The Cryptocurrency Informer
Analyzing this week's BTC price frenzy; A (micro) crypto taxation update
Today’s episode will cover events happening the week ending September 4th, 2020. This week…Bitcoin saw a beautiful rise and an awful fall, and the IRS wants a piece of your microtask crypto income.
September 4th, 2020: Analyzing this week's BTC price frenzy; A (micro) crypto taxation update
If you are a Bitcoin trader or investor, you probably don’t need us to remind you that Bitcoin has had quite a rough week. Technically, the later half of the week, including today. According to CoinMarketCap, Bitcoin rallied earlier in the week, reaching over $12,000 on September 1st – we also saw Bitcoin briefly bounce past $12,000 a few times in August, and it certainly seemed to indicate that the moon was in sight. However, Thursday and Friday brought some dreadful dips in the price of Bitcoin – dropping under $10,000 on Friday, but currently holding steady around $10,400. On today’s episode, we’re going to do something a little bit different. We’ll be assessing a number of different explanations as to why Bitcoin is experiencing these intense fluctuations – of course, volatility and cryptocurrency trading are no strangers, but what exactly is at play this week according to the experts?
First, let’s start with a broad prediction from the September 2020 edition of Bloomberg’s Crypto Outlook newsletter that was released on Wednesday, likely bit prior to the big dip of the week occurring: “Bitcoin appears as a resting bull market on the back of gold, in our view. Limited supply vs. increasing demand is the bottom-line for Bitcoin, with macroeconomic underpinnings that support its march toward the market cap of gold, at a price of $500,000 by some estimates. Or it could fail. Declining volatility – notably vs. equities and gold — indicate Bitcoin is gaining an upper hand.”
Quite an all or nothing mentality, highly skewed in favor of Bitcoin’s success, from one of the leading names in traditional finance. Addressing the beginning of the Bitcoin price drop midweek, Bloomberg released an article stating that “A strong dollar tends to dent appetite for the cryptocurrency and there are signs its popularity is fading among retail investors”, but went on to say that “long-time advocates point to increasing demand from institutional investors” and “…if the greenback softens over 5% it could be the catalyst to help Bitcoin breach that threshold again, if its fundamentals improve.”
On Thursday, the crypto news outlet Cointelegraph lumped the BTC drop in with the price drop of the S&P 500 index, as well as gold. For reference, the price of gold fell over 1% on Thursday, and the S&P 500 fell 1.9% on Friday.
Echoing this theory of correlation, the In Bitcoin We Trust newsletter states “Over short periods, correlations can indeed be found with the S&P 500. Over the long term, it is much less obvious. We can also say that these two markets fell sharply at the same time yesterday, because they responded to common causes, without implying a strong correlation.” The newsletter also echoes the aforementioned, and commonly held belief that the strength of the US dollar is correlated with the price of Bitcoin – the US Dollar Index (or DXY) has “been in freefall for several months, falling from 102,755 on March 19 to an annual low of 92,144 on August 31, 2020. This represents a drop of -10%.” The idea is that this drop has assisted in rallying the price of Bitcoin – but now, “The DXY has rebounded from its annual low… [and the] slight increase suggests to some that the U.S. dollar may strengthen in the coming weeks. This renewed strength may have played a role in the sharp drop.”.
The Cointelegraph article also points to the fact that “miners sold off unusually large amounts of BTC in a short period” as one of the other primary reasons that the price of BTC has dropped.
So, overall, the experts seem to be saying that the price of BTC and the strength of the US Dollar are correlated, and that BTC is also correlated to traditional markets like the S&P 500 and the price of gold, both of which also saw a dip this week. Presumably then, factors that affect these traditional financial systems are also affecting the price of Bitcoin, either positively or negatively.
Analysis of an asset that has so many factors at play is clearly no easy task – hence our deferral to those in the space who follow the price of Bitcoin more closely. On that topic, next week we will be talking to Louis Raskin, the founder of Cryptolete, a trading and investment community. We’ll be discussing cryptocurrency investing and trading, and I’ll be sure to talk to him about the factors at play in this week’s Bitcoin price frenzy!
Next up, a mini cryptocurrency taxation news update. On Sunday, The Block reported that the IRS is indeed considering income from microtasks taxable. “An Internal Revenue Service memo written in late June and published on August 28 states that cryptocurrency earned from microtasks conducted on crowdsourcing platforms is considered taxable income.” The author of the memo, Ronald Goldstein, says in the letter that “a taxpayer who receives convertible virtual currency in exchange for performing a microtask through a crowdsourcing platform has received consideration in exchange for performing a service, and the convertible virtual currency received is taxable as ordinary income… If the taxpayer receives convertible virtual currency for performing the task, regardless of the value and the manner in which it is received, then the taxpayer has been compensated with property.”
This news, while received by many with chagrin, it not entirely surprising. The crypto tax space is very familiar with the stance that the IRS takes on cryptocurrency income – like it or not, it’s taxable.
I’ll be chatting next week with two cryptocurrency tax pros, Alex Kugelman and Matt Metras, over on The BitcoinTaxes Podcast. Be sure to subscribe to both The Cryptocurrency Informer and The BitcoinTaxes podcast on Spotify, Apple Music, and Google Play Music, so you can listen to all of the great cryptocurrency, crypto tax, and blockchain related interviews. And of course, if you need to calculate your crypto taxes, including the income gained from those pesky taxable microtransactions, all you need is Bitcoin.Tax!
That’s it for this week’s episode of The Cryptocurrency Informer. Don’t forget – if you want to read more about each of these stories, go to talk.bitcoin.tax and click on The Cryptocurrency Informer link. Every episode is accompanied by a number of relevant links for each story, so you can do your own in-depth research on the topics that interest you.
Also, check out the interview we released this week with Isaiah Jackson, author of Bitcoin & Black America! We discuss how Bitcoin is going to be a big part in solving the financial inequities that exist in the traditional financial system.
Have a great weekend everyone – stay informed and stay safe!
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