The world’s most popular digital asset, Bitcoin and other cryptocurrencies have suffered hefty losses after Bitcoin slumped below $50,000 over concern that United States President, Joe Biden’s plan to raise capital gains taxes would curb investment in digital assets.
The selloff came after reports that the Biden administration was planning a raft of proposed changes to the U.S. tax code, including a plan to nearly double taxes on capital gains to 39.6% for people earning more than $1 million.
Bitcoin, the biggest and most popular cryptocurrency, slumped 5% to $48,8867, falling below the $50,000 mark for the first time since early March, while smaller rivals Ether and XRP fell around 7%.
The tax plans jolted markets, prompting investors to book profits in stocks and other risk assets, which have rallied massively on hopes of a solid economic recovery. Levies on investment gains were reported to be in line with record increases.
Commenting on the development, a senior market analyst, Asia Pacific, at OANDA, Jeffrey Halley, attributed the slump to move by Biden’s administration to raise capital gains tax.
“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,” he added.
Bitcoin is on track for a 15% loss on the week, though it was still up 65% since the start of the year. Ether dropped more than 10% on the day to as low as $2,107, a day after climbing to a record $2,645.97.
But while social media lit up with posts about the plan hurting cryptocurrencies, and individual investors complaining about losses, some traders and analysts said declines are likely to be temporary.
One of the traders, CEO at automated crypto trading bot Cryptohopper, Ruud Feltkamp, said that “I don’t think Biden’s taxes plans will have a big impact on bitcoin,” adding that “Bitcoin has only gone up for a long time, it is only natural to see consolidation. Traders are simply cashing in on winnings.”
Others also remained bullish on bitcoin’s long-term prospects but noted that it might take time before prices start increasing again.
One of those who held the belief was the Executive Director at Crypto Hedge Fund ARK36, Ulrik Lykke, who argued that “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,” he said.
Meanwhile, shares of cryptocurrency exchange Coinbase (COIN.O) also fell around 4% to $282 in U.S. pre-market trading, marking the lowest level since its listing earlier this month. The listing had driven bitcoin prices to $65,000, before pulling back 25% in the following days.
The Chief Market Analyst at Markets.com., Neil Wilson, said that “the Coinbase listing – the ultimate poacher-turned-gamekeeper moment – might have been the high watermark for Bitcoin.”