Joe Biden’s tax raising plans for wealthy investors helped to blow up cryptocurrency valuations today as bitcoin skidded to 25% below last week’s record high.
Biden’s maiden speech to a joint session of Congress on Wednesday is expected to include a move to nearly double taxes on capital gains to 39.6% for those earning over $1 million.
Wall Street showed its displeasure last night with the S&P 500 down 0.9%, while fears for future investment in digital assets sent bitcoin down by as much as 10% to $48,610.
It had been near $65,000 following last week’s Nasdaq IPO of currency exchange Coinbase.
Whereas the froth has come off cryptocurrencies, equity market investors appear more sceptical about the chances of Biden getting the tax changes through Congress.
UBS’s global wealth management team think a rate closer to 28% is a more likely outcome, adding that stock market history shows very little relationship between capital gains tax rate changes and the performance of shares.
They added: “Some investors may choose to harvest capital gains now, rather than potentially pay a higher rate in the future. However, US taxable domestic investors own only about 25% of the US stock market.”
London investors took last night’s Wall Street sell-off in their stride as the FTSE 100 index fell by just 10.20 points to 6,929.40.
A bigger focus appears to be next week’s Q1 reporting season, particularly as most of the UK’s banking sector is due to post figures. The favoured domestic picks of UBS analyst Jason Napier are Barclays and Virgin Money after he increased his price targets on the pair by 8% to 195p and 5% to 210p respectively.
Lloyds, which is due to report results on Wednesday, was the biggest riser in the top flight after climbing 0.3p to 42.24p. Napier has a target price of 47p.
The domestic-focused FTSE 250 index was down 53.26 points to 22,311.58, amid falls of more than 2% for Carnival and easyJet as the spike in cases in parts of the world including India weighs on sentiment towards travel stocks.
In the FTSE All-Share, Photo-Me International shares rose 1.3p to 66.9p — the highest level in over a year — after the photo booth operator boosted full-year guidance thanks to demand linked to an ID card scheme in Japan.