Cryptocurrencies Shed $200bn Over US Tax Reform Fears

The cryptocurrency market lost more than $200 billion (£144bn) in value on Friday as a US proposal to increase capital gains tax sparked a sell-off on financial markets.

Bitcoin traded as low as around $48,000 before rebounding, the first time the asset has traded below $50,000 since early March.

Other cryptocurrencies felt the pinch as well, with Ether falling 8 percent on Friday and XRP down 16 percent.

Friday’s decline came after news emerged late last week of a proposal by US president Joe Biden to increase taxes on the country’s wealthiest, including nearly doubling levies on capital gains for people earning more than $1m. The proposals are expected to be formally announced as early as this week.

Sell-off

The news triggered a broad sell-off on financial markets, with all three major US financial indices ending Thursday in the red.

The plans are part of major financial reforms proposed by Biden, who has made it clear he is willing to go against major, established financial interests.

“Wall Street didn’t build this country – the great American middle class did,” Biden wrote on Twitter last month.

But Bitcoin had already experienced several days of declines in value, after reaching a record $64,870 earlier in April.

Investor attention has focused on Bitcoin in particular in recent months, due to its latest spectacular gains in value.

Even including the latest correction, Bitcoin has risen nearly 70 percent this year and 500 percent in the past 12 months, in part because some investors see it as a hedge against inflation.

Volatility

Bitcoin has also been edging into the mainstream as large companies such as Tesla and financial institutions including Visa, Mastercard and BNY Mellon have increasingly voiced their support.

Cryptocurrencies as a whole received a further boost two weeks ago with the IPO of coin exchange platform Coinbase.

Coinbase’s shares, too, have declined in value over the past week, falling about 23 percent from their first trade of $381 on 14 April to below $300 on Friday.

In spite of the enthusiasm from investors and financial companies, governments, regulators and central banks have been far more cautious, with most consistently warning of the dangers posed by cryptocurrencies’ notorious volatility.

Turkey’s central bank earlier this month banned the use of cryptocurrencies and crypto-assets for making purchases, and on Friday launched a criminal investigation into the Thodex trading platform on fraud charges.

India has gone further in proposing a ban on crypto-asset ownership, which, if it comes into being, would be the first of its kind.