There are often multiple causes for an asset’s sharp decline, but Bitcoin’s (BTC) 10% “nosedive,” which took place on April 22, may be blamed on the Biden Administration’s reported plan to tax capital gains at double the current rate on America’s wealthiest.
Bitcoin is habitually volatile, so one probably shouldn’t read too much into a double-digit swoon in any given week, but this might be as good a place as any to reflect upon the possible impact of the United States capital gains taxes, and taxes in general, upon the future growth of cryptocurrencies and blockchain technology.
Could it hinder long-term adoption? If so, in what ways? Will the Biden plan even reach fruition, given the vagaries of U.S. politics? How, too, does one explain the mini-market eruption in the face of the mere possibility of more taxes in a single nation? What sorts of misperceptions might we be harboring with regard to crypto taxation generally?
“The price drop can probably be attributed to a number of factors and rumors — chiefly, the month-end expiration of future positions, which resulted in a liquidation of positions that triggered a slide,” Markus Veith, a partner in the audit practice at Grant Thornton LLP and leader of the firm’s digital assets practice, told Cointelegraph.
There were also reports, generally thought to be false, that Treasury Secretary Janet Yellen was spearheading an effort to impose an 80% capital gains tax rate on cryptocurrencies, “as well as rumors that the U.S. Treasury was investigating financial institutions for illicit use of cryptocurrencies, which the DoJ would do, not the Treasury,” added Veith, continuing: “Then, there were also comments about a drop in Chinese mining capacity.”
A lot was happening that week
David Trainer, CEO of investment research firm New Constructs, downplayed the BTC price gyrations, stating: “10% volatility is nothing new for BTC and crypto in general.” Meanwhile, Tyler Menzer, a CPA and doctoral student in accounting at the University of Iowa, noted: “While the tax news does coincide with the drop, it may only be one of many contributing factors.”
But taxes do matter. “The [Biden] proposal would put the effective tax rate at above 50% in certain states and would be detrimental to job creation,” Carlos Betancourt, co-founder of BKCoin Capital in Miami, told Newsweek, adding, “and would continue to accelerate the move from states like California and New York to more tax-friendly states like Florida and Texas that have no state income tax.”
This is still an early stage in a new administration, of course, and there is some question whether a doubling of the capital gains on the wealthiest to 39.6% — as proposed — will even make it through Congress intact, or if that rate will eventually be reduced.
“Someone needs to pay for all the stimulus, deficits, and national debt, so very likely you would see a tax increase in the near future — whether on capital gains or something else is still to be decided,” Mazhar Wani, a PricewaterhouseCoopers tax partner in San Francisco, told Cointelegraph.
However, Omri Marian, professor of law at the University of California, Irvine School of Law, said that the proposal will unlikely be accepted in its current form. “The Democratic majority in Congress is just too narrow for this,” Marian informed Cointelegraph. Chris Weston, head of research at the Pepperstone Group — a forex broker — said: “The numbers being proposed at this juncture will unlikely pass the Senate in its current form, and centrist Democrats will not back the touted numbers.”
But casting rumors aside, if a doubling of the capital gains tax does pass through Congress intact, would it necessarily mean stormy weather for cryptocurrencies and blockchain technology?
Maybe not. Nathan Goldman, assistant professor of accounting at North Carolina State University, told Cointelegraph — after consulting with his co-author on BTC…