The central theses
- According to reports, the Biden government could double capital gains tax for large investors from 20% to 39.6%.
- The news caused stock markets and crypto markets to depreciate.
- While the tax does not affect most crypto investors, it could have a broader negative impact on the crypto industry.
- The news has also sparked discussion on social media as users criticize the plan or argue that fears are exaggerated.
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The Biden administration is reportedly preparing to propose one of the largest capital gains taxes in US history that will nearly double the tax rate for wealthy investors.
Taxes are aimed at wealthy investors
News of a possible tax hike was reported to Bloomberg on April 22nd by White House officials.
When the proposal goes into effect, capital gains tax will be increased from 20% to 39.6% for investors earning more than $ 1 million. That would bring in $ 370 billion in government spending.
The news of a possible spike has impacted both the stock market and the crypto market. According to Reuters, Bitcoin fell below $ 48,000 within hours of the news, a loss of around 4%. Ethereum recorded losses of around 10%. The S&P 500, the Dow Jones and the Nasdaq recorded losses of around 0.9%.
There has also been a lot of discussion in the news about social media communities related to cryptocurrency. The topic became a top thread on Reddits / r / cryptocurrency subreddit and received 1,250+ comments. Users expressed various concerns about the plan or suggested that fears are being exaggerated.
Is the proposal accepted?
The proposal was not officially announced until Friday, April 23. Biden will officially discuss the tax hike when he presents US fiscal policy next Wednesday.
Some experts believe that the tax plan is not actually being carried out. Phil Orlando of Federated Hermes, Inc. told BNN Bloomberg that given the proposal represents the largest tax hike in history, the chances of success are “slim to none.” Instead, he expects a more modest tax increase to 25%.
Elsewhere, Great Hill Capital LLC’s Thomas Hayes has suggested that the stock market would have suffered much greater losses had there been a good chance the proposal would have been accepted.
Does the tax plan affect crypto users?
Even if the tax hike is approved, most investors will be unaffected. The plan is aimed at the top 0.3% of investors, and the distribution of crypto wealth is similar to general wealth.
In 2020, Bitcoin prices increased by around 300% from a starting price of around USD 8,000. To make more than $ 1 million on your Bitcoin investment this year, you would have had to hold around 32 BTC – an amount that less than 0.4% of Bitcoin addresses hold.
On the other hand, not all crypto investments work the same way. DeFi services such as yield farming platforms and liquidity pools offer extremely high returns to investors who make moderate investments in the underlying protocol. Likewise, new ICOs can experience sudden growth within a short period of time.
That means some crypto projects may have a higher percentage of users making more than $ 1 million. However, there is a lack of data on wealth distribution on these projects, which means that affected investors may still be in the minority.
Disclaimer: At the time of writing, this author held less than $ 75 in Bitcoin, Ethereum, and Altcoins. This article is not tax advice.
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