Donald Trump may completely cut income tax: What does this mean for the crypto market?

The cryptocurrency market has gone through a period of high volatility, falling more than 36% since the peak in early October, but it has also bounced back nearly 14% from the low on November 21. This slow increase reflects the return of a segment of investors, signaling that confidence is gradually being restored.

December is considered a crucial time with a series of new information and policies that could profoundly affect the flow of money into the cryptocurrency market, especially surrounding the possibility that the U.S. will completely eliminate income tax.

The relationship between income tax policy and the cryptocurrency market

President Donald Trump once proposed completely eliminating income tax in the U.S., instead, the government would increase revenue from tariffs. Tariffs are additional fees imposed on imported goods; this cost is added to the final sale price, causing domestic consumers to pay more for essential items.

Thus, tariffs are essentially a type of “hidden tax” imposed on daily expenses that no one can avoid. However, this revenue may be sufficient to replace income tax, allowing people to retain more of their monthly salary.

When consumers have additional disposable income, many will choose to invest in risky assets such as Bitcoin or other cryptocurrencies. Therefore, the market is closely monitoring developments related to tariffs and income taxes.

Employment data and Fed's rate cut expectations: Market support dynamics

The number of unemployment claims in the US has fallen to 216,000, lower than the forecast of 225,000, indicating that the labor market is showing signs of cooling but has not fallen into crisis. When workers feel their jobs are stable, they are willing to accept more risky investments.

In addition, the likelihood of the Federal Reserve (Fed) cutting interest rates in December is currently very high, at about 84.7%.

The cryptocurrency market is looking towards hopes of interest rate cuts | Source: XReducing interest rates will pump more liquidity into the economy, with nearly $1.5 trillion forecasted to be injected into the financial system. This new cash flow often moves into riskier assets like cryptocurrencies, boosting positive sentiment among investors.

On-Chain Data: Selling pressure is falling

The 90-day CVD Taker Spot index of Bitcoin has shifted from a strong sell state to a neutral level, indicating that selling activity is no longer as overwhelming as before. Some long-term investors have begun using Bitcoin as collateral to borrow funds, reflecting confidence in the long-term outlook of the market. However, it is also important to note that if prices fall sharply, these loans may be subject to forced liquidation.

Currently, the data shows that selling pressure has fallen, helping the market maintain above recent lows.

December: A Decisive Time for Cryptocurrency Prices

After a weak period in October and early November, the bounce back from the bottom on November 21 shows that new capital is gradually returning. The market is currently awaiting important information, and any updates on tax policies or interest rates could create significant fluctuations.

If income tax is eliminated, people will have more capital to invest. A decision to cut interest rates by the Fed in December will also boost liquidity for the cryptocurrency market. At the same time, a new tariff plan will clearly provide additional perspective amid the still uncertain macroeconomic backdrop.

All these factors can drive a strong flow of capital into risky assets, in which the cryptocurrency market often reacts very quickly and vigorously.

December promises to be a breakout time with many important updates, just one positive piece of information is enough to create a big boost for cryptocurrency prices.

Mr. Teacher