Why is Bitcoin Plummeting?
Bitcoin has been getting crushed. Cryptocurrency traders are now asking, is Bitcoin a buy? Should we sell Bitcoin? Will the new White House usher in more stringent rules? Will the fear of higher taxes drive up the popularity of cryptocurrency, and will crypto benefit from weaker global currencies?
Where We Are
The post-election momentum that helped Bitcoin shoot to the $41,962.26 peak on January 7th has given way over the past two weeks to a 24% decrease, including yesterday’s 9% plummet.
Twelve Months of Bitcoin on a Percentage Basis
The recent decline has not retraced even half the gains experienced since November. Still, traders are watching with poised trigger fingers as Bitcoin tends to trade on technical factors — a drop through perceived support levels may confirm a further march downward.
Former Fed Chair Janet Yellen, who is expected to head the U.S. Treasury Department, responded about cryptocurrencies when questioned at the Senate confirmation hearings on Tuesday, January 19th. Senator Hassan (N.H.) asked her about “the potential for terrorists and criminals to use cryptocurrency to finance their activities.” The former Fed Chair and macroeconomics professor responded that the U.S. should be aware of emerging tools for terrorist financing, “…we need to make sure that our methods for dealing with these matters, with tech terrorist financing, change along with changing technology, cryptocurrencies are a particular concern.” Yellen further defined her concern by saying, “I think many [cryptocurrencies] are used, at least in a transaction sense, mainly for illicit financing, and I think we really need to examine ways in which we can curtail their use and make sure that anti-money laundering [avoidance] doesn’t occur through those channels,”
The presumptive future cabinet member is well known by cryptocurrency followers for her distaste for Bitcoin. Many still have an incident etched in their memory of Yellen being photobombed by a man holding a “Buy Bitcoin” sign while she was speaking against it on Capitol Hill in 2017.
Fed Chair Yellen Quotes:
December 2017: “It is not a stable store of value and it doesn’t constitute legal tender. It is a highly speculative asset.”
October 2018: “I will just say outright I am not a fan, and let me tell you why. I know there are hundreds of cryptocurrencies and maybe something is coming down the line that is more appealing but I think first of all, very few transactions [that] are actually handled by bitcoin, and many of those do take place on bitcoin are illegal, illicit transactions.”
Crypto is Not the Treasury’s Biggest Target
Crypto advocates claim Bitcoin is a superior currency because it is not prone to government-induced inflation. Their position has gained a level of credence over the past 12 months as central banks increased the money in circulation at record rates against the backdrop of lockdowns. The U.S. dollar has been falling relative to gold, the Euro, and the Yen.
However, cryptocurrency is not a high priority for Yellen. At the Senate hearing, she said her initial focus would be helping workers and businesses that have been hurt by the pandemic. Issues like unfair trade between the U.S. and China took a higher priority. So while crypto holders and traders should pay attention to Yellen’s distaste for the electronic currency, there are no expected immediate plans to place controls on it. More positive is that another Biden appointee, the SEC Commissioner Gary Gensler, has taught cryptocurrency classes at MIT and is expected to advocate for its usage.
For quite some time, Bitcoin and other currencies were rewarding those that remained bullish on them. Through much of last year, there was an acceleration in interest in owning cryptos. As with other markets during the past nine months, the fear of missing out (FOMO) contributed to its dramatic rise. Will fear step in and create the snowball effect now on the downside? As long as the regulatory climate is murkier, the enthusiasm and direction is more likely take a pause.
Photo: “Bitcoin Sign Guy” , 2017