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As Bitcoin (BTC) and Ethereum (ETH) are classified as taxable assets by the US tax authorities, the proposed capital gains tax will also impact crypto investors who have held and earned returns on their digital currencies for a year now.
The global market slumps following the aftermath of reports that the United States President Joe Biden is planning to propose a 39.6% capital gains tax to fund education and child care. As reported by CNBC, the President is formally billed to make the proposal next week, with a target on wealthy Americans earning at least $1 million.
The proposed capital gains tax which is almost double of the current 20% being levied is targeted at helping to revamp the economy, but this time, attention will be focused on funding the upcoming American Families Plan, expected to come in around $1 trillion.
Wall Street did not receive the news well as major stock indices went on a freefall. The S&P 500 Index (INDEXSP: .INX) dropped 0.92% to 4,134.98. The Dow Jones Industrial Average (INDEXDJX: .DJI) slipped 0.94% to close at 33,815.90 while the Nasdaq Composite (INDEXNASDAQ: .IXIC) carted away with a similar loss of 0.94% to 13,818.41.
The market slump in the United States has stirred a ripple effect around the world including in European markets with the STOXX Europe 600 (INDEXSTOXX: SXXP) dropping 0.36% to 438.03. The FTSE 100 Index (INDEXFTSE: UKX) shed off 0.47% to close at 6,905.84 while the German blue-chip stock market tracker, the DAX PERFORMANCE-INDEX (INDEXDB: DAX) is down 0.25% to 15,282.35.
By implication, the increased capital gains tax will see more mainstream investors shed off their profits, a situation that many see is already too much of a strain following the earlier increment of the corporate tax rate to 28%.
Global Market Slump and the Impact on the Cryptocurrency Ecosystem
As Bitcoin (BTC) and Ethereum (ETH) are classified as taxable assets by the US tax authorities, the proposed capital gains tax will also impact cryptocurrency investors who have held and earned returns on their digital currencies for a year now.
The resultant effect has caused a plunge in the global cryptocurrency industry with Bitcoin leading the losses. BTC is now trading at a 9.04% loss in the past 24 hours to $49,801.67 according to CoinMarketCap. Ethereum is also not spared the losses as its accrued gains from an impressive rally all week long are being shed off. The coin is down 7.72% to $2,295.32.
The hopes of both the stock and cryptocurrency industry recovering are based on when investors come to terms with the hiked tax rate and return back to their regular market or trading activities. The proposed capital gains tax hike may also receive an appreciable resistance from Republican lawmakers who according to Bloomberg may favor the retention of the 2017 tax cut under former President Donald Trump.
“It’s going to cut down on investment and cause unemployment,” Chuck Grassley of Iowa, a top Republican on the Senate Finance Committee said of the Biden capital-gains plan. He praised the result of the 2017 tax cuts, and noted, “If it ain’t broke, don’t fix it.”