Cryptocurrency ether pulled back sharply from a record high and rival bitcoin also fell on Friday amid speculation that US President Joe Biden’s plan to raise capital gains taxes will curb investment in digital assets.

The drops came after Biden on Thursday unveiled a raft of proposed changes to the US tax code, including a plan to nearly double taxes on capital gains to 39.6% for people earning more than US$1-million.

But while social media lit up with posts about the plan hurting cryptocurrencies, and individual investors complaining about losses, traders and analysts said declines are likely temporary amid growing retail and institutional investor acceptance of digital currencies as a legitimate asset class.

“That’s what everyone is talking about now,” Chris Weston, head of research at Pepperstone Markets, a foreign exchange broker based in Melbourne, said referring to the tax plan. “And I think you may have some technical selling going through. Ether’s been the poster child of the movement. It has massively outperformed bitcoin.”

Ether plunged more than 10% to as low as $2 140, a day after climbing a record $2 645.97. It last traded down 6.55% at $2 242.90. Bitcoin also weakened, falling 3.44% to $49 903.71.

If ether manages to hold above $1 955 going into the weekend, then its upward trend should remain intact, according to Kelvin Wong at CMC Markets in Singapore. The next support for bitcoin is at $40 665, but buyers are likely to emerge before that level is reached because its decline looks overdone, Wong also said.

Tripled

Bitcoin has risen 74% this year, while ether has more than tripled. Both have massively outperformed traditional asset classes, bolstered by the entry of mainstream companies and large investors into the cryptocurrency world, including Tesla and BNY Mellon.

Biden’s capital gains tax hike plan caused turmoil during New York trading of cryptocurrencies that spilled into the Asian session, but calm is likely to return soon, traders said.

“Western funds started offloading bitcoin aggressively on the back of the Biden tax plan,” said Avi Felman, head trader and portfolio manager at BlockTower Capital, a crypto and blockchain investment firm in New York. “Ultimately news-based selling generally reverses.” — Reported by Stanley White and Kevin Buckland, (c) 2021 Reuters