Digital assets suffered hefty losses on Friday (April 23), a drop attributed to U.S. President Joe Biden’s proposed tax hike for capital gains on the wealthiest Americans, with Bitcoin dropping below $US50,000 and most altcoins suffering double-digit losses.
The tax hike news triggered a selloff on Wall Street on Thursday (April 22) where stocks and shares in technology companies all retreated. The proposal would increase the tax rate on profits from stock transactions to 39.6% from 20% on people earning more than US$1 million, according to reports in The New York Times and Bloomberg, citing government officials. Along with a 3.8% surcharge to help fund ObamaCare, the top rate would be 43.4%. The federal and state combined capital gains rate would often top 50%, including in New York and California.
Investors holding cryptocurrencies face higher taxes if Biden presses ahead. The President’s capital gains tax proposal shouldn’t have been a surprise. It’s in line with what he said during his 2020 campaign.
“We expect Congress will pass a scaled back version of this tax increase,” wrote Goldman Sachs economists in a note. “We expect Congress will settle on a more modest increase, potentially around 28%.”
Social media lit up with posts about the plan hurting cryptocurrencies but analysts said declines are likely to be temporary.
According to BCB Group CEO Oliver von Landsberg-Sadie, the drop in bitcoin’s value on Friday has been an “overreaction” to Biden’s capital gains proposal and will likely bounce back to the Pantera projections where its next high is somewhere above $70,000.
“While the shock may be sustained in stock markets, the nature of cryptocurrency will see straight through this dip,” the CEO of a leading crypto-dedicated payment services provider told Coindesk.
“The difference between cryptocurrency and any other market is that we’re seeing more and more large-scale crypto buyers who simply have no intent on exiting the position,” Landsberg-Sadie said.
Cryptocurrencies are infamous for wild price swings and volatility due to market speculation. Despite this 2021 has seen a diverse group of firms now moving into crypto assets, from Morgan Stanley to Tesla to Paypal and Visa. Analysts say institutional interest is driving prices higher and adding legitimacy to cryptocurrencies.