This week bitcoin’s trading price fell below $50,000 on Friday morning, marking a 10% drop and its lowest trading price since February.
Other crypto coins also fell, including Ethereum, taking a total of over $200m from the total crypto market. Ethereum had it’s record high on Thursday before dropping 11% on Friday morning.
The main driving force behind the price slump is though to be Joe Biden’s proposed doubling of capital gains tax. People have been selling off bitcoin and other assets as the Biden is expected to 43.4%. Should it come to fruition, the tax would be applied to the wealthiest Americans on assets held in accounts for more than year. Selling newly bought cryptocurrencies and shares now is therefor seen as a logical option by many.
The tax is being dubbed as something of a “Robinhood” tax by many, in that in theory it involves taking from the rich and giving to the poor. Should it go through, it will make te top level capital gains tax higher than the highest federal tax on income earnings.
As well as cryptocurrencies, stock and shares also fell, with all three major US indices falling into the red as trading closed on Thursday. Included in these was crypto currency exchange Coinbase, whose value has been steadily falling over the course of this week, finishing at its lowest value yet on Thursday night. COIN’s value did raleigh slightly on Friday, seeing a 3% rise by midday (E.T).
If Biden presses ahead, crypto investors could be among the hardest hit, given the that the surge in value over the past year has propelled many into the top tier tax bracket. Understandably, the announcement has therefore faced a largely negative reaction from financiers and crypto investors.
Still, Antoni Trenchev, co-founder of crypto lender Nexo, actually thinks that Biden could be doing the crypto industry a favor. He suggested that investors could borrow against their assets to avoid tax, rather than selling off. He followed up by saying that despite the recent price drop, bitcoin is the best collateral because of how much it has increased in value over the past year.
Trenchev isn’t wrong if we look at the behavior of bitcoin and other cryptos in 2021. Until the drop this week, bitcoin had risen 66% in the first three and a half months of 2021. Ethereum had grown more than 200%, due to the fact that it is better placed technologically than bitcoin to become used for daily transactions.
While the prospect of daily use has driven up Ethereum’s value, bitcoin has been driven by banks and big business approval and investment. Tesla invested millions of dollars in bitcoin, meanwhile banks such as Morgan Stanley have been making moves to encourage clients to buy bitcoin.