, buying and selling fees will result in losing cryptocurrency. But that has also changed in the last year. In the worst summer of crypto busts of 2022, Binance will not charge Bitcoin fees on its exchange. Now, users can try it for free and repurchase instantly. No cryptocurrency was lost. It became a free way to save money, which naturally led to people taking advantage of it. If you have been paying attention to the price charts, you will notice that they are not behaving like normal in the past. Move down quickly like a rocket, then soar up in no time. It even feels like staying in the same price zone for weeks. Perhaps free wash trading is one of the reasons for this.
Now to the part that most people will care about. How will this affect the price of Bitcoin?
Admittedly, if this law is passed, it will be seen as a bad thing for the industry and this FUD will cause prices to drop. However, I actually believe that in the long run, that’s good for its price. Historically, wash trading has been a strong downside price force for Bitcoin. More recently, December to March each year has been known as the month of falling prices, as people sell cryptocurrencies to claim tax losses or to help pay their taxes. That being said, once this new law goes into effect, it could eliminate a significant portion of this wash trading. Remove a lot of downward pressure on prices. While there’s no guarantee it will keep prices up, it’s enough to keep prices from falling during these periods.
The key is this. Investors, venture capital firms and corporations have been calling for more regulation of the bitcoin and cryptocurrency markets. Similar to how most other financial assets are treated, this has always been expected. We were lucky that for the first 14 years of Bitcoin’s existence, we could exploit wash trading vulnerabilities whenever we wanted to, with no consequences. But for the industry to thrive, this loophole must be plugged. What may seem bearish for Bitcoin may actually end up being bullish for its future.