Several digital currencies, including bitcoin, plummeted on Friday due to the capital gains tax hike proposal from US president Joe Biden. As of midday EST, bitcoin’s value fell nearly 7.3 percent to $49,730, as per the data from Coin Metrics.
This fall happens to be the first time since March where the currency’s value was below $50,000. The other currencies also fell significantly. The fifth significant cryptocurrency XRP dropped by 16 percent, and another crypto Ether fell by 8 percent to $2,320.
These plunges led to a huge loss of more than $200 billion from the whole market of cryptocurrencies, as per CoinMarketCap’s analysis. President Joe Biden is believed to increase the tax on long-term capital gains for the richest Americans up to 43.4 percent.
This tax, if raised, would be more than the highest federal tax rate on wage-based income. The tax will be applied to the returns from assets kept in taxable accounts that are sold after a year and more. Due to this, a vigorous sell-off happened in the stock markets leading to all the three prime US indexes falling off the red as of Thursday.
The head of business development for cryptocurrency exchange at Luno, Mr. Vijay Ayyar said, “The market has run up quite a bit overall, and it’s probably cooling off before the next leg up,” through a mail.
Analysts feel that these fears over the new proposal could spread to crypto investors as well, who enjoyed an excellent year as bitcoin’s value rose more than sixfold since last year. However, one entrepreneur feels that the president did a favor with this proposal.
Antoni Trenchev, co-founder of a cryptocurrency firm Nexo said, “It would make even greater sense to play that oldest trick in the manage-your-finances-smart book: borrow against your assets to avoid capital gains taxes.”
In this year alone, bitcoin grew by over 66 percent, while Ethereum Blockchain’s digital token shoved to nearly 200 percent. This increase was a result of industrial investors and giant companies like Square and Tesla purchasing bitcoins for billions of dollars.
Meanwhile, banks also began allowing their customers to take part in the bitcoin market. The CEO and co-founder of Bitpanda (a digital assets broker) said that the volatility would reduce with an increase in the investments.
As per a Reuters report from the previous month, India plans to make a law to ban owning and trading of cryptocurrencies. A statement from the Treasury Secretary for the US, Janet Yellen in February stated that she is concerned about the significant losses the investors would face while referring to bitcoin as a ‘highly speculative asset.’ Authorities from all over the world are trying to regulate this cryptocurrency at present.