Bitcoin and other cryptocurrencies suffered significant losses on Friday as they feared President Joe Biden’s plan to raise capital gains taxes will curb investments in digital assets.
The sell-off came after reports that the Biden administration was planning a number of proposed amendments to U.S. tax law, including a plan to double taxes on capital gains to 39.6% for those earning more than $ 1 million .
Bitcoin, the largest and most popular cryptocurrency, fell 5% to $ 48.8867 and fell below the $ 50,000 mark for the first time since early March, while smaller competitors Ether and XRP fell 7%.
The tax plans have rocked the markets, causing investors to post gains in stocks and other risk-weighted assets that have rallied massively in hopes of a solid economic recovery. It was reported that the tax on investment income was in line with the record increases.
“Bitcoin headed south today after President Biden signaled he wanted to raise capital gains tax in the US,” said Jeffrey Halley, senior market analyst in Asia Pacific at OANDA. “Whether that happens or not, a lot of Bitcoin investors are likely to be sitting on significant capital gains if they stayed the course over the past year.”
“I firmly believe that developed country regulation and / or taxation remains the Achilles’ heel of crypto markets,” he added.
Bitcoin is on the way to a 15% loss for the week, though it’s still up 65% since the start of the year. Ether fell more than 10% that day to just $ 2,107, a day after it hit a record $ 2,645.97.
While posts on social media about the plan damaging cryptocurrencies and individual investors complaining of losses, some traders and analysts said declines are likely to be temporary.
“I don’t think Biden’s tax plans will have much of an impact on Bitcoin,” said Ruud Feltkamp, CEO of the automated crypto trading bot Cryptohopper. “Bitcoin has only been rising for a long time, it’s only natural to see consolidation. Merchants just profit from profits.”
Others also remained optimistic about Bitcoin’s long-term prospects, but noted that it could take some time for prices to rise again.
“There are reasons to believe that the overall trend will remain bullish unless the price falls below $ 40,000,” said Ulrik Lykke, executive director of crypto hedge fund ARK36. “At the moment we are not convinced that the trend will reverse into a bear market, but we recognize that it may take time for demand to overtake supply again in the medium to short term.”
Cryptocurrency Exchange Coinbase’s shares also fell around 4% to $ 282 in U.S. pre-market trading. This is the lowest level since it was listed earlier this month. The listing had driven Bitcoin prices to $ 65,000 before falling 25% in the days that followed.
“The Coinbase listing – the ultimate poacher turned gamekeeper – may have been the top watermark for Bitcoin,” said Neil Wilson, chief market analyst at Markets.com.