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.
But 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 proposal would 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.
How Investors Should Deal With Volatility
Cryptocurrency volatility is nothing new, and you should be comfortable with this if you decide to invest.
Volatility can be attributed to an “immature market,” says Ollie Leech, learn editor at Coindesk, a cryptocurrency news outlet. Anything from a celebrity tweet to new federal regulation can send prices spiraling.
“If Elon Musk puts hashtag Bitcoin in his Twitter bio, it sends Bitcoin up 10%,” says Leech.
This unpredictability is part of the reason why investing experts warn against investing huge amounts of your portfolio into a risky asset like crypto. Many recommend keeping your crypto holdings to less than 5% of your total portfolio.
For new investors, day-to-day swings can seem frightening. But if you’ve invested with a buy-and-hold strategy, dips are nothing to panic about, says Humphrey Yang the personal finance expert behind Humphrey Talks. Yang recommends a simple solution: don’t look at your investment.
“Don’t check on it. That’s the best thing you can do. If you let your emotions get too much into it then you might sell at the wrong time, make the wrong decision,” says Yang.
This is the traditional “set it and forget it” advice that many traditional long-term investors follow. If you can’t get on board, and the extreme dips continue to cause you worry, then you might have too much riding on your cryptocurrency investments.
“The most important thing any investor can do, whether they are investing in Bitcoin or stocks, is not just to have a plan in place, but to also have a plan they can stick with,” says Douglas Boneparth, a CFP and the president of Bone Fide Wealth. “While buying the dip might be attractive, especially with an asset that you really like, it might not always be the best idea at the moment.”
Other Recent Crypto News
- Bloomberg reported the White House is planning to release an initial government-wide strategy for crypto and other digital assets as soon as next month, and will ask federal agencies to assess their risks and opportunities. Bloomberg cited people familiar with the matter, saying senior administration officials are holding several meetings and drafting an executive order that will be presented to President Joe Biden in the coming weeks. The report suggests the Biden team is facing pressure to take the lead on the issue since federal agencies have so far taken a scattered approach.
- Around $14 million of new investor money flowed into cryptocurrency funds for the week ending on Jan. 21, according to a CoinShares report Monday. The report suggests that investors were taking advantage of the price dip as the inflows mostly came later in the week “during a period of significant price weakness.” Last week’s inflows were led by Bitcoin-focused funds, which brought in $13.8 million, the report shows.
- Large tech companies continue to explore and integrate NFT technology into their services. Last week, Twitter became the first major social media platform to introduce NFT-based profile pictures. This new feature comes with limitations, however. To have a NFT profile picture, you’ll need to have bought or minted an NFT on an Etherum-based marketplace first. You also need a Twitter Blue subscription, and an iOS device to set an NFT as your profile picture, which appears in a hexagonal shape. A lot of people, including Elon Musk, have taken to Twitter to express their frustrations with the new feature. In a tweet Musk said, “Twitter is spending engineering resources on this bs while crypto scammers are throwing a spambot block party in every thread!?”
- The Fed released a long-awaited report exploring the pros and cons of government-issued crypto, but ultimately took no position on the matter. Instead, they’re asking the public to weigh in. Through May 20, 2022, the Fed is asking Americans to provide public comment on the possible rollout of a digital dollar. A central bank digital currency (CBDC) would essentially be a digital form of cash, issued and backed by America’s central bank. The U.S. isn’t the only country exploring or launching its own CBDC. Central banks all over the world, from China to Sweden, are experimenting with the adoption of digital currencies.
- Walmart may be quietly entering the metaverse with the intent to make and sell virtual goods. It has plans to create its own cryptocurrency and collection of NFTs, according to several applications filed with the U.S. Patent and Trademark Office last month. The retail giant is the latest corporate player to show interest in crypto and the metaverse, which can potentially lead new revenue streams for retailers.
