Bitcoin, the most popular cryptocurrency, took a gigantic plunge on Friday, wiping $200 billion off the market as the alternative currency plunged below $50,000.
Other digital currency suffered as well in the cryptocurrency massacre.
A proposed capital gains hike on the part of President Biden, which is expected to raise long-term capital gains taxes for the wealthiest Americans to a whopping 43.4% was thought to be behind the massive sell-off of cryptocurrency.
After Bitcoin, the original cryptocurrency, hit the market more than a decade ago, it had its best year ever in the last twelve months, gaining more than six times its value in that time period.
Observers noted that around 8:50 AM Eastern Time, bitcoin showed that its worth had declined 6.6% in the last 24 hours, and was at $49,560, according to information from Coin Metrics.
Entire stock market plunges after capital gains tax announcement
This marks the first time that Bitcoin, which was designed to be free from all regulatory authority, traded below $50,000 since early March of this year. Another alternative digital currency, Ether, fell to $2,255, which represented a fall of 10.7%.
Industry sources also note that XRP, the fifth-largest cryptocurrency, plunged an enormous 16%.
The massive sell-off resulted in a loss of more than $200 billion in value from the entire cryptocurrency market, according to CoinMarketCap.
CNBC reported that Vijay Ayyar, the head of business development at the digital currency exchange Luno, stated Friday morning “The market has run up quite a bit overall, and it’s probably cooling off before the next leg up.”
Biden’s proposed hike in the capital gains tax would be higher than the top existing federal tax rate on wages. The new tax would be on to returns on assets that are held in taxable accounts and sold after more than one year.
The Biden announcement also triggered a sell-off on the stock market from Thursday into Friday, with all three major U.S. indexes ending in the red on Thursday.
Financial experts say that fears over the new capital gains tax proposal may be extending to crypto investors as well, as it gains in popularity after its stellar earnings year.
Move could help cryptocurrency in the long run
However, one cryptocurrency maven said Biden could actually be doing his industry a favor in the long run.
Antoni Trenchev, the co-founder of cryptocurrency lender Nexo, stated today “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.
“And what better collateral than one that — despite today’s price dip, likely caused by the said proposal — appreciates in value like Bitcoin?”
The past year has seen explosive growth in not only the earnings of cryptocurrencies but their acceptance on the world stage. Bitcoin has risen 66% in the first few months of 2021 alone and Ether has gained over 200% in value.
The acceptance of bitcoin by institutional investors and large companies including Tesla and Square, which themselves have bought billions of dollars worth of bitcoin, has been a part of this recent success story.
Just last month, CNBC reported that banking giant Morgan Stanley said that it would launching access to three funds that enable ownership of bitcoin currency.
As Eric Demuth, CEO and co-founder of digital asset broker Bitpanda, told CNBC’s “Squawk Box Europe” on Friday, “Things are getting more established,” adding, in hopes of assuaging fears, “The more money that gets into the market, the less volatility there will be.
“And for the retail investors who are going in there, the strategy is always never to put everything in one basket and just put a very small fraction of your portfolio into cryptocurrency, into bitcoin. It doesn’t matter if you are a strong believer or not, the diversification of your assets is key.”
TIME accepts Bitcoin and other digital currency for subscriptions
As part of a drive to garner more subscriptions from a new generation of readers, Keith Grossman, the president of TIME, Inc., said that his company is trying to explore new avenues.
“As TIME continues to innovate and find new ways to build upon our existing community of 2.3 million subscribers, we are proud to offer this new payment option through our partnership with Crypto.com.”
Digital currency relies on complete lack of governmental regulation
The entire cryptocurrency movement is a bid to enable the movement of funds without any governmental regulations whatsoever. The extreme volatility is not appreciated by governments, which have shown signs of cracking down on Bitcoin.
The CEO of a major cryptocurrency exchange called Kraken, Jesse Powell, is cautioning that governments might clamp down on cryptocurrencies, making the playing field for Bitcoin and other digital currencies a very different one than we see today.
Last month, Reuters reported that the nation of India plans to introduce a law to ban the trading — or even ownership of cryptocurrencies.
The new U.S. Treasury Secretary, Janet Yellen, criticized Bitcoin as a “highly speculative asset” adding that she was worried about cryptocurrency investors’ potential losses.
Other nations and entities around the globe are now speculating just how they could regulate Bitcoin. However, just last week, the Deputy Governor of the People’s Bank of China said that Bitcoin was an “investment alternative” last week — marking a more progressive attitude toward cryptocurrencies after a crackdown by Chinese regulators in 2017 and 2018.