Bitcoin ends week in freefall as China warns of crypto crackdown

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The largest digital currency fell as much as 10 percent in late Friday trading, reaching as low as $35,636, with other tokens also posting double-digit losses.

Bitcoin is heading into the weekend in freefall again after a fresh warning from Chinese officials over cracking down on cryptocurrencies.

The largest digital currency fell as much as 10% in late Friday trading to as low as $35,636, and peer tokens also posted double-digit losses. The coin almost hit $30,000 earlier in the week, after ending May 14 at $49,100.

The latest blow came when China’s State Council reiterated its call to curtail Bitcoin mining and trading. The crypto market was already rattled earlier in the week by forced selling and possible U.S. tax consequences.

Friday’s selloff hit Bitcoin believers still fuming after onetime proponent Elon Musk did an about-face and criticized the token for its energy usage. Bitcoin is down about 25% since last Friday, though it’s up from a Wednesday plunge to as low as $30,000. Other coins have slumped too — Ether is down about 38% over the past seven sessions.

The sour stretch started with Musk suspending acceptance of Bitcoin payments at Tesla Inc. and trading barbs with boosters of the cryptocurrency on Twitter. China’s central bank added to the downdraft Tuesday with a statement warning against using virtual currencies. On Thursday, it emerged the U.S. may require crypto transactions of $10,000 or more to be reported to tax authorities.

China has long expressed displeasure with the anonymity provided by Bitcoin and other crypto tokens, and warned earlier that financial institutions weren’t allowed to accept it for payment. The country is home to a large concentration of the world’s crypto miners, who require massive amounts of power and thus run afoul of the nation’s efforts to curb greenhouse-gas emissions.

“The new guidance issued from the regulatory agencies — they’re taking it more seriously, they want more enforcement,” Bobby Lee, founder and chief executive officer of crypto storage provider Ballet, said in an interview Friday. “There’s talk about going after miners. The question is, can they catch all the miners.”

China’s moves this week highlight the country’s continued desire to seek control over the notoriously volatile asset class. It’s something China would rather see regulated by the People’s Bank of China, market-watchers say.

“It’s not really the mining issue that is the problem,” said Matt Maley, chief market strategist for Miller Tabak + Co. “They say they’re doing this as part of an effort to control risk-taking in their markets, but it’s really a signal that China is not going to be a big market for cryptos unless it’s a PBOC-controlled one.”

In the meantime, volatility in Bitcoin is likely to stay elevated. The selloff Friday once again pushed Bitcoin below its average price over the past 200 days, which to some chartists and technical analysts suggests it could trend lower still to around $30,000, where it found support earlier this week.

This week’s swings have led to huge liquidations by leveraged investors and damaged the narrative that cryptocurrencies will become more stable as the sector matures. Musk’s actions showed how just a few tweets can still upend the entire market. But even moreso, the past few days have renewed the regulatory threat on the crypto market.

“Investors are underestimating the regulatory risk of crypto as governments defend their lucrative monopolies over currency,” said Jay Hatfield, chief executive officer of Infrastructure Capital Advisors in New York. In the U.S., the possible imposition of transaction reporting requirements could be the “tip of the iceberg” of potential Treasury rules on virtual currencies, he said.

As far as regulations in China go, it may be a game of wait and see.

“You must always proceed cautiously with China — never get too bullish or bearish,” said David Tawil, president of ProChain Capital. “We’ll have to see what the regulation brings. It’s one thing to say, it’s another to do.”

Ethereum: All You Need To Know To Decide If This Crypto Is Worth the Investment

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Cryptocurrencies have skyrocketed in popularity recently and this trend shows no signs of slowing. Given all the talk around these digital assets, you might be wondering whether now is the time to invest. But before pulling the trigger, it’s always a good idea to have an understanding of the underlying asset. Cryptocurrency is no exception and it is quite different than investing in stocks or bonds.

Read: Dogecoin’s Major Price Increase: Is It a Worthwhile Investment?

Therefore, we will cover a popular blockchain technology called Ethereum (ETH). Like many blockchains, Ethereum has a native coin called ether. Let’s take a closer look at what Ethereum is and whether you should consider investing.

What Is Ethereum?

Ethereum is an open-source, decentralized blockchain technology. Ethereum’s native coin is called ether. This coin is one of the largest cryptocurrencies by market capitalization, second only to Bitcoin (BTC). Although ether has a smaller market cap than Bitcoin, Ethereum is the most widely-used blockchain.

