Published: April 26th, 2021
Bitcoin and other altcoins slumped on Friday, April 23, wiping off more than $260 million from the cryptocurrency market cap. The decline was caused by rumors that President Biden intends to increase long-term capital gains tax for wealthy Americans to 43.4%. The information led to a massive selloff of cryptocurrencies.
On Friday, April 23, Bitcoin and most other cryptocurrencies shrunk as rumors of President Joe Biden’s proposed capital gains tax increase sent shock waves to the crypto market, causing a massive selloff.
According to data provided by Coin Metrics, by midday EST, Bitcoin had lost 7.3% to stand at $49,730. The drop marks the first time the world’s first crypto has slid below $50,000 since early March. Ether was down more than 8% to trade at $2,320, while XRP, currently the fifth-largest coin by market cap, dropped by 16%.
The decline in the value of crypto took off more than $260 million from the entire virtual currency market, according to data provided by CoinMarketCap.
Vijay Ayyar, the head of business development at Luno, a London-based cryptocurrency exchange, said the markets run amok for quite a bit. However, he added that there are signs that the downward dash is cooling off.
President Joe Biden is expected to increase the long-term capital gains tax for wealthy Americans to 43.4%. The increase includes a surtax. The move would push the taxes above the top federal tax rate on wage income. The proposed tax rate would affect returns on assets or wealth held in taxable accounts or disposed of after more than 24 months.
The news triggered a massive selloff of stocks pushing all the three major U.S. indexes to the red zone by the end of the trading session on Thursday, April 22. Analysts are worried that Biden’s capital gains tax plan might affect crypto investors who have had a great year overall with the price of Bitcoin increasing more than six times in just 12 months.
However, the fear is not the same across the board. One investor said Biden’s proposal could be a blessing in disguise.
Antoni Trenchev, the co-founder of Nexo, a cryptocurrency lending platform, said it now makes more sense to play the oldest tricks of managing the finances smart book. Trenchev advises investors to borrow using their assets as collateral to escape the burden of capital gains taxes.
The anti-money laundering specialist said that when borrowing against assets, there is no better option than Bitcoin, which despite the drop caused by President Biden’s announcement, would almost certainly appreciate.
Bitcoin has swelled more than 660% in 2021 alone, while Ether, the digital token powering the Ethereum network, has surged by more than 200%. A huge chunk of the swell has been spurred by the increase in capital pouring from institutional investors such as Tesla, MicroStrategy, and Square. They have collectively bought billions of dollars worth of Bitcoin and other virtual currencies.
Besides, banks are extending their reach by allowing customers to dip their feet in the Bitcoin market. In March, Morgan Stanley announced granting access to three funds that allow customers to own Bitcoin.
According to Eric Demuth, the co-founder and CEO of Bitpanda, a virtual currency asset broker, the virtual currency space is getting more established. He added that as more money comes into cryptocurrency, the volatility would decrease with time.
Demuth said that retail investors coming into the crypto environment should never put all their eggs in one basket. He said that such traders should only have a small fraction of their portfolio in the form of crypto. The entrepreneur said that it does not matter how strong a believer you are; diversification of assets is the only smart approach for retail investors.
Despite the overall clear coasts, markets are unable to shrug off fears of regulatory crackdowns of cryptocurrencies. Jesse Powell, the CEO of Kraken, a leading crypto exchange, said that governments could limit the use of Bitcoin and other altcoins.
India has toyed with the idea of banning crypto trading and ownership entirely. In February, Janet Yellen, the U.S. Treasury Secretary, said Bitcoin is a highly speculative asset and even went ahead to ponder about the potential losses that Bitcoin investors are likely to incur.
Regulatory agencies all over the world are mulling strategies to control Bitcoin. However, others are changing their tune. During the week that ended on Saturday, April 17, the Deputy Governor of the People’s Bank of China said that Bitcoin is an alternative investment tool, a progressive tone about virtual currencies. The surprising statement came in the wake of aggressive crackdowns by the country’s regulator on crypto and crypto trading in 2017 and 2018.
Despite the effects of Biden’s tax plans on crypto, analysts believe the slide is temporary.
Chris Weston, the head of research at Pepperstone, a Melbourne-based forex broker, said markets are shaken, but the shock might not last long. He said that while the social media is going abuzz with posts about how the new administration’s plan will hurt crypto, everyone agrees the shrinkages are likely temporary.
Weston said the increased institutional and retail investor acceptance of virtual currencies as a legitimate asset class is the necessary insurance against sustained bleeding. However, he said some technical selling would be hard to stem.
Elvin Wong, an executive at CMC Markets in Singapore, echoes Weston’s point. He said that if Ether managed to stay above $1,955 as the markets close for the weekend of Saturday, April 24, the upward trajectory would not shatter.
His projections seem to have been right on the mark. As of going to press (Monday, April 26, 13:50 UTC), Ether was exchanging at $2,511.77. Bitcoin, which took the fall a bit more harshly, was trading at $53,738.20.