Unrealized gains are temporary in nature. Next year the pandemic could stop and the value of the company could drop back to previous values. Should the tax remain in effect in that case?

You'd end up with a system where volatile companies have their investors taxed more than non-volatile ones (as fluctuations create unrealized gains during snapshot periods such as end of year, despite reverting back to the mean afterwards).

Is there a reason why investors should be taxed more for increased volatility? Should one lose their wealth to taxation more aggressively based on the degree of the stock fluctuations?

P.S.: We shouldn't mix in general wealth vs income taxation. Paul Graham wrote an insightful article explaining the fundamental difference of outcomes between them - http://www.paulgraham.com/wtax.html .