- Crypto exchange Crypto.com suspended withdrawals on its platform last week after there were reports from a “small” number of users of “suspicious activity.” The Singapore-based firm made the announcement via Twitter, adding that all funds were safe. After several hours, the exchange issued an update saying users were required to sign back into their accounts and reset their two-factor authentication. Technical issues and widespread outages on crypto trading platforms are nothing new. Over the last year, similar situations have occurred with crypto exchanges Coinbase, Binance, and Kraken.
- Rob Nichols, president of American Bankers Association, a major U.S. banking trade group, said in a recent blog post that crypto isn’t “going away” and banks are exploring ways to “safely and responsibly” introduce crypto service for customers. It’s further proof that crypto is becoming more mainstream among investors. But in order for there to be more mainstream adoption of crypto, banks need “regulatory clarity,” said Nichols.
- Nearly $400 million worth of digital assets were stolen by North Korean hackers, according to a Chainalysis report published recently. Ether accounted for most of the stolen funds, followed by altcoins, ERC-20 tokens, and Bitcoin, according to the report. According to Chainanalysis, security researchers believe many of last year’s attacks were carried out by a group labeled as advanced persistent threat 38 (APT38), also known as Lazarus Group.
- Several U.S. banks are joining together to offer their own stablecoin, which they’ll call USDF, according to a press release. Founding members of this new stablecoin include New York Community Bank, FirstBank and Sterling National Bank — all FDIC-insured institutions. USDF is an alternative to non-bank-issued stablecoins, such as Tether, and will be minted exclusively by U.S. banks. According to the release, USDF “addresses the consumer protection and regulatory concerns of non-bank issued stablecoins and offers a more secure option for transacting on blockchain.”
- The Federal Trade Commission is warning consumers about a “new spin” on crypto scams. The U.S. consumer protection agency says scammers are calling people pretending to be from the government, law enforcement, or a local utility company and luring people to send them money through cryptocurrency ATMs. The FTC’s warning comes in the midst of rising cryptocurrency crimes. In 2021 alone, scammers took $14 billion worth of crypto, according to a recent report from blockchain data firm Chainalysis.
- PayPal may launch its own stablecoin as it grows its footprint in the crypto sector, CoinDesk reported. A PayPal spokesman told CoinDesk in an emailed statement that the company is “exploring a stablecoin,” and will work closely with regulators if they move forward with the idea. PayPal has been actively growing its crypto business recently, increasing the amount of crypto its customers can purchase, as well as investing in educating its users on crypto and working to allow them to withdraw their crypto safely to third-party wallets.
- Kim Kardashian is being sued over her involvement in an alleged cryptocurrency pump-and-dump scheme. The class action lawsuit, which was filed Jan. 7 in a California federal court, also names boxer Floyd Mayweather Jr. and retired NBA star Paul Pierce. The celebrities are accused in the lawsuit of colluding with the co-founders of a cryptocurrency called EthereumMax on an organized pump-and-dump scheme, in which a few investors boost a particular currency only to sell out once new investors have bought in and contributed to a rising price. Attempts to reach Kardashian, Mayweather, and Pierce for comment were unsuccessful, and the celebrities had not responded to the lawsuit in multiple media reports this week.
- Changpeng “CZ” Zhao, CEO of crypto exchange Binance, has an estimated net worth of nearly $100 billion, according to new calculations from the Bloomberg Billionaires Index published. In terms of wealth, that puts him in the company of Facebook founder Mark Zuckerberg and Google founders Larry Page and Sergey Brin. The Binance coin makes up the “majority” of his net worth, according to an interview with the Associated Press last November.
- Scammers took a record $14 billion worth of cryptocurrency in 2021, up from $7.8 billion in 2020, according to blockchain data firm Chainalysis’ 2021 “Crypto Crime Report.” While that’s a big jump in criminal crypto activity, the widespread adoption of crypto by legitimate individuals and institutions actually pushed the total percentage of illicit cryptocurrency transaction volume as low as it’s ever been, the report says.
