Bitcoin, Ethereum Collapse on Biden Tax Plan
Key Talking Points:
- Biden’s proposed tax hike sees investors unload profitable assets
- Bitcoin intensifies losses, falls below $50,000
A proposed hike in capital gains tax by President Biden seems to be making investors jitterish about digital coins, causing Bitcoin to fall below the $50,000 mark for the first time since March, whilst other cryptos like EOS, Stellar and, Bitcoin cash are dropping over 13% this morning.
The rationale behind this move is likely to do with investors wanting to unload those assets with the biggest gains, which would make them eligible for the higher tax rate. Especially since the IRS now asks taxpayers to disclose any transactions relating to digital currencies on their tax returns, which is causing a reduction in the position investors are willing to hold. This comes after news that crypto traders already face higher capital gains tax if they hold the asset for over a year.
Whilst this feeling is unlikely to long-lasting, and the proposal is likely to face some opposition, the initial market reaction is causing some damage in the cryptocurrency world, which has been trading in one direction since the Coinbase listing last week.
Bitcoin was already struggling after setting a new all-time high two weeks ago but the slump below 50,000 dollars is likely to be a compelling selling factor in itself. That said, the recent moves are not something out of the blue for Bitcoin, with the two previous pullbacks in 2021 shedding between 17% and 26%.
The current price is sitting on the 100-day moving average (49,280), which seems to be offering some short-term support. Momentum indicators are showing oversold conditions so we may see buyers coming into the market again, with the 45,965 area looking like a good entry point.
BTC/USD Daily chart
Ethereum, which is at its highest levels against Bitcoin in almost three years, was performing relatively well in the last few sessions compared to other cryptocurrencies, marking a new all-time high in yesterday’s session at 2,644. But sellers have taken control this morning and the coin is dropping around 10% towards the $2,000 mark, where it may find some buyer support.
Ethereum/Bitcoin Weekly Chart
--- Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.