Soon as details of President Joe Biden’s capital gains tax appeared in the news, heavy investors began unloading assets, causing bitcoin prices to fall below $50,000. If what Biden wants comes true, capital gains tax rates for the wealthy will double overnight.
Not Just Cryptocurrency, Stocks Too
The fears on the new tax rate didn’t just affect cryptocurrencies. Stocks also tumbled during yesterday’s trading session, with the S&P 500 index closing 0.9% lower.
However, cryptocurrencies took a major hit as some wealthy investors might be jumping the gun on the tax concerns. As of Thursday evening, Bitcoin prices fell by as much as 5.8% to $48,596.
The capital gains tax increase can potentially increase some crypto investments. Once passed, cryptocurrency investors will need to pay if they sell their holdings after holding them for more than a year.
At present, many are buying into the frenzy. Anybody who bought bitcoin last year is sitting on a 575% gain. In contrast, anyone who owns bitcoin before April 2019 is enjoying a minimum 800% gain.
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However, with the gains came interest from the taxman. Recently, the Internal Revenue Service (IRS) stepped up its tax enforcement of crypto sales.
The agency began instructing crypto holders to disclose transactions on their 2019 individual tax returns. They also started asking taxpayers to disclose if they “received, sold, sent, exchanged or otherwise acquired any financial interest in any digital currency.”
Bitcoin Continues to Lose Momentum
Even as tax concerns arise, cryptocurrency continues to lose momentum. JPMorgan Chase & Co. and Tallbacken Capital Advisors LLC recently warned of a potential downside after bitcoin failed to continue with its momentum after bitcoin prices hit a record high of $64,870.
Since then, the value dropped, leading to below $50,000 levels. Pankaj Balani, CEO of Delta Exchange, doesn’t see any upward changes soon. “Bitcoin has slipped below the 50-day moving average support that it held sacrosanct through this rally. It looks like there is more downside here,” he noted.
“One of the biggest things you have to worry about is that the things with the biggest gains are going to be most susceptible to selling,” said Matt Maley, chief market strategist for Miller Tabak. “It doesn’t mean people will dump wholesale, dump 100% of their positions, but you have some people who have huge money in this and, therefore, a big jump in the capital gains tax, they’ll be leaving a lot of money on the table,” he added.
Record Setters A Few Days Ago
Prior to the crash earlier, Bitcoin prices set a record high of $64,870 ahead of the Coinbase crypto listing in the US market.
Investors eagerly anticipated the opening and bought heavily into cryptocurrencies such as Bitcoin and Ether. This pushed prices to records highs, as ether also recorded an all-time high above $2,300.
Since then, Bitcoin, Ether, and the other cryptocurrencies retreated. Some analysts feared a crypto bubble is massing and warned of a downgrade. Then, the tax implications from Biden’s proposal happened.
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Watch the CNBC news video reporting that a Guggenheim analyst believes that bitcoin could drop in value by as much as 50%
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