Cryptocurrencies like Bitcoin, Ether, and Dogecoin took a beating on Friday, and as President Joe Biden was expected to announce his plan to increase taxes on the wealthiest Americans, which would almost double from investment earnings, it extended the wild fluctuations in recent times.
Given Bitcoin’s spikes in recent years, it may force some investors to sell their positions to secure their profits at the current capital gains tax rate.
Bitcoin, the world’s most popular digital currency, fell 10% to below $ 50,000 a week after overshadowing $ 64,000 for the first time. Recent losses pushed bitcoin into a correction, losing more than 20% from the last peak at $ 64,829.
The crypto market is volatile and more than 10% drop in bitcoin is not unusual. After Friday’s returns saw a drop of up to 15% last weekend, a fluctuating line for the digital asset has recently continued, partly driven by regulatory concerns before recouping some of its losses.
According to Coindesk, a Bitcoin-focused media company, Ether, the second largest digital currency by market cap, fell 12% to $ 2,107.20 a day after hitting a record $ 2,645.
The fifth largest cryptocurrency, XRP, fell 18%.
According to CoinGecko, a crypto market data site, sales spread to smaller currencies like Dogecoin, which dropped by more than 20% to 19 cents.
Memden-inspired crypto has been in a sharp reversal after hitting a record of about 45 cents a week after a surge of more than $ 8,000 at one point in 2021 this year. after going over $ 50 billion a few days ago.
The federal capital gains tax rate will increase from the current 20% floor rate to 39.6% for wealthy individuals earning more than $ 1 million. For these wealthy investors, federal tax rates can be up to 43.4%.
This tax rate will apply to returns on assets held in taxable accounts and sold after more than one year. Crypto investors are already facing a capital gains tax if they sell the cryptocurrency after holding it for more than a year.
Bitcoin has been one of the best performing assets in recent years, rising more than 70% in 2020. Investors who bought bitcoin a year ago will be sitting on a 575% gain. For investors who bought in April 2019, this gain will be around 800%.
“Some traders are looking for an excuse to lock in profits and may choose to use this tax story as a catalyst.”
To be sure, Bitcoin has faced pressure recently after a sharp run to Coinbase’s blockbuster public launch on Nasdaq last week. It was seen as a landmark event for the cryptocurrency industry.
Some analysts warn that the recent sharp rise in the value of bitcoins has raised concerns of a potential bubble in the cryptocurrency market, with bitcoin more than doubling at one point since the beginning of 2021.
There are also growing concerns about regulatory pressures on Bitcoin. Turkey’s central bank, crypto pay the “significant risks” has banned the use of crypto currency since the end of April, saying it brought. India will also reportedly propose a law that prohibits cryptocurrencies, fines anyone trading or holding such digital assets in the country.
If Bitcoin fails to move above the $ 60,000 threshold soon, the momentum signals will collapse, leading to a decline in Bitcoin value.
“In the past few days, Bitcoin futures markets have experienced a drastic liquidation similar to the middle of last February, mid-January or the end of last November”. “Momentum signals will naturally decline from here for several months, despite their still high levels.”
The next key levels to watch after Bitcoin hits the bear market zone on Friday at $ 52,000 and $ 40,000.