Bitcoin investors are nursing their losses amid reports that President Biden is planning to raise capital gains taxes on the richest Americans.
The volatile cryptocurrency’s price plunged nearly 10 percent on Friday to just above the $49,000 mark, hitting its lowest level since early March as the White House reportedly buffs a proposal to nearly double the taxes wealthy people pay on investments.
Bitcoin recently changed hands at $49,072.72, according to Coinbase — off 9.9 percent from a day earlier and shrinking its total market capitalization to $917.1 billion — well below the $1 trillion mark it had first crossed in February.
Biden wants to raise the capital-gains tax to as much as 39.6 percent for people earning at least $1 million. The plan, which is expected to be announced next week, would be a massive increase from the current tax rate of 20 percent. A 3.8 percent tax on investment income used to fund Obamacare would also remain place, meaning the new top rate would be as high as 43.4 percent.
For $1 million earners in high-tax states, rates on capital gains could end up even higher than 50 percent. For New Yorkers, the combined state and federal capital gains rate could be as high as 52.22 percent. For Californians, it could be 56.7 percent.
Prior to the tax news, bitcoin had been on a roll. The digital coin surged to a record high of $64,895 on April 14, the day of the launch of the US’s largest cryptocurrency exchange, Coinbase, on Nasdaq. The rise of digital currency comes as COVID-era stimulus checks line the pockets of investors.
Jeffrey Halley, senior market analyst at OANDA, told Reuters that cryptocurrency’s rise might soon be blunted.
“Bitcoin headed South today after President Biden signaled that he wanted to raise capital gains tax in the US,” said Halley. “Now whether that happens or not, many bitcoin investors are probably sitting on some substantial capital gains if they stayed the course over the past year.”
“I firmly believe that developed market regulation and/or taxation remain the crypto markets’ Achilles Heel,” he continued.
News of the tax hike sunk stocks Thursday, chopping 321 points off the Dow Jones Industrial Average, which closed down 0.9 percent to 33,815.90. The S&P 500 index ended the day down 0.9 to 4,134.98, while the tech-heavy Nasdaq Composite slid 0.9 percent to 13,818.41.
But others see bitcoin’s dip as a blip and part of any stock’s lifecycle.
“I don’t think Biden’s taxes plans will have a big impact on bitcoin,” Ruud Feltkamp, CEO at automated crypto trading bot Cryptohopper told Reuters. “bitcoin has only gone up for a long time, it is only natural to see a consolidation. Traders are simply cashing in on winnings.”
Either way, bitcoin looks to be heading for a 15 percent loss on the week, but it is still up 65 percent since the start of 2021.