See: What Is Chainlink and Why Is It Important in the World of Cryptocurrency?

One thing that is important to understand about Ethereum is that it is not the same as Bitcoin. Whereas Bitcoin’s purpose is primarily to be a digital currency, Ethereum is much broader. In fact, Ethereum is an open-source operating system and computing platform. It also supports distributed applications (dApps) and smart contracts.

Another key aspect of Ethereum is that it enables decentralized finance, which is an important part of how the system works. Because the system is inherently decentralized, there is not a single entity controlling it or the value of ether.

More: How the IRS Taxes Cryptocurrency – and the Loophole That Can Lower Your Tax Bill

What Is Ethereum Worth?

Like many cryptocurrencies, the price of ether has fluctuated greatly since it launched in 2015. Back then, its price was around $1 and stayed there for several months. The price reached $1,358 in January 2018, its highest price ever at the time. The price began to fall, as did the price of many cryptocurrencies; ether bottomed out at $83 in December 2018.

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The price has ebbed and flowed since then but has risen overall. At the beginning of April 2020, the price was around $140; and as of May 18, it is at around $3,349, according to Coindesk. That’s a pretty hefty increase in just over a year.

Read: Breaking Down the Basics of Cryptocurrency

Should You Invest In Ethereum?

If you decide to invest in ether (and therefore, in Ethereum), you should first ask yourself why you are investing. Although the price of the coin has risen substantially over the past year, it can be extremely volatile. Thus, if you buy ether simply hoping the price will rise, you may end up frustrated.

On the other hand, the Etherum blockchain can be used for many different applications, said Tally Greenberg, head of business development at Allnodes. “Ether is the cryptocurrency required for any transaction made on Ethereum, a blockchain network of applications. A blockchain, on the other hand, is a technology with limitless potential. It doesn’t rest on Ethereum alone and can be used to make a difference in our future with or without cryptocurrencies.”

See: 10 Best Cryptocurrencies To Invest in for 2021

Sam Bretzmann, the owner of Blocklink, agrees with this sentiment. “The difference here is that instead of investing in individual projects which may or may not make it, you can invest in the infrastructure. You can think about it like this, go back to 1999, and instead of having to try and pick which up and coming businesses will survive, you get to just pick ‘the internet’ and invest in that.”

This article is part of GOBankingRates’ ‘Economy Explained’ series to help readers navigate the complexities of our financial system.

