Bitcoin Consolidates Near $9,500; IRS Sends Letter to 10,000 Crypto Traders
Bitcoin’s trading range narrowed significantly on Sunday, as volumes on verified exchanges plunged by half in the span of 24 hours, setting the stage for a prolonged consolidation phase. The U.S. government’s crackdown on cryptocurrency began last week with the Internal Revenue Service (IRS) sending letters to around 10,000 cryptocurrency traders it suspects may have failed to meet their tax obligations.
After Saturday’s failed bounce, the bitcoin price was back on the defensive Sunday, falling as much as 1.4% on Bitstamp. The leading cryptocurrency touched an intraday low of $9,352.70 before recovering just below $9,500. It was last seen trading at $9,491, up 0.1%.
On the hourly chart, bitcoin is likely to run into resistance at $9,539, the 30-period exponential moving average. Momentum has clearly tilted to the downside, with the relative strength index (RSI) holding firmly below 50. The oscillator plunged into severe oversold levels on Saturday.
Bitcoin’s ‘real 10’ trade volumes, which measure actual turnover on verified exchanges like Binance, Coinbase and eight others, plunged to $564 million on Sunday, according to Bitwise. Just 24 hours ago, verified trade volume was around $1.1 billion.
At current values, bitcoin’s total market position is $170.1 billion, accounting for 64.5% of the overall cryptocurrency market.
IRS Sends Letters to Crypto Holders
As The Wall Street Journal reported Saturday, the IRS has begun sending letters to more than 10,000 cryptocurrency traders it suspects may have violated federal tax laws. While the IRS didn’t specify what the possible violations were, failing to pay capital gains is likely one of them.
“Taxpayers should take these letters very seriously. The IRS is expanding efforts involving virtual currency,” IRS Commissioner Chuck Rettig said, as quoted by WSJ.
In the United States, capital gains taxes range from zero to 20%, plus a 3.8% surtax in certain circumstances. As a general rule, the IRS has up to three years after a return’s due date to identify reporting deficiencies, but this could be extended for up to six years if the the taxpayer understates their income by more than 25%.
The agency refused to comment on how it was tipped off about possible tax violations, but last year’s federal court order targeting Coinbase probably played a role. Coinbase was forced to hand over information on roughly 13,000 accounts back in March 2018. The information included data on customers who bought, sold, sent or received cryptocurrencies worth $20,000 or more between 2013 and 2015.
Since crypto exchanges aren’t equipped with tax-reporting features, there’s a good chance that most account holders don’t know how much they owe the IRS, if at all. Tax professionals quoted by WSJ recommend that traders come clean to the IRS as quickly as possible.
Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock. Chart via TradingView.