- The recent volatility comes as China’s central bank announced that all cryptocurrency transactions in the country were illegal
- Cryptocurrencies have the potential to be one of the most disruptive technologies
- Investors are moving funds back to real-economy sectors
Bitcoin prices have declined by almost 7% since Friday, to levels of around $42,000 a unit although it recovered a bit over the weekend, reports Forbes.
Central bank’s announcement
China’s central bank announced that all cryptocurrency transactions in the country were illegal. While a ban on crypto trading came into effect in China in 2019, it apparently continued via offshore exchanges. Bitcoin prices have surged by more than 50% over the last month and remain up by about 4x over the 12 months, due to higher retail and institutional interest.
China’s ban on cryptocurrency
Bitcoin prices have declined by almost 7% since Friday, to levels of around $42,000 a unit although it recovered a bit over the weekend. The cryptocurrency also remains down by about 11% over the past month.
The recent volatility comes as China’s central bank announced that all cryptocurrency transactions in the country were illegal. While a ban on crypto trading came into effect in China in 2019, it apparently continued via offshore exchanges.
With the latest developments, crypto trading of all forms is likely to be shut down in China, and this likely caused liquidation of cryptos, putting pressure on prices.
Investors who want to play the long-term upside in cryptocurrency adoption, without exposing themselves to this sort of volatility in crypto pricing, should take a look at our indicative theme on Cryptocurrency Stocks which includes semiconductors, payments, and brokerage companies that have exposure to the cryptocurrency value chain.
Bitcoin prices on a wild ride
While prices for the bellwether cryptocurrency more than doubled to levels of around $65,000 between early January and mid-April 2021, prices fell back to levels of just under $30,000 as of mid-July, due to China’s crackdown on Bitcoin trading and the U.S. Federal Reserve’s increasingly hawkish stance.
The currency has recovered swiftly from the recent lows, rising by about 65% since July 20th, and trades at about $50,000. The recent recovery is apparently driven by factors including short-covering, and signs that the U.S. SEC was increasingly open to allowing Bitcoin exchange-traded funds.
Crypto bellwether Bitcoin has almost doubled year-to-date with companies such as Tesla also indicating that they will accept bitcoin payments from customers.
Bitcoin Prices Crash
Bitcoin prices have crashed from levels of around $62,000 in mid-April to just about $34,000. The crypto bear market appears to be driven by a host of factors, including China’s crackdown on Bitcoin trading and mining and Tesla’s unexpected reversal of its decision on accepting the digital currency as payment for its cars.
The U.S. Federal Reserve has turned increasingly hawkish following its mid-June meeting indicating that it could start hiking interest rates from 2023, rather than 2024. This is also putting pressure on non-productive assets such as cryptocurrency.
Cryptocurrencies have the potential to be one of the most disruptive technologies .With increasing institutional interest, they appear to be here to stay as an asset class.
Investing in Crypto Stocks
Cryptocurrency prices have surged this year. Crypto bellwether Bitcoin has almost doubled year-to-date to levels of about $60k as of the end of last week, with companies such as Tesla also indicating that they will accept bitcoin payments from customers.
Investing in Bitcoin and other cryptos is risky at current levels. With Covid-19 cases on the decline and vaccination rates in the U.S. rising, the economic outlook is improving. Bond yields are also trending higher, with the yield on the 10-year Treasury note rising from around 1% earlier this year too close to 1.70% currently.
Considering this, investors are moving funds back to real-economy sectors, and it’s likely that non-productive assets such as Bitcoin will eventually be impacted.
Cryptocurrency Stocks
Bitcoin prices have surged by more than 50% over the last month and remain up by about 4x over the 12 months, due to higher retail and institutional interest.
Some of the cryptocurrency stocks to consider:
- Nvidia stock saw big gains over 2020. The company recently indicated that it could restart the production of dedicated crypto mining GPUs, which essentially remove the video outputs that are required for gaming.
- Square, a payments company, allows users to buy and sell bitcoin via its Cash mobile payment application.
- PayPal, has also reported increasing engagement on its PayPay mobile app after it introduced support for bitcoin.
- CME Group, also offers bitcoin futures contracts. The exchange has emerged as the world’s largest futures exchange for Bitcoin, with open interest
Reason for price surge
Bitcoin prices have surged by over 160% year-to-date, driven by multiple factors:
- including higher institutional interest
- fintech companies Paypal and Square’s moves into the crypto space
- by a view that scarce digital currency could be a hedge against inflation and a weakening U.S. dollar.
Although crypto likely represents a small portion of these company’s revenues at the moment, it does have the potential to be big.
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Source: Forbes
