Bitcoin and other digital assets suffered heavy losses on Friday on fears that U.S. President Joe Biden’s plan to raise capital gains taxes will curb investment in cryptocurrencies.
The selloff came after reports that the Biden administration was planning a number of suggested changes to the U.S. tax code, including a plan to nearly double taxes on capital gains to 39.6% for people earning over $1 million.
Bitcoin, the biggest and most popular cryptocurrency, plummeted 7% to $48,176, falling below the $50,000 mark for the first time since early-March, while smaller rivals XRP and Ether dropped almost 10%.
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 said to be in line for record increases.
Bitcoin is on track for a 15% loss on the week, though it is still up 65% since the start of the year. Ether fell more than 10% on the day to as low as $2,107, a day after climbing to a record $2,645.97.
But while social media lit up with posts about the plan hurting digital assets, and individual investors complaining about losses, analysts and traders said declines are likely to be temporary amid growing retail and institutional investor acceptance of cryptocurrencies as a legitimate asset class.
“That’s what everyone is talking about now,” Chris Weston, head of research at Pepperstone Markets Ltd, a foreign exchange broker based in Melbourne, said referring to the tax plan.
“And I think you may have some technical selling going through. Ether’s been the poster child of movement. It has massively outperformed Bitcoin.”
Shares of cryptocurrency exchange Coinbase also dropped 5% to $278 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.
Neil Wilson, chief market analyst at Markets.com, said “the Coinbase listing – the ultimate poacher-turned-gamekeeper moment – might have been the high watermark for Bitcoin.”