With the recent pullback in crypto, the first question you have to ask yourself is what's next? When is the right time to get back in? Is it going to get worse? Is it going to recover? It is a question that really does not seem to have an answer and the biggest reason for this in my opinion is the possible capital gains tax.
What is this tax and why is it an issue? This tax is the tax rate on assets held for over a year. When you hold an asset for at least a year the tax rate goes down otherwise it could be as high as 40%+. Well this is a problem because a lot of people have made the investment in Bitcoin as a hedge against inflation. This means that they are buying the asset ie Bitcoin for a long-term hold a however if the tax benefit dies and you could be taxed at a higher rate this is an issue and the gains you think you locked in suddenly are gone.
With how the US government typically phases these taxes in there will be a cutoff date in the future for the increase and a lot of people do not want to take the risk of if this tax rate happens or not. Remember a lot of wealthy people have gotten into Bitcoin and several other cryptos and they are the ones that could have their tax rate double up to 40%. The rippling effect that this has caused is not limited to just the crypto market as the stock market and other assets markets have been heavily impacted as well.
I personally do not see this going through the way it has been presented thus far as the number of states that would have a combined tax rate of above 50% would be roughly 12. That is how population flight happens..... taxing a lot of people that fast and that severely as the requirement is just $1 million a year would be devastating. California is a prime example because of the high cost of living there. A $1 million border in California is immensely different than a $1 million border in say Texas or Iowa where the cost of living is so much cheaper.
Also, there are a handful of states including Texas that do not have an income tax and these states could suddenly get a population to serve that they are not expecting. Really it could just be a huge mess and moderates on the democratic side I just don't see wanting to risk this huge huge increase. Republicans just won't support is so I mean that is really just a given because any tax increase would be hard to get them to accept but when it is in some cases doubling it is a shoo-in they will vote against.
Over the next few weeks, we will see how the Biden Administration handles the pushback. If the stock market starts tanking then the administration will be forced to either walk it back or reevaluate what they are doing. Many billionaires are united in willingness to pay more in taxes but they do want to know where the money is going and how it is spent. This is why they really give so much to charities they set up or are heavily involved in. All I can say is to stay tuned and pay attention because this is a big deal.
