(Bloomberg) — Bitcoin headed for its worst week in more than a year as a proposed capital-gains tax increase for wealthy Americans intensified the volatility whiplashing the world’s largest cryptocurrency.
A fresh bout of selling on Friday drove Bitcoin down as much as 7.9% to $47,525 — below its 100-day moving average — as it continued to take out key technical levels. Wall Street analysts warn of further losses for the notoriously volatile currency that hit a record high of $64,870 on April 14 ahead of Coinbase Global Inc.’s listing, before succumbing to an unexplained weekend swoon.
This week’s more than 20% rout marks the worst period for Bitcoin since March 2020. Even digital currencies that have managed to eke out gains over the past few days, like Ether and the satirical Dogecoin, tumbled on Friday as the crypto space turned into a sea of red.
“Bitcoin has slipped below the 50-day moving average support that it held sacrosanct through this rally,” said Pankaj Balani, CEO of Delta Exchange. “It looks like there is more downside here.”
Read more: Wall Street Starts to See Weakness Emerge in Bitcoin Charts
The latest threat comes from a Bloomberg News report Thursday that the Biden administration is considering raising the tax on capital gains to 39.6% for those earning more than $1 million a year. That was enough to ignite the biggest slide in U.S. stocks in five weeks. U.S. investors in Bitcoin, which has advanced more than 70% this year despite its recent pullback, already face a capital gains tax if they sell the cryptocurrency after holding it for more than a year.
But the coin’s been one of the best-performing assets in recent years — anyone who bought a year ago is sitting on a nearly 550% gain. For investors who bought in April 2019, it’s roughly 800%.
“One of the biggest things you have to worry about is that the things with the biggest gains are going to be most susceptible to selling,” said Matt Maley, chief market strategist for Miller Tabak + Co. “It doesn’t mean people will dump wholesale, dump 100% of their positions, but you have some people who have huge money in this and, therefore, a big jump in the capital gains tax, they’ll be leaving a lot of money on the table.”
The IRS has stepped up enforcement of tax collection on crypto sales. The agency — which began asking crypto users to disclose transactions on their 2019 individual tax returns — asks taxpayers whether they “received, sold, sent, exchanged or otherwise acquired any financial interest in any digital currency.”
Still, investors may need to buckle up for more volatility in the near-term.
“People have been talking about the capital gains tax and U.S. stock-market selloff being the catalyst of this,” said Todd Morakis, co-founder of digital-finance product and service provider JST Capital. “If it is true we’ve moved too much — but once Bitcoin gets a head of steam it is tough to stop unless you are at a technical area.
(Updates price levels)
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