BITCOIN'S price has dramatically plunged after US President Joe Biden threatened to slap extra capital gains tax on wealthy Americans.
Experts warn that Biden's tax hit has "spooked" people into taking profits now – triggering huge Bitcoin and other cryptocurrency selloffs.
The Guardian reported that "speculators in Bitcoin have been left nursing heavy losses after reports Joe Biden is planning to raise taxes on the wealthiest Americans to tackle inequality and finance trillions of dollars in higher social spending."
Bitcoin and other cryptocurrencies suffered hefty losses early Friday.
Investors have been unnerved by a plan to nearly double taxes on capital gains to 39.6 per cent for people earning more than $1million.
Bitcoin, the biggest and most popular cryptocurrency, slumped seven per cent to $48,176.
That means it fell below the $50K mark for the first time since early March, while smaller rivals Ether and XRP plummeted around seven per cent.
"It is clear that Bitcoin is more sensitive to capital gains tax threats than most 'asset' classes," Jeffrey Halley, senior markets analyst at trader and broker OANDA told Markets Insider
"The threat of regulation, either directly in developed markets or indirectly via the taxman, has always been crypto's Achilles's heel, in my opinion," he added.
Wall Street had already tumbled on Thursday following reports that Biden's administration is considering a tax hike on high-end stock investors.
Biden also called for a spike in corporate taxes to finance his $2trillion infrastructure package.
The news hit 10-year US Treasury yields and the greenback.
It also sent jitters through digital currency markets, with Bitcoin dipping below $50,000 in Friday morning trade – just days after clocking a record high above $63,000.
Experts warn that this reaction showed concern that Biden's plan to raise capital gains taxes would stifle investment in digital assets.
The big selloff came after reports that the Democrat's administration is planning a raft of proposed changes to America's tax code.
"Bitcoin headed South today after President Biden signalled that he wanted to raise capital gains tax in the US," said Jeffrey Halley.
He added: "Now, whether that happens or not, many Bitcoin investors are probably sitting on some substantial capital gains if they stayed the course over the past year."
Bitcoin is on track for a 15 per cent loss on the week, though it is still up 65 per cent since the start of the year.
Ethereum dropped more than 10 per cent on the day to as low as $2,107, a day after climbing to a record $2,645.97.
Worried people have shared grievances over Biden's tax hike on social media, with posts accusing him of hurting cryptocurrencies.
While some investors complained about the losses, some traders and analysts signalled they planned to overlook the hiccup, saying the declines are likely to just be temporary.
"I don't think Biden's taxes plans will have a big impact on Bitcoin," said Ruud Feltkamp, CEO at automated crypto trading bot Cryptohopper.
He added: "Bitcoin has only gone up for a long time, it is only natural to see a consolidation. Traders are simply cashing in on winnings."
Biden has controversially unveiled tax hikes targeting businesses, married couples and those who earn more than $400,000.
The planned hikes were revealed when the leader unveiled portions of his $2trillion "Build Back Better" plan during a visit to Pittsburgh, Pennsylvania.
Biden added that the gap in wealth exacerbated by the Covid pandemic has shown how "distorted and unfair our economy has become".
The President sought to assure the public that he would only be targeting America's wealthiest to pay for his $2.25trillion plan.
"No one making under $400,000 will see their federal taxes go up," he said.
"This is not penalizing people. I have nothing against millionaires and billionaires. I believe in American capitalism. I want everyone to do well."
Biden's plan will be paid for by hiking tax rates on big corporations and firms with off-shore profits.
He called the proposal a "a once-in-a-generation investment in America" and the "the largest American jobs investment since World War II."
Michael Hewson, chief market analyst at CMC Markets, tried to play down the tax hike.
He told Markets Insiders, "the likelihood of anything of this nature passing through an evenly split Congress, lies somewhere between slim and none".
Bitcoin can be risky to buy because its value rises and falls unpredictably, which is why anyone thinking of investing in this or any other cryptocurrency should be very careful.
Unlike physical currencies such as pounds, dollars or euros, which come in physical notes and coins, Bitcoin isn't printed or minted.
Instead, Bitcoin tokens are a digital-only form of payment and are created by a computer code – there are currently about 21million Bitcoin tokens in existence.
What is capital gains tax?
US President Joe Biden wants to double the capital gains tax rate for wealthy individuals to help fund education and child care.
The most common types of capital gains come from the sale of stocks, bonds, real estate, and property.
A capital gains tax is a tax on the profit made on the sale of a non-inventory asset.
If the profit is lower than this limit it is considered tax-free.
Profit is determined by the difference between the amount (or value) an asset is sold and the amount it was bought for.
The tax rate of a capital gains tax depends on profit made and how much money someone makes annually.
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