LONDON/GUANGZHOU, China — Bitcoin and other digital currencies plunged on Friday as a proposed capital gains tax hike from U.S. President Joe Biden led to a wave of selling.
At around 10 a.m. London time, bitcoin was down over 8% in the last 24 hours at $48,687, according to Coin Metrics data. It’s the first time bitcoin has traded below $50,000 since early March. Ether fell to $2,211, down more than 12%. XRP, the fifth-biggest cryptocurrency, plunged nearly 19%.
This wiped out more than $200 billion of value from the entire cryptocurrency market, according to data from CoinMarketCap.
“The market has run up quite a bit overall, and it’s probably cooling off before the next leg up,” Vijay Ayyar, head of business development at cryptocurrency exchange Luno, told CNBC by email.
President Biden is expected to raise long-term capital gains tax for the wealthiest Americans to 43.4%, including a surtax. That would be higher than the top federal tax rate on wage income. The new tax rate would apply to returns on assets held in taxable accounts and sold after more than a year.
This triggered a sell-off in stock markets overnight, with all three major U.S. indexes ending Thursday’s session in the red. Analysts said fears over Biden’s capital gains tax proposal may be extending to crypto investors, who have had a great year with the price of bitcoin having climbed more than sixfold in the last 12 months.
Still, one crypto entrepreneur said Biden could be doing his industry a favor.
“It would make even greater sense to play that oldest trick in the manage-your-finances-smart book: borrow against your assets to avoid capital gains taxes,” said Antoni Trenchev, co-founder of crypto lender Nexo.
“And what better collateral than one that — despite today’s price dip, likely caused by the said proposal — appreciates in value like Bitcoin?”
In 2021 alone, bitcoin has risen 66% while ether — the digital token of the Ethereum blockchain — has rallied over 200%.