Is this a new trend or is it just an optical illusion?
And if it’s a trend, does that mean that Bitcoin’s price will dip even more in the upcoming week?
Could it all be so simple?
A 19-year-old Finance Major spotted a recent pattern that’s so simple that it flew over experts’ heads:
Would seriously like to know why #bitcoin price dumps at the end of every month. Clearly a pattern at this point.
And more importantly, will the coming weeks follow suit? pic.twitter.com/IbMZxaNuvX
— William Clemente III (@WClementeIII) April 22, 2021
As per the phenomenon, there are several possible answers. First of all, all of this might be about derivatives trading. And both options and futures contracts expire on each month’s last Friday. Some even believe that whales purposely target over-leveraged investors by dumping Bitcoin, decreasing the price, and forcing the contracts to close.
Related Reading | Bitcoin Plummets Below $50,000, Extending Losses Following Biden’s New Tax Proposal
Another possibility is that institutions are rebalancing their books. Some of them try to hold a certain percentage of their capital in Bitcoin and have to sell or buy if they’re over or under said percentage. Also, in general, the institutional investor’s accounting follows a monthly pattern that might cause a reflection in Bitcoins price charts.
BTC price chart on Poloniex | Source: BTC/USDT on TradingView.com
It Might Be All About Taxes
The most time-sensitive reason, nevertheless, is that institutions were taking their earnings out before Biden’s big tax raise. Yesterday, it was announced that the President introduced a proposal to raise Capital-Gains taxes to 43.4% for households that make more than one million dollars annually.
About the legalities of the intersection between Bitcoin and taxes in the USA, Bitcoinist already informed you:
The IRS published guidelines on Bitcoin taxes back in 2014. The key takeaways are that Bitcoin earnings are not tax-free and that they’re viewed in the same class as an investment property, not an actual currency.
This means you report your Bitcoin earnings the same way as you would with stocks, bonds, and other investments. So you need to declare every operation to the IRS–when you buy, sell, use or earn Bitcoin.
Related Reading | Bought NFTs? There’s A Tax For That, And Other Ways The IRS Is Eyeing Crypto
As this kid’s story shows, taxes are an extremely serious subject that can lead to difficult situations if it’s not handled properly. Remember that:
According to the student, all of the activity was crypto-to-crypto trades, and they did not “ever cash out to fiat and transfer any USD into my bank accounts from these tradings.”
Bitcoin Derivatives Market
It’s not the first time that the trend has been observed. Recently, this Twitter user presented it in the form of a question to Preston Pysh and PlanB:
More volatility in BTC since January since BTC derivatives markets started up & now a more clear pattern is emerging of price rising to mid-month then decreasing to end of month when options expiry. I'm curious their thoughts on this & if it is something to be concerned about. pic.twitter.com/pQNmGY5RQL
— It's Different this Time (@OdiousDebt) April 22, 2021
They’re apparently covering the topic on an upcoming podcast episode. Bitcoinist will keep the eye on the ball and the ear on the story. And if Preston Pysh and PlanB tackle the subject, we’ll let you know what they said.
We can’t close this article, because the initial question still lingers in the air. Could Bitcoin’s price rain down further by month’s end? It could. It definitely could. Someone is selling, morale is low, fear is messing with people’s minds. Nevertheless, according to some analysts, a red-candles end of April might signal the beginning of a new bull run.
Featured image by Valentin Müller on Unsplash - Charts: TradingView