Bitcoin Plunges: $200B Erased From Cryptocurrency Market

Bitcoin and other digital Cryptocurrencies plunged on Friday as U.S. President Joe Biden proposed capital gains tax hike. The threat of regulation by lawmakers in Washington set off a wave of selling overnight.

Bitcoin was down 7.3% at $49,730 in trading overnight Thursday, and for the first time, bitcoin is trading below $50,000 since the beginning of March. Ether fell to $2,320, down 8%. And XRP, the fifth-biggest cryptocurrency, nose-dived 16% overnight.

In total, approximately $200 billion of value in the entire cryptocurrency market was wiped out in a matter of hours, according to data from CoinMarketCap.

Vijay Ayyar, head of business development at cryptocurrency exchange Luno, told CNBC by email….

 “The market has run up quite a bit overall, and it’s probably cooling off before the next leg up,”

Reports that President Biden is expected to raise long-term capital gains tax for the wealthiest Americans to 43.4%, including a surtax higher than the top federal tax rate on wage income sent shock waves through the cryptocurrency market. The proposal to regulate the cryptocurrency market also impacted the hefty selling.

Biden’s new tax rate would apply to returns on assets held in taxable accounts and sold after more than a year. This would affect hundreds of thousands of investors who have invested in the cryptocurrency market if passed by Congress and signed into law.

One crypto entrepreneur Antoni Trenchev, the co-founder of crypto lender Nexo, said Biden could be doing his industry a favor.

“It would make even greater sense to play that oldest trick in the manage-your-finances-smart book: borrow against your assets to avoid capital gains taxes,”

“And what better collateral than one that — despite today’s price dip, likely caused by the said proposal — appreciates in value like Bitcoin?”

This year, bitcoin has already risen 66%, while digital tokens, another form of cryptocurrency Ethereum blockchain — have soared a 200%.

Bitcoin has benefited from huge buying by institutional investors and payment processors like PayPal and Square, starting to facilitate tens of thousands of retailers accepting payment for good and serving via bitcoin. This has resulted in companies like Tesla to have purchase billions of dollars worth of bitcoin too.

Banks are also beginning to allow their clients to get involved in the bitcoin and cryptocurrency market. Morgan Stanley last month said it was launching access to three funds that enable ownership of bitcoin.

Numerous media reports confirm Morgan Stanley investment bank that handles $4 trillion in managed client assets is launching access to three funds that will enable Bitcoin ownership.

The move by large banks, businesses, and payment processors sets the stage for the universal acceptance of bitcoin as an asset class. Bitcoin’s rally in the past year few years is forcing Wall Street firms to get involved in the cryptocurrency market.

Morgan Stanley has set a strict requirement that to access these volatile assets, clients must have “an aggressive risk tolerance” and have at least $2 million in assets held by the firm. Other restrictions imposed by Morgan Stanly require Investment firms to have at least $5 million in their accounts to qualify for the new stakes. In either case, the accounts have to be at least 6 months old.

Accredited U.S. investors with brokerage accounts and enough assets to qualify are being limited by Morgan Stanley to investing no more than 2.5% of their total net worth in their assets in bitcoin and or other cryptocurrencies.

Meanwhile, a crypto firm founded by Mike Novogratz, an asset manager at FS Investments and bitcoin company NYDIG, offers two cryptocurrency funds from Galaxy digital.

“The Galaxy Bitcoin Fund LP and FS NYDIG Select Fund have minimum investments of $25,000, while the Galaxy Institutional Bitcoin Fund LP has a $5 million minimum.”

Clients investing with Morgan Stanley will likely be able to make investments as early as next month, after the bank’s financial advisors complete training courses tied to the new offerings, said the people.

Goldman Sachs, JPMorgan Chase, and Bank of America’s wealth management divisions have not followed Morgan Stanley’s lead yet, but they are expected to eventually step up to the plate.

 JPMorgan recently filed documents for new debt investment tied to a basket of stocks with crypto exposure like MicroStrategy, the software firm that holds bitcoin on its balance sheet, and payments firm Square are involved.

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