Goldman’s Crypto Chief Worries About Fraud, but Not Cryptocurrency’s Future

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As Bitcoin (CCC:BTC-USD) prices collapsed this week, crypto investors have been left looking much like a deer in headlights. ETF flows for most of the six popular blockchain ETFs have largely remained stagnant even as crypto prices plummeted. Source: Shutterstock The indecision highlights a worrying truth: Bitcoin investors are shifting from an aggressive profit-seeking crowd to one that’s increasingly fearful of missing out. In March, the Grayscale Bitcoin Trust (OTCMKTS:GBTC) – a proxy for institutional investor interest – saw its NAV premium flip from positive to negative. In their place, conservative investors have stepped in. On Wednesday, Wells Fargo (NYSE:WFC) joined other wealth management teams in announcing plans to open crypto trading to high-net-worth clients. (Apparently, it’s better to let your customers lose money than losing it yourself). Meanwhile, forward-looking investors moved onto more technologically advanced cryptocurrencies like Ethereum (CCC:ETH-USD), Cardano (CCC:ADA-USD) and Internet Computer (CCC:ICP-USD). Central banks have also announced plans to launch digital currencies of their own.InvestorPlace - Stock Market News, Stock Advice & Trading Tips That makes a BTC recovery ever more unlikely. As Bitcoin’s age starts to show, its future has never looked wobblier. Bitcoin Prices: Fallacy of the $60,000 Price Target Bitcoin’s 30% slide this week highlighted a fact that experienced investors have long known: Bitcoin has no fundamental value. Talks about $60,000, $600,000 or $6 million price targets ring hollow because cryptocurrency is only worth how much your next-door neighbor is willing to pay. (Lucky are those living next to a Goldman Sachs office). The Top 7 Ways to Invest in Semiconductors Now The lack of a serious price target has long benefited Bitcoin holders. Influential investors like ARK Innovation’s Cathie Wood have long proclaimed $500,000 price targets without providing any deep rationale. Squint hard enough, and any value seems possible. The benefits, however, cuts both ways. Since 2020, Bitcoin prices have become more like a leveraged bet on investor confidence than on cryptocurrency adoption. According to data from Thompson Reuters, the cryptocurrency now has a 25% correlation with the S&P 500 and a 34% correlation with Tesla (NASDAQ:TSLA). The stock market’s 4% wobble last week sent crypto prices crashing a third. Ordinarily, investors might want to buy the dip. The stronger-than-expected post-Covid recovery led banks to revise stock projection upward. Bitcoin would presumably win too. But this time might be different. As experienced crypto investors have also long known, Bitcoin’s community is astonishingly status-quo. As other competitors continue to rise, Bitcoin will find itself falling ever further behind. The Bitcoin Protocol: Miner League Stakeholder-led cryptocurrencies like Ethereum have motored ahead. In November, the world’s No. 2 crypto joined Cardano and other “third-generation” coins in launching an energy-efficient proof-of-stake protocol. Rather than have miners waste energy on pointlessly complex calculations, PoS systems run on a system of approved validators. Energy savings can top 99.7% or more, and crypto watchers expect Ethereum to fully transition its blockchain to the PoS protocol by the end of the year. These improvements are possible because cryptocurrencies like Ethereum rely on a stakeholder-based voting system rather than a mining-based one. With enough support from the Ethereum Foundation and community, beneficial proposals can proceed without miner support. Centralized cryptocurrencies have found it even easier to push changes. Ripple controls 60% of all XRP, making amendments virtually effortless to pass. Bitcoin, on the other hand remains relatively stodgy because of a historical quirk in its development: BTC miners hold an outsized vote in protocol changes. Though miners only account for 10% of supply, the Bitcoin protocol doesn’t work on a democratic voting system. Instead, all proposed changes run through a similar process – miners must reach a consensus for any proposal to pass. While the system can prevent fraud and security issues, it also makes the cryptocurrency demonstrably hard to change. The Bitcoin community put this theory to test in 2017 when they launched a bid to increase the cryptocurrency’s block size limit. Only when 95% of miners accepted the change did the software upgrade pass. That makes a switch to an energy-efficient PoS system virtually impossible without a hard fork. No miner will willingly vote for a more energy-efficient system when it would render their billion-dollar investments in ASIC machinery worthless overnight. It’s a prisoner’s dilemma where stakeholders acting in self-interest poisons the cryptocurrency for both themselves and everyone else. Already, former Bitcoin champions like Tesla CEO Elon Musk have walked back support for the energy-burning cryptocurrency. More backlash could be on the way. Rearranging Deck Chairs on the U.S.S. Bitcoin That hasn’t stopped Bitcoin fans from giving up hope. In April, Niklas Nikolajsen, the founder of Swiss crypto broker Bitcoin Suisse, predicted that Bitcoin would eventually move to the energy-efficient PoS protocol. “I’m sure, once the technology is proven, that Bitcoin will adapt to it as well,” the entrepreneur noted in a German TV interview. In truth, Bitcoin’s technology has fallen so far behind that it might not matter. Today, the cryptocurrency can still only act as a medium of exchange, not a payment processor or commercial bank. It’s the banknotes of the cryptocurrency ecosystem rather than the pipes or pumps. As time moves on, this weakness could become Bitcoin price’s death knell. In its current state, the crypto’s limited functionality makes it vulnerable to competition from central bank-sponsored digital currencies. China’s e-Yuan project has already threatened Bitcoin’s viability in the People’s Republic. A digital dollar could eventually do the same in the U.S., threatening the entire value of Bitcoin’s $1 trillion market capitalization. Combating this involves using blockchain technologies for more than transactions alone. Projects like Ethereum have already moved into NFTs, creating electronic deeds for artwork and collectibles. Others like Celsius (CCC:CEL-USD) allow users to borrow and lend money much like a commercial bank. The latest addition to the industry – Internet Computer – promises to use decentralized networks for cloud computing and website hosting. Bitcoin, however, has fallen short. Its current projects focus on minor improvements to wallets and bug fixing rather than the sweeping changes it needs to keep up. There’s a good reason why early moving crypto investors have abandoned Bitcoin’s stodgy technology. You should, too, while you still can. On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article. Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing. More From InvestorPlace Stock Prodigy Who Found NIO at $2… Says Buy THIS Now It doesn’t matter if you have $500 in savings or $5 million. Do this now. Top Stock Picker Reveals His Next Potential 500% Winner The post As Bitcoin Prices Slide Below $40,000, Should You Buy the Dip or Sell? appeared first on InvestorPlace.

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