Bitcoin sinks below $50,000 over Biden tax plans

TOKYO: Bitcoin and other cryptocurrencies suffered hety losses on Friday on concern that US President Joe Biden’s plan to raise capital gains taxes will curb investment in digital assets.

The selloff came ater reports that the Biden administration is planning a rat of proposed changes to the U.S. tax code, including a plan to nearly double taxes on capital gains to 39.6% for people earning more than $1 million.

Bitcoin, the biggest and most popular cryptocurrency , slumped 5% to $48,8867, falling below the $50,000 mark for the first time since early March, while smaller rivals Ether and XRP fell around 7%.

The tax plans jolted markets, prompting investors to book profits in stocks and other risk assets, which have rallied massively on hopes of a solid economic recovery. Levies on investment gains were reported to be in line for record increases.

“Bitcoin headed South today ater President Biden signalled that he wanted to raise capital gains tax in the US,” said Jeffrey Halley, senior market analyst, Asia Pacific, at OANDA. “Now whether that happens or not, many bitcoin investors are probably siting 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 added.

Bitcoin is on track for a 15% loss on the week, though it is still up 65% since the start of the year. Ether dropped more than 10% on the day to as low as $2,107, a day ater climbing to a record $2,645.97.

But while social media lit up with posts about the plan hurting cryptocurrencies, and individual investors complaining about losses, some traders and analysts said declines are likely to be temporary.

“I don’t think Biden’s taxes plans will have a big impact on bitcoin,” said Ruud Feltkamp, CEO at automated crypto trading bot Cryptohopper. “Bitcoin has only gone up for a long time, it is only natural to see a consolidation. Traders are simply cashing in on winnings.”

Others also remained bullish on bitcoin’s long term prospects, but noted it might take time before prices start increasing again.

“There are reasons to believe the overall trend will remain bullish unless the price drops below $40k,” said Ulrik Lykke, executive director at crypto hedge fund ARK36. “At the moment, we are not convinced that the trend will reverse into a bear market but we acknowledge it may take some time before the demand overtakes the supply again in the medium to short term.”

Shares of cryptocurrency exchange Coinbase also fell around 4% to $282 in U.S. pre-market trading, marking the lowest level since its listing earlier this month. The listing had driven bitcoin prices to $65,000, before pulling back 25% in the following days.

“The Coinbase listing - the ultimate poacherturned-gamekeeper moment - might have been the high watermark for Bitcoin,” said Neil Wilson, chief market analyst at Markets.com.

Global shares steadied on Friday around 1% below record highs reached earlier this week, though Bitcoin hit its lowest in nearly seven weeks as investors assessed the impact of a possible U.S. capital gains tax hike.

President Joe Biden will roll out a plan to raise taxes on the wealthiest Americans, including the largest-ever increase in levies on investment gains, to fund about $1 trillion in childcare, universal pre-kindergarten education and paid leave for workers, sources familiar with the proposal said.

Biden’s administration is seeking an increase in the capital gains tax to near 40% for wealthy individuals, almost double the current rate, the sources said.

“The devil is always going to be in the detail,” said Ned Rumpeltin, European head of currency strategy at TD Securities, adding that the Democrats’ narrow majority could make the proposals hard to pass.

The Dow Jones Industrial Average ended down nearly 1% and European stocks dipped 0.2%, though S&P futures gained 0.25% at 0814 GMT.

Bitcoin dropped below the $50,000 level to its lowest level in nearly seven weeks, down 7%. Ethereum slid more than 10% to $2,165

World stocks edged up 0.1% but stuck below record highs close to 3,000 set on Monday.

MSCI’S broadest index of Asia-pacific shares outside Japan rose 0.65%, with Chinese bluechip shares up 0.91%, supported by green and healthcare stocks. Japan’s Nikkei stock index slid 0.57%.

“The move on the Dow overnight I think needs to be seen in the context that it’s had a remarkable run up,” said James Mcglew, executive director of corporate stockbroking at Argonaut.