3 ms·

A decrease of $20 for every $1 pulled from the market seems a little steep...

charleslmunger 9y ago
Not if the entire market cap is based on wash trading, HODL, and speculation.
User23 9y ago
Or maybe it's not steep enough. A forced-sell situation doesn't leave much pricing power. The classical Roman fire-sale is the archetypical case. Also I'm sure many taxpayers will elect not to pay the capital gains before tax day, deciding instead to ride out interest and penalties in favor for being able to sell at a higher price. This could get interesting. I would love to see an after the fact analysis that deduces the relative market power of buyers and sellers from the transaction history.
- smacktoward 9y ago
  For those who don't get the reference to "the classical Roman fire-sale": https://en.wikipedia.org/wiki/History_of_firefighting#Rome https://en.wikipedia.org/wiki/History_of_firefighting#Rome > The first ever Roman fire brigade of which we have any substantial history was created by Marcus Licinius Crassus... One of his most lucrative schemes took advantage of the fact that Rome had no fire department. Crassus filled this void by creating his own brigade—500 men strong—which rushed to burning buildings at the first cry of alarm. Upon arriving at the scene, however, the fire fighters did nothing while their employer bargained over the price of their services with the distressed property owner. If Crassus could not negotiate a satisfactory price, his men simply let the structure burn to the ground, after which he offered to purchase it for a fraction of its value. Through this and other schemes, Crassus became one of the richest men in Rome. He used this fortune to amass substantial political power, eventually rising to the peak of power in the Roman system by joining the First Triumvirate (https://en.wikipedia.org/wiki/First_Triumvirate https://en.wikipedia.org/wiki/First_Triumvirate) with Pompey the Great and and ambitious young go-getter named Julius Caesar.
csomar 9y ago
That would drop the whole crypto market cap to $50bn from the current $250bn.
Mtinie 9y ago
I agree. It's suspect because the numbers don't add up. From the article: " [...]Tom Lee notes that U.S. households owe an estimated twenty five billion dollars in capital gains taxes due to crypto gains." Total market capitalization of all cryptocurrencies, as of 12:18PM EST on April 6, 2018 is $248,821,531,204. According to Mr. Lee, each $1 taken from the market will result in a $22.50 decrease in aggregated market value (avg. of his estimated range, "$20 - $25"). 25B * $22.50 = $562.5B He's suggesting that the price impact on cryptocurrencies required to pay for capital gains is going to be double the current market capitalization? Am I misinterpreting the statement he made? The alternative explanation I can come up with is if the statement was poorly formed and what he was really talking about was $25B in investment income will need to be reported and the appropriate short-term or long-term tax rates would need to be applied. Rough, back of napkin estimation, assuming an even distribution between short-term and long-term capital gains tax rates--which isn't going to be accurate, but I don't have a better way to estimate for this analysis--would be: Short-term: $12.5B * 28%[1] = $3.5B Long-term: $12.5B * 15%[2] = $1.875B Total Estimated Taxes Due: $5.375B Estimated impact on total market capitalization: 5.375B * $22.50 = $121B That would leave $127B in the market, or if evenly distributed over all tokens, all prices would be half of their current values after April 15 (e.g. today's $6.6k BTC would be $3.3k BTC). That doesn't sound right, either. Am I totally off-base for both interpretations? --- [1] Making an educated guess about the "typical" cryptocurrency investors' income bracket, but without actual numbers I'm open to this estimate being higher than reality. [2] https://www.fool.com/retirement/2016/12/11/long-term-capital-gains-tax-rates-in-2017.aspx https://www.fool.com/retirement/2016/12/11/long-term-capital...
- abbieseide 9y ago
  I think Lee is predicting a 50% market adjustment because each fiat dollar added into the cryptocurrency market increases market cap by $22.50 because of speculation and other factors. It doesn't seem too crazy if you consider the volatile swings cryptos have had. Along with that, we dont know what to expect with this much money in potential sell offs because you can't expect investors to use other cash to pay taxes. They will just sell more crypto.
statguy 9y ago
He probably meant "decrease of $20 for every $1B pulled from the market"

Not if the entire market cap is based on wash trading, HODL, and speculation.

