Bitcoin investors are nursing their losses as President Biden is rumored to be considering raising capital gains taxes on the wealthiest Americans.
The volatile cryptocurrency’s price fell nearly 10% to just above $49,000 on Friday, its lowest level since early March, as the White House reportedly reconsiders a plan to nearly double the taxes wealthy individuals pay on investments.
According to Coinbase, bitcoin last traded at $49,072.72, down 9.9 percent from the previous day and bringing its overall market capitalization to $917.1 billion, just below the $1 trillion mark it first reached in February.
Biden wants to increase the capital gains tax on individuals making at least $1 million to up to 39.6 percent. The scheme, which is expected to be unveiled next week, will represent a significant improvement over the existing 20% tax rate. Additionally, a 3.8 percent tax on investment gains used to finance Obamacare will be retained, bringing the current peak rate to 43.4 percent.
Capital gains taxes on individuals earning $1 million in high-tax states could end up being even higher than 50%. The combined state and federal capital gains tax rate for New York residents could be as high as 52.22 percent. It could be 56.7 percent for California residents.
Bitcoin had been on a tear prior to the tax news. The digital coin reached a record high of $64,895 on April 14, the day Coinbase, the largest cryptocurrency exchange in the United States, listed on Nasdaq. The growth of digital currency comes as investors profit from COVID-era stimulus tests.
According to Jeffrey Halley, senior market analyst at OANDA, cryptocurrency’s growth could soon be stifled.
“Bitcoin slid lower today after Vice President Biden indicated that he planned to lift the capital gains tax in the United States,” Halley explained. “Whether that occurs or not, many bitcoin investors are likely sitting on considerable capital gains over the last year if they stayed the course.”
“I am a firm believer that legislation and/or taxation in developed markets continue to be the crypto markets’ Achilles Heel,” he added.
Stocks fell 321 points Thursday on news of the tax hike, with the Dow Jones Industrial Average closing down 0.9 percent to 33,815.90. The S&P 500 index finished 0.9 percent lower at 4,134.98, while the tech-heavy Nasdaq Composite index fell 0.9 percent to 13,818.41.
However, some view bitcoin’s decline as a blip and a natural part of any stock’s lifecycle.
“I believe Biden’s tax proposals would have little effect on bitcoin,” Ruud Feltkamp, CEO of automated cryptocurrency trading bot Cryptohopper, informed Reuters. “Bitcoin has been steadily growing for a long period of time; it’s only normal to see some consolidation. Traders are merely cashing in on their profits.”
In any case, bitcoin appears to be on track for a 15% weekly fall, but it is still up 65 percent since the start of 2021.