Cryptocurrencies are starting to stabilize after falling significantly in January, and some experts expect prices to go back up. The million-dollar question is when.
“As for the Bitcoin price drop, it has been pretty cyclical. It’ll be back up,” says Chris Chen, CFP of Insight Financial Strategists in Newton, Massachusetts.
The week of Jan. 23 was the crypto market’s worst stretch in months. Bitcoin fell below $34,000, compared with an all-time high of nearly $69,000 in November. Ethereum saw a similar big drop, falling below $2,200. The price drops occurred while the stock market was experiencing its worst week in nearly two years, and after the release of the Federal Reserve’s long-awaited report on a possible government-issued digital currency. The crypto market cap fell below $2 trillion amid the sell-off, according to CoinMarketCap data. Bitcoin’s 50% drop from November’s record high is nothing new, according to Morgan Stanley analysts. In a research note called “State of the Bear Market,” analysts said the slide is within historical norms, as reported by Coindesk. According to the research note, the $45,000 mark is the level to watch because that would suggest the recent dip may be turning around.
Meanwhile, there are proposals in Wyoming and Arizona to accept tax payments in Bitcoin and other cryptocurrencies. Mark Zuckerberg’s crypto project Diem is officially shutting down. And India is planning to launch a digital version of the rupee and tax cryptocurrencies and NFTs.
Here’s more on the latest crypto news investors should know about:
- Lawmakers in Wyoming and Arizona have put forward proposals that would allow them to accept tax payments in the form of digital currencies. The Arizona proposalwould have the state recognize Bitcoin as legal tender. Wyoming’s proposal would apply only to sales and use taxes, but wouldn’t be limited to a specific cryptocurrency. The new proposals demonstrate further signs that cryptocurrency is pushing toward more mainstream acceptance.
- Mark Zuckerberg’s plan to launch stablecoin project Diem has hit a dead end. Meta, formerly branded as Facebook, announced this week it sold its assets and intellectual property to crypto bank Silvergate Capital. The bank paid $182 million for the project, according to a press release. Though Meta is no longer involved in the project, Diem CEO Stuart Levey said in a press release he has “confidence in Silvergate’s ability to take Diem’s technology forward.” In the press release, Silvergate CEO Alan Lane said they plan to launch a stablecoin by 2022.
- India announced plans this week to launch a digital version of the rupee and place a 30% tax on income from digital assets as soon as this year. It’s the latest major economy to announce an official virtual currency, as China trials the digital yuan and other countries, including the U.S., continue to explore the idea. According to a Chainanalysis report, India is one of the fastest-growing markets for cryptocurrency, though it has had a hot-and-cold relationship with it. In 2018, it effectively banned crypto transactions, but the Supreme Court struck down the restriction in March 2020.
Bitcoin is the largest cryptocurrency by market cap, and a good indicator of the crypto market in general, since other coins like Ethereum (and smaller altcoins) tend to follow its trends. Even though Bitcoin recently set another new all-time high, it was a pretty normal uptick for the crypto, which is notorious for its volatility. That’s not to say investors should take swings in either direction lightly, and this is also why investing experts recommend not making any major investment changes based on these normal fluctuations.
Cryptocurrency is still very new, and everything from innovation to regulation can have outsize impact for investors. Here’s how you can invest smartly, regardless of what’s making news or Bitcoin’s price swings