Or maybe it's not steep enough. A forced-sell situation doesn't leave much pricing power. The classical Roman fire-sale is the archetypical case. Also I'm sure many taxpayers will elect not to pay the capital gains before tax day, deciding instead to ride out interest and penalties in favor for being able to sell at a higher price. This could get interesting. I would love to see an after the fact analysis that deduces the relative market power of buyers and sellers from the transaction history.

smacktoward 9y ago
For those who don't get the reference to "the classical Roman fire-sale": https://en.wikipedia.org/wiki/History_of_firefighting#Rome https://en.wikipedia.org/wiki/History_of_firefighting#Rome > The first ever Roman fire brigade of which we have any substantial history was created by Marcus Licinius Crassus... One of his most lucrative schemes took advantage of the fact that Rome had no fire department. Crassus filled this void by creating his own brigade—500 men strong—which rushed to burning buildings at the first cry of alarm. Upon arriving at the scene, however, the fire fighters did nothing while their employer bargained over the price of their services with the distressed property owner. If Crassus could not negotiate a satisfactory price, his men simply let the structure burn to the ground, after which he offered to purchase it for a fraction of its value. Through this and other schemes, Crassus became one of the richest men in Rome. He used this fortune to amass substantial political power, eventually rising to the peak of power in the Roman system by joining the First Triumvirate (https://en.wikipedia.org/wiki/First_Triumvirate https://en.wikipedia.org/wiki/First_Triumvirate) with Pompey the Great and and ambitious young go-getter named Julius Caesar.

csomar 9y ago

That would drop the whole crypto market cap to $50bn from the current $250bn.

Mtinie 9y ago

I agree. It's suspect because the numbers don't add up. From the article: " [...]Tom Lee notes that U.S. households owe an estimated twenty five billion dollars in capital gains taxes due to crypto gains." Total market capitalization of all cryptocurrencies, as of 12:18PM EST on April 6, 2018 is $248,821,531,204. According to Mr. Lee, each $1 taken from the market will result in a $22.50 decrease in aggregated market value (avg. of his estimated range, "$20 - $25"). 25B * $22.50 = $562.5B He's suggesting that the price impact on cryptocurrencies required to pay for capital gains is going to be double the current market capitalization? Am I misinterpreting the statement he made? The alternative explanation I can come up with is if the statement was poorly formed and what he was really talking about was $25B in investment income will need to be reported and the appropriate short-term or long-term tax rates would need to be applied. Rough, back of napkin estimation, assuming an even distribution between short-term and long-term capital gains tax rates--which isn't going to be accurate, but I don't have a better way to estimate for this analysis--would be: Short-term: $12.5B * 28%[1] = $3.5B Long-term: $12.5B * 15%[2] = $1.875B Total Estimated Taxes Due: $5.375B Estimated impact on total market capitalization: 5.375B * $22.50 = $121B That would leave $127B in the market, or if evenly distributed over all tokens, all prices would be half of their current values after April 15 (e.g. today's $6.6k BTC would be $3.3k BTC). That doesn't sound right, either. Am I totally off-base for both interpretations? --- [1] Making an educated guess about the "typical" cryptocurrency investors' income bracket, but without actual numbers I'm open to this estimate being higher than reality. [2] https://www.fool.com/retirement/2016/12/11/long-term-capital-gains-tax-rates-in-2017.aspx https://www.fool.com/retirement/2016/12/11/long-term-capital...

abbieseide 9y ago
I think Lee is predicting a 50% market adjustment because each fiat dollar added into the cryptocurrency market increases market cap by $22.50 because of speculation and other factors. It doesn't seem too crazy if you consider the volatile swings cryptos have had. Along with that, we dont know what to expect with this much money in potential sell offs because you can't expect investors to use other cash to pay taxes. They will just sell more crypto.

statguy 9y ago

He probably meant "decrease of $20 for every $1B pulled from the market"