The crypto market experienced a sharp decline today. The largest cryptocurrency, Bitcoin, lost 4 percent of its value, dropping from $66,700 to $64,900.
This decline led to many liquidations. According to blockchain analytics platform Coinglass, more than 91,000 traders have been liquidated in the past 24 hours, with a total of approximately $209 million in liquidations. What is the cause of this volatility?
US tax increases
A possible cause for the decline in the crypto market can be found in the United States. President Joe Biden has proposed raising the tax rate on capital gains to 44.6%, the highest level since 1922. He is also proposing a 25% tax on unrealized capital gains.
This proposed increase means that investors will have to pay more taxes on the profits they make from their investments, including profits from the sale of Bitcoin and other altcoins. This could discourage investors from investing or prompt them to liquidate their investments to avoid tax increases.
Unrest in China and the Middle East
Geopolitical tensions in the Middle East and economic turmoil in China have also been cited as reasons for the recent volatility. The renewed conflict over Israel is causing more caution among investors, who are often retreating from risky investments like Bitcoin and instead opting for safer options like government bonds.
In China, companies face high financing costs for their operations, which is exacerbated by a general slowdown in economic growth in the country. As a result, many companies experience extra pressure to refinance their debts.
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