Crypto Market- Bearish Time?

As previously mentioned more investors are entering into the crypto market and the interest for cryptocurrencies has surged since last year. On May 19, 2021, investors fell from the 7th heaven, after a couple of bullish months, investors saw a drop of over 40% in the market. President Biden administration (Financial regulators) have pledged to crack down on any manipulation and abuse within the cryptocurrency industry, while investors want to see a consistent rules to follow. Few reasons why cryptocurrency prices reacted to the news recently:

1. Volatile Market – As always I mentioned or any other most experienced crypto trader would mention, the crypto market is very volatile. The price of Bitcoin dropping to $3000 on March 2020 and then surging back to $20000 at the end of December 2020.

The biggest surge was from the meme coin (Dogecoin), it surged more than 1300% and that’s where the hype for crypto started as I can remember. I remember buying Dogecoins for pennies and mentioned to some of my friends and co workers and when the surge took place, that’s when they all got interested but not realizing it is a volatile market even though I warned them. As I always say Crypto market is like Stock market on steroids, it surges 200% and can drop by 60%. One day you on 7th heaven and the next day you are down on the earth, that’s how unpredictable the markets can be.

2. China Bans Cryptocurrency – Recently, China has taken tough steps to ban cryptocurrency. Even though this is not something new, China has done this couple of time and taken the ban off and later reinstated it. What does this ban mean? Banks and online payment companies won’t be able to accept cryptocurrencies as payment and this includes, trading, exchanging and buying of cryptocurrencies. Crypto exchanges and coin offerings are also banned, however holding cryptocurrencies is still allowed. On the contrary, China has released its E-Yuan currency China Releases e-Yuan Cryptocurrency and Investors are Going All-In (yahoo.com). There has been a lot of investment into that and it is unclear if the E-Yuan will be backed by physical assets like gold or by the physical Yuan currency.

3. Elon Musk and Tesla – Late March Tesla started accepting Bitcoins as payments for purchases of its cars and this hyped the Bitcoin prices, almost reaching to 60K/ coin but recently it released a statement they won’t accept Bitcoin as payments which dropped the prices. Elon Musk tweeted Tesla won’t accept Bitcoin as payments for the Tesla purchases due to environmental reasons but the company still hold a huge stash of Bitcoins and will start accepting it once the mining of Bitcoin is more sustainable and willing to look at other cryptocurrencies that use <1% of Bitcoin’s energy/transaction. This will again surge the prices of cryptocurrencies.

Elon Musk’s tweet has produced a lot of hype for Dogecoin though as the price of Dogecoin surged by 1300% in this year and as mentioned Doge was 0.01 on January 2021 and if you bought 30,000 coins at that price which would be $300 and even with the current price $0.35 an investor still has a profit of $3000.

Dogecoin has performed much better than the other cryptocurrency even in this bearish market and a lot of investors are holding to it, in addition Elon Musk’s tweet is hyping it more.

4. Cypto Exchanges/Platforms: Just as there is dip, people start panic selling; similarly there is a surge in price, people are still buying the crypto and during this time there can be some technical outages just like Coinbase has recently. Then, Robinhood not allowing many investors to buy Dogecoin or other Shares like AMC. In addition, there are many apps which are not allowed in US (Binance US) or apps like Celsius doesn’t work in certain US states like New York. I tried opening an account in Voyager and still haven’t been approved by them, then the app Crypto has technical issues always. Due to this frustration, a lot of them has liquidated their crypto causing a drop in prices.

5. Security /Safety – Many crypto critics have mentioned how Bitcoin and other cryptocurrency can be used for money laundering and tax evasion purposes. Apart from that many crypto scams which took place around the world; for example: In Turkey, 2 cryptocurrency platforms Vebitcoin and Thodex has been shut due to fraudulent investigations. In addition, many scammers have scammed investors through different social media networks claiming to get a 1000% profit in cryptocurrency within 2 days or giving 1 Bitcoin for $3000 in many occasions. There are many crypto scams around the world, due to that sometimes Bitcoin is also known as “BitCon”.

6. technology– Since cryptocurrency s decentralized which means there are no central banks involved, therefore, many and many other institutional firms are not involved in this or hold digital token for their clients but OCC (Office of the Comptroller of the Currency) has given banks to hold cryptocurrency for their clients. So far, CitiBank is taking steps to offer crypto services to its customers.

7. Taxation – Just like any investments there are capital gains tax, trading, buying and selling stocks through any platform incurs a capital gain tax. There are short term and long term capital gains tax. In case of short-term capital gain, capital gain = final sale price – (the cost of acquisition + house improvement cost + transfer cost). In case of long-term capital gain, capital gain = final sale price – (transfer cost + indexed acquisition cost + indexed house improvement cost).

Currently, cryptocurrency is not treated as cash since it is not a legal tender or backed by the government. Even though , it is considered as a “property” but there is a legal limbo where it can fall. Recently, IRS has taken steps to aware crypto investors of the tax burden. In many occasions, Treasury Secretary has called for tough cryptocurrency compliance with IRS in order to avoid tax evasion. The Treasury department has recently states, any crypto transfer of $10,000 or more should be reported to the IRS.

After this announcement, there has been a huge fear among the crypto investors and this cause a panic selling among investors, resulting in a huge drop in the crypto prices.