Here’s why Barry Sternlicht was right in selling his bitcoin

By: Milko Trajcevski
Milko Trajcevski
Milko leverages his passion for cryptocurrencies and teaches investors something new each day. During his spare time, he loves… read more.
on May 13, 2021
Updated: Jun 22, 2021
  • Billionaire investor Barry Sternlicht claims that utility coins will become valuable due to the blockchain
  • He sold his bitcoin to take gains in part to what are going to be impending tax changes and higher costs.
  • He took profits due to the specter of increased capital gains taxes.

Long-term capital gains occur when an investor sells a cryptocurrency coin after holding it for more than 12 months. The tax rate historically varied between 0% and 20%, depending on the filing status as well as income level.

Billionaire investor and Starwood Capital Group Co-Founder Barry Sternlicht said on CNBC Thursday morning he sold some of his bitcoin holdings amid expectations for a pending hike in the capital sales tax. This will ultimately mean that cryptocurrencies such as Bitcoin will cost the holder more when selling them.

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Essentially, Sternlicht sold his Bitcoin while the tax range was low, but was this the right strategy? Let’s take a look.

The new capital tax plan in the U.S.

As of now, Americans who earn more than $200,000 annually pay a capital gains rate of 23.8% which also includes the 3.8% net investment tax to fund the Affordable Care Act. This brings the total tax obligation to 27.6%. But under a proposed plan by the Biden administration, the tax rate can rise to as much as 43.4%.

This represents an overall increase of 57.25%. Rational economics dictates that if bitcoin outperforms the incremental tax obligation, it is worthwhile to hold on to the digital currency. Otherwise, it makes no logical sense to hold onto bitcoin because the higher taxes erase a large portion of the profit.

Should you sell bitcoin now?

Now, let’s take a look at some of the statistics surrounding Bitcoin.

Bitcoin is currently valued at $49,833 as of May the 13th, 2021.  Back in April the 13th of 2021, it had a value of $60,570, and back on March the 13th of 2021, it had a value of $56.644.

It is quite true that, to this very day, the price of Bitcoin BTC/USD is quite volatile, and buying momentum at the very least paused.

With the new tax laws, the currency needs to become 57,25% more valuable to make financial sense for a lot of investors to hold on to, and at the current rate, that might not be a smart thing to do. The likelihood of another major move higher may have diminished even more after Tesla Inc (NASDAQ: TSLA) said it will no longer accept Bitcoin as a means of payment for its cars.

If the value does indeed suddenly, for whatever reason go up over 50%, then you should keep it amid surging bullish momentum. 

Bitcoin did test a support level of around $48,000 on Thursday that held up nicely. The next support level to watch out for is around $46,000. If Bitcoin drops below these levels it may be safe to declare the digital currency a hard “sell” regardless of any tax implications.

What we can expect for the future

The blockchain ecosystem is ever-evolving, and as Sternlicht states, utility coins will see a lot of real-world usage going forward. This is however not an indication that Bitcoin will stay the king in terms of value because while it was the first, it is far from the most scalable or versatile cryptocurrency on the market.

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