Last Friday, cryptocurrency holders including Bitcoin holders suffered hefty losses after US President Joe Biden released a plan outlay to raise capital gains taxes from investment in digital assets. The sell-off triggered as soon as several reports started conveying that the Biden administration is planning a raft of proposed changes to the US tax code. The proposed change includes a nearly double tax on capital gains. For people earning more than $1 million, the capital gains tax was changed to 39.6 per cent.
Bitcoin, which is the most popular cryptocurrency, fell by as much as 5 per cent following the news. For the first time since early March, Bitcoin fell below $50,000. On the other hand, relatively less popular cryptocurrencies like Ether and XRP fell by 7 per cent approximately following the news.
In simple words, the new tax plans jolted markets. It prompted investors to book profits in risky assets like stocks and digital assets. Note that all these risky assets gre massively due to hops of a U shaped economic recovery.
Jeffrey Halley, senior market analyst of Asia Pacific at OANDA said “Bitcoin headed South today after President Biden signalled that he wanted to raise capital gains tax in the US. Now whether that happens or not, many Bitcoin investors are probably sitting on some substantial capital gains if they stayed the course over the past year. I firmly believe that developed market regulation and/or taxation remain the crypto markets’ Achilles Heel.
Now, Bitcoin is on its way for a 15 per cent loss over the week. Note that it is still up by 65 per cent year to date. On contrary, Ethereum sunk more than 10 per cent on the day to $2,107 after recording a height of $2,645.97 on the previous day.
Social media is lit up criticizing Biden’s new tax plan and individual investors complained about their losses. However, some analysts believe that the declines are likely to be temporary.
Ruud Feltkamp, CEO at automated crypto trading bot Cryptohopper said, “I don’t think Biden’s taxes plans will have a big impact on Bitcoin. Bitcoin has only gone up for a long time, it is only natural to see consolidation. Traders are simply cashing in on winnings.”
Ulrik Lykke, executive director at crypto hedge fund ARK36 said “There are reasons to believe the overall trend will remain bullish unless the price drops below $40k. At the moment, we are not convinced that the trend will reverse into a bear market but we acknowledge it may take some time before the demand overtakes the supply again in the medium to short term.”
Following the sell-off, the price of shares of cryptocurrency exchange Coinbase fell by approximately 4 per cent to $282, marking the lowest since listing. It is noteworthy that the listing of Coinbase drove the Bitcoin price to $65,000.
Neil Wilson, chief market analyst at Markets.com said, “The Coinbase listing – the ultimate poacher-turned-gamekeeper moment – might have been the high watermark for Bitcoin.”