It’s been a bad month for cryptocurrency. Crypto enthusiasts have watched in horror as Bitcoin, Ether, and Solana have lost over 50 percent of their value from their all-time highs. Uncertainty regarding the Federal Reserve’s plan for curbing inflation has convinced investors to hedge their bets and avoid risky growth assets like crypto.
Some market experts say this pattern indicates a lack of confidence in crypto as a currency. Instead, stakeholders view digital assets as potentially high-yield investments that are only worth what other investors say they’re worth. This pattern runs counter to some crypto enthusiasts’ assertions that standards like Bitcoin will be the future of money. An asset can’t be an effective store of value if it can shed half its worth over three months.
Now the US government is on the verge of getting involved in the crypto trade. Bloomberg reports the Biden Administration might introduce crypto legislation as soon as February.
Bitcoin Struggles to Maintain Value
Bitcoin, the most popular cryptocurrency in market capitalization, has suffered in January. The coin posted an all-time high of just under $69,000 back in November before taking a nosedive in the final month of 2021. This year hasn’t given the standard a break, as it dipped under $34,000 on Monday. The coin is staging an impressive rally Tuesday morning, bouncing back from its recent lows to reach nearly $37,000.
Ether, the second most popular crypto, experienced similar trouble Monday. The second-place currency dipped to almost $2,000 per coin before surging back to around $2,400 Tuesday. This jump coincided with a rally across the stock market, with tech companies posting modest gains late Monday and early Tuesday.
“Volatility has been the norm historically in digital assets. As an emerging asset class, [crypto’s] in a constant state of price discovery,” says Ninepoint Partner’s Digital Asset Group Managing Director Alex Tapscott.
“Through their history, digital assets have become accustomed to and therefore resilient to volatility. Even though Bitcoin has been declared dead in the mainstream media more than 400 times, it keeps coming back,” Tapscott continued.
However, this uncertainty and constant price volatility have earned Bitcoin and other crypto standards the attention of regulators. The Securities and Exchange Commission Chairman Gary Gensler has described the crypto exchange as the “wild west.” He’s also warned experts that regulations are needed before crypto can be considered safe enough for institutional investors.
Regulators Take Note
The White House reportedly plans to introduce legislation to regulate crypto as soon as February. An upcoming memorandum from the National Security Council will examine the vulnerabilities and strengths present in digital currency exchanges and will explore the possibility of a Fed-issued cryptocurrency.
Last year, the White House introduced an infrastructure that will mandate crypto brokers pay capital gains taxes on their earnings from digital assets. This legislation has many stakeholders worried that they might owe taxes on crypto assets they’ve already traded. According to market experts, the US Treasury Department will likely provide further guidance on who is considered a “crypto broker” in the coming weeks.
Some US lawmakers are enthusiastic about Bitcoin and want to introduce laws to help the standard grow. For example, Senator Cynthia Lummis has vocally advocated for robust crypto regulation to help the market maintain stable prices and integrate digital currency into the US’s online banking system. Her proposed legislation would define which digital assets belong to which class and what kinds of taxes should apply to them.
Is Regulation a Bad Thing for Crypto?
Some crypto enthusiasts might consider regulation the death knell of the infamously independent digital exchange. After all, Bitcoin’s creator promised that it would enable decentralized financial transactions that sidestepped the need for regulation or central banks. Now, market experts insist that crypto will be better off if the government intervenes and introduces legislation to stabilize the market.
Cowen analyst Jaret Seiberg told Yahoo Finance that the Biden Administration’s new laws are “symbolically significant as the White House would be acknowledging that crypto is becoming economically important.” He explains that lawmakers wouldn’t spend time penning new laws unless they believed digital assets would remain popular.
“The White House would not issue such an order if it was not convinced that crypto will continue to grow and spread throughout the economy,” Seiberg continued.
What’s Next for Bitcoin?
Crypto experts expect Bitcoin to bounce back from its lows as it posts a surprising rally Tuesday morning. Bull and Bear Profits CEO Jon Wolfenbarger explains that “risk-on assets like stocks and Bitcoin are oversold so if hazarding a guess, I would say that we are due for a bounce or rally, especially if the Federal Reserve’s decision from the meeting turns out to be more benign than what some anticipate.”
So, has Bitcoin hit its floor? Market analysts think so, but crypto is nothing if not volatile. The standard could rally back above $50,000 by February or crash under $30,000. There’s no way to predict an unregulated digital asset.