The cryptocurrency bubble seems to be nearing an abrupt end as prices continued to tumble. The overall crypto market lost more than $200 billion in Friday’s trading session after reports surfaced that President Joe Biden would seek to raise capital gains taxes on millionaire investors to fund other policy initiatives.
Bitcoin leads the charge, with prices for the internet currency dipping below $50,000 on Friday, for the first time since early March.
Bitcoin is down 17.08% week-over-week, around 30% from its all-time high of nearly $65,000 early last week, plummeting its market cap below $1 trillion. The tumble has been less severe for Ethereum, which hit an all-time high just yesterday but has since dropped 13% as the broader market has crawled back.
Plenty of altcoins have also taken a beating. Dogecoin erased the breakneck gains of the week and then some, nearly halving its price after a meteoric climb last weekend. XRP is down 35% week-over-week, Stellar is down 30% and Polkadot is down 25% since last week.
Overall, Coinmarketcap estimates the global crypto market has shrunk around 10% in the past 24 hours.
Crypto prices have been on a tear for the past several months, but the past week has been the clearest sign of a correction to climbing prices, though many see news of President Biden’s adjustment to the hikes on the capital gains tax as the most apparent reason for the market’s slide as investors cash out hoping their gains won’t be reached by a retroactive application of the rules.
Coinbase, which went public last week via direct listing, shaved about 10% off its share price this week, but was largely unaffected Friday in intraday trading.
Bitcoin’s decline was reportedly in part due to a power outage in Xinjian, which besides the concern about volatility, raises questions about its decentralization.
If the outage from a single province in China can reduce the hash rate output by 45%, its decentralization has come under serious question.
However, the drop in prices has riled up investors as experts continue to warn of further drop as a result of expected correction.
“It might start to ease but not for a good while because you’ve got so much speculation surrounding it – that’s what’s driving those wild swings in price, Fiona Cincotta, senior markets analyst at trading house City Index.
Cryptocurrencies have seen significant rise recently as institutional investors adopt them, minimizing its volatility concerns and shooting their prices up. But concern remains that the frenzy could be cut short unexpectedly, considering the dips in prices since the beginning of the week.
Despite the fears, cryptocurrency enthusiasts believe the bull is still running and will keep the bubble on as the market receives new dumps. As for Biden’s tax takes, experts believe that crypto could still offer investors a haven to hide their money.
Ryan Selkis, CEO of crypto data company Messari, pointed to one corner of the crypto market where investors could hide out:
“For better or for worse, when you look at these cycles historically, everything rises at the same pace and then when the tide goes out, you start to see which assets actually have some long-term interesting fundamentals. So, I think as we look around the asset class, bitcoin and ethereum are obviously your bellwethers. But if you think about this capital gains issue, one of the unintended consequences might be that more capital’s locked in this crypto ecosystem long term and medium term. And ultimately, that’s going to be to the benefit of this entire new class of assets. They’re referred to as DeFi assets — essentially, being able to borrow against existing crypto holdings rather than sell them and trigger a taxable offense. You might have structurally higher interest rates, you might have a better tax setup to invest in those assets and those protocols in that ecosystem versus taking money out of the equation.”