What was the reason for the sharp collapse of Bitcoin below $ 50 thousand?

This week, the price of Bitcoin fell below the $ 48K level after a failed breakout attempt to a new all-time high. This is the lowest price since March 8 and has fallen 33 percent from an all-time high of $ 64,445.

The results of other popular cryptocurrencies in terms of profitability are even worse. Amid the collapse of the first cryptocurrency, Ethereum, XRP and UNI fell by at least 10 percent in the last 24 hours. And although there has already been growth after that, the reasons for the situation are still worth understanding.

Recall that the fall in the coin market was very noticeable for all cryptocurrency holders. As we have already noted, Bitcoin dropped even below 48 thousand dollars, which has not happened for a month and a half. On the cryptocurrency chart, this moment looked like this.

However, after reaching the local bottom, the BTC rate managed to partially recover. Tonight it also exceeded the level of 51 thousand dollars.

In the morning, Bitcoin’s price is $ 50,332, down 22.3 percent from its all-time high. It’s important to note here that Ethereum sits just below the $ 2,300 level, just 12.7 percent below its record. At the same time, ETH itself recovered much more confidently.

According to analysts, this could be a sign of the approaching altzizon, that is, an active stage in the growth of cryptocurrencies with the exception of Bitcoin. Read more about the reasons for this in a separate article.

Be that as it may, the collapse of the cryptocurrency market is attributed by many to the recent proposal of US President Joe Biden to increase the capital gains tax levied whenever a profit or loss occurs when an asset, such as Bitcoin, is sold. In addition, the presidential administration is considering raising tax rates for the richest Americans.

And although such announcements do not mean anything, because the final document in the end must be approved by the government, the bad news still affected the market. Problems also arose in the stock market, as stocks reacted to the statement of the US president with a fall.

Why did Bitcoin fall?

Biden’s proposal involves taxing long-term capital gains from the sale of assets held for more than a year as ordinary income. It will apply to those with annual income in excess of a million dollars.

Short-term capital gains are already taxed as ordinary income. This tax rate, which will be higher than the maximum federal income tax rate, has caused a real panic among cryptocurrency traders. Under current US law, taxpayers must pay Capital Gains Tax whenever they buy or sell cryptocurrency.

Despite the fact that Bitcoin is being hailed as a store of value, independent of governments and politics, it is not unusual for a cryptocurrency to react to real news. The situation was commented on by Curtis Ting, managing director of the Kraken exchange for Europe. He did this in an interview with the news outlet Decrypt. Here is an expert quote.

This is not the first time the market has reacted sharply to real-world events, and it certainly will not be the last.

That is, the analyst believes that such a noticeable reaction to such news is not surprising. Yet the market is made up of people who have emotions and fear.

According to Oliver von Landsberg-Sadie, CEO of the BCB Group platform, the effect of news on the crypto market should be temporary. That is, in the near future, the prices of digital assets will begin to rise again. Here is an analyst’s line from Coindesk.

Biden’s approach to capital gains as income, which calls for a rate of up to 39.6 percent instead of the current 23.8 percent, has «shocked all markets.» While the stock market shock may persist, the nature of the cryptocurrency market is slightly different. The difference between crypto and any other market is that we are seeing more and more large digital asset buyers who are simply not going to exit their positions.

That is, the expert believes that the cryptocurrency is showing too good profitability for users to refuse to connect with it. Indeed, the percentage of return in the blockchain asset industry cannot be compared to classic investment instruments. For example, the Solana network token SOL has grown by 5802 percent over the year, or 58 times.

Landsberg-Sadie mentioned large BTC holders like MicroStrategy and Tesla. According to him, neither Michael Sailor nor Elon Musk are going to get rid of their coins in the near future, because the bullish trend will continue. Therefore, every such Bitcoin crash will be perceived by large players as another profitable opportunity to buy BTC. And it really sounds logical.

We believe that the sharp market crash could indeed be a reaction to the possibility of a sharp change in the US tax system. As we have already noted, the market is made up of individuals who are afraid of the unknown. And if the future begins to seem more dire than it should, such changes may indeed be enough for a massive sale of assets. Although, as the current market situation shows, fixing losses and draining cryptocurrencies over the past two days was clearly a mistake.

Leave a Reply

Your email address will not be published. Required fields are marked *