News reports on Thursday said the Biden administration is planning a raft of proposed changes to the U.S. tax code, including a plan to nearly double taxes on capital gains to 39.6% for people earning more than $1 million.
Bitcoin, the biggest and most popular cryptocurrency, slumped to $47,555, falling below the $50,000 mark for the first time since early March. It was last down 4% at $49,667.
Smaller rivals Ether and XRP fell 3.5% and 6.7%, respectively, while dogecoin, created as a joke for early crypto adopters and which had surged about 8,000% this year prior to this latest setback, was down 20% at $0.21, according to price and data tracker CoinGecko.
The tax plans jolted markets, prompting investors to book profits in stocks and other risk assets, which have rallied massively on hopes of a solid economic recovery.
"With a high growth rate in the bitcoin price, crypto holders that have accrued gains will be subjected to this tax increment," said Nick Spanos, founder at Bitcoin Center NYC. He sees bitcoin dropping further in the coming days.
Bitcoin is on track for an 11.3% loss on the week, its worst weekly showing since late February. On the year, however, it was still up 72%.
But while social media lit up with posts about the plan hurting cryptocurrencies, and individual investors complaining about losses, some traders and analysts said declines are likely to 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. "Bitcoin has only gone up for a long time, it is only natural to see a consolidation. Traders are simply cashing in on winnings."
Others also remained bullish on bitcoin's long term prospects, but noted it might take time before prices start increasing again.
"Investors will see the price drop across the crypto market as an opportunity to widen their portfolio by averaging up their investment outlay and buying new altcoins," said Don Guo, chief executive officer at Broctagon Fintech Group. He added that for bitcoin, investors will see it as an opportunity to buy bitcoin at a lower price.
Shares of cryptocurrency exchange Coinbase were up 0.5% at $294.86 in early afternoon U.S. trading. The public floatation of its shares on April 14 had seen bitcoin prices rise to $65,000, before pulling back 25% in the following days.
"The Coinbase listing - the ultimate poacher-turned-gamekeeper moment - might have been the high watermark for bitcoin," said Neil Wilson, chief market analyst at Markets.com.
(Reporting by Stanley White and Kevin Buckland in Tokyo, Anna Irrera in London; Gertrude Chavez in New York; Additional reporting by Thyagaraju Adinarayan, Sujata Rao and Karin Strohecker in London; Editing by Kenneth Maxwell, Emelia Sithole-Matarise, Frances Kerry, Peter Graff)
By Stanley White, Anna Irrera and Gertrude Chavez-Dreyfuss