Cryptocurrencies as a medium of investment have greatly risen in popularity over the last year. People around the world used the free time available to them during quarantine to educate themselves on the matter of investing and got into cryptocurrency investments before the lockdowns ended. According to the BBC, Covid-19 has disrupted the traditional trade systems of stocks and gold, leading to many investors diversifying their assets by turning to Bitcoin (or BTC). PayPal has helped make it mainstream by enabling BTC purchases on their app. Many have also decided to invest in cryptocurrencies in an effort to negate the effects of the rising inflation rate on their assets.
A poll by Yahoo Finance found that among 18 to 24 year olds, 19% plan to put their stimulus money into traditional investments, and 10% plan to buy cryptocurrencies with the money they receive. According to Investopedia, Bitcoin rose from just under $24,000 in December 2020 to $40,111 on January 14th, 2021. It has since peaked at over $63,000 per unit on 15th April, setting an all time high, and is now at a slump, standing at just under $41,000 at the time of this article’s publication on the 25th April 2021.
The reason for this recent and unexpected slump is multidimensional. The Turkish Central Bank last week banned the use of crypto assets as a means of payment citing significant risks due to the volatile nature of cryptocurrencies and their ever fluctuating market values. This received explicit criticism by the main opposition party.
However, according to Gadgets 360, Turkey’s Finance Ministry has since stated that they are working towards wider regulations regarding cryptocurrencies, adding that the bank does not intend to keep them banned in the long term. Seeing how Turkey has a significant portion of crypto investors and trading platforms, this had a clear negative effect on the market and Bitcoin faced a direct 4% slip after this ban was made public.
Investors around the world are selling their Bitcoin holdings as well, anticipating a bigger bitcoin dump since India is also considering a ban on cryptocurrency. According to Reuters, the bill, being one of the world's strictest policies against cryptocurrencies, would criminalise possession, issuance, mining, trading and transferring of crypto assets.
Another issue that has affected Bitcoin’s latest value is the new tax proposal by US President Joe Biden. According to The Wall Street Journal, President Biden is planning to increase capital gains tax rates for the upper economic segments, and use that to finance national poverty and education programs. CNBC Now states that the capital gains tax rate could go as high as 43.4% for the wealthy.
While Wall Street is sceptical of this proposal’s chances in the Senate, investors are still wary as they believe this could negatively affect stock and cryptocurrency markets. This fear is credible since Reuters reported that Tesla fell nearly 3% on Thursday afternoon following reports of the Biden tax plan. Apple dropped 1%, while Facebook Inc fell 1.5%. The broad S&P 500 dropped 0.9% as well.
For the reasons above, there has been a significant drop in most major cryptocurrencies, which are still in the red. Future updates on Biden’s tax plan and state of cryptocurrency bans could shift the tide upwards or take it on a further downward trend, depending on the nature of the update. While some have taken these signals and quit the market, others have decided to continue holding their assets and wait for a future bull run.