Cracks are forming in the cryptocurrency space.
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.
Market analysts were largely split on the move’s impact. Here’s how five of them, including CNBC’s Jim Cramer, reacted:
Tim Draper, founder and managing partner of Draper Associates, raised concerns about productivity:
“I just think, what are they thinking? Because, actually, higher taxes tend to lower revenue. So, right now, they need a lot of revenue. They’re printing money. And if you bring in higher taxes, it lowers the motivation of the people. If you are working towards some goal, you’re a start-up and you’re saying, ‘I’m going to build something of great value’ and then you realize the government takes more than half of it, you’re working through July before you even have started to work for yourself and that motivation starts to dwindle.”
Blair Effron, partner and co-founder of Centerview Partners, advised waiting to see Biden’s tax package in its final form:
“I think we ought to step back and see how the overall tax package comes together. You obviously have a 50-50 Senate. I think there’s going to be a lot of negotiation back and forth. The administration’s already indicated that. The Republicans came out [Thursday] with a $600 billion infrastructure package. … We ought to assume that the overall number when we’re done both in terms of the infrastructure will be lower and in terms of how to pay for it with taxes will also be lower.”
Cramer, host of CNBC’s “Mad Money,” wasn’t too worried about the markets:
“This does not affect the companies. I’m not Warren Buffett and never will be, can’t pretend, but the companies … are what we need to worry about and companies are not impacted by raising capital gains for 0.3% of the people.”
Nassim Nicholas Taleb, distinguished scientific advisor at Universa Investments, said tax hikes could be more neutralizing than intended:
“A lot of these tax gains or attempts to raise revenue by governments are naive. There’s effectively sometimes a neutral effect that you raise the tax rate and then revenues stay the same. … As far as market risk and stuff like that, I think it’s rather neutral. We already have problems outside these tax changes. We have problems in markets. We’re sitting on dynamite. We don’t know if it’ll take 30 years or take two months before we feel the effects.”
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.”