Monthly Archives: January 2021

GUANGZHOU, China Bitcoin and other digital coins tanked on Monday, wiping some $150 billion off the cryptocurrency market.

The market capitalization or value of the cryptocurrency market was $931 billion around 6:00 p.m. ET, down from $1.08 trillion a day earlier, according to Coinmarketcap.

Bitcoin, the largest cryptocurrency, fell over 10% from a day earlier to $34,200, according to Coin Metrics data. It earlier sank to an intraday low of $30,863. Ether, the second-largest cryptocurrency, was down 15% to $1,060. It briefly tumbled below $1,000, hitting an intraday low of $945.

The sell-off in cryptocurrencies comes after a huge rally and perhaps signals some profit-taking from investors. Bitcoin is still up over 300% in the last 12 months and last week hit an all-time high just below $42,000.

"The correction we saw was expected as we believe the BTC price surge recently from under $20,000 to $40,000 in the past four weeks will induce sell pressure," said Simons Chen, executive director of investment and trading at cryptocurrencyfinancialservices firmBabel Finance.

The $40,000 mark could have been a trigger for profit-taking, Chen said.

Bitcoin's resurgence has been attributed to a number of factors includingmore buying from large institutional investors.

And it has also been likened to "digital gold," a potential safe-haven asset and a hedge against inflation. In a recent research note,JPMorgan said bitcoin could hit $146,000in the long term as it competes with gold as an "alternative" currency.The investment bank's strategists noted, however, that bitcoin would have to become substantially less volatile to reach this price. Bitcoin is known for wild price swings.

But some bitcoin critics such as David Rosenberg, economist and strategist at Rosenberg Research have called bitcoin a bubble.

Long-term bullishness around bitcoin remains however.

Jehan Chu, founder of cryptocurrency-focused venture capital and trading firm Kenetic Capital, said the pullback in bitcoin could be a buying opportunity for new investors.

"This short term correction is both natural and needed, and is a great entry point for long-term investors as we quickly reach $50k this quarter and $100k by year's end," Chu told CNBC.

Last week, Social Capital's Chamath Palihapitiya said bitcoin could go above six digits.

"It's probably going to $100,000, then $150,000, then $200,000," Palihapitiya told CNBC's "Halftime Report." "In what period? I don't know. [Maybe] five or 10 years, but it's going there."

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$150 billion wiped off cryptocurrency market in 24 hours as bitcoin pulls back - CNBC

Theres never been a lack of skepticism surrounding cryptocurrency. And its fair to say the jury still wavers at times. But with 2021 just a week old, the worlds most polarizing and misunderstood currency is making a strong case for its staying power.

On Thursday, the price of a single Bitcoin, the oldest virtual currency, topped $40,000 for the first time, according to Business Insider. The 12 percent increase on the day pushed the total value of Bitcoin to over $700 billion and all cryptocurrency to over $1 trillion for the very first time.

The surge continued into Friday, with Bitcoin valued at over $41,000 as of press time. That means that value of Bitcoin has risen by over 400 percent over the last year. Interest in the virtual currency has been especially high over the last month, during which time its value has more than doubled. The interest has reportedly been driven by investors desire for an alternative asset not tied to a central bank, unlike the dollar or euro. Of course, that interest may or may not last. If nothing else, cryptocurrency has proven itself to be quite volatile in recent years. The value of Bitcoin, for example, crashed from $19,000 to $3,200 between 2017 and 2018.

For now, the news is good. With a market cap of over $1 trillion, cryptocurrencies are now worth almost half as much as Apple, the worlds most valuable company, reports Business Insider. It also makes cryptocurrency more valuable than the entire Swiss economy.

While the recent surge in Bitcoin value is great news investors, this is especially true for Satoshi Nakamoto. The creator of the virtual currency is believed to own one million Bitcoin. If true, Ars Technica reports that the investment would put his net worth at more than $40 billion. That would make him one of the 35 richest people in the world, according to the Bloombergs Billionaire Index.

Bitcoin may be the currency that has most benefited from the recent surge in interest, but other virtual currencies have also seen their value rise as well. By the end of trading on Thursday, Ether, which is used by the Ethereum network, was valued at $140 billion Meanwhile, other notable currencies arent doing too shabby either. Tether is now worth $22 billion, Litecoin sits at $11 billion, and Bitcoin Cash checks in at $8 billion.

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Bitcoin Tops $40,000 for the First Time, Pushing the Value of the Worlds Cryptocurrency Over $1 Trillion - Robb Report

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Holders of cryptocurrency have more than price volatility to worry about this year. The taxman wants to know about your trading activity.

Bitcoin hit fresh highs during the weekend, creeping toward $42,000 on Jan. 8. However, its value tanked on Monday amid a sell-off in cryptocurrencies, and bitcoin's value is now hovering around $33,000.

Regardless of whether you interpret the decline in price as a buying opportunity or an alarm to get out, you'll need to share the information with the IRS.

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Transactions you partake in this year will be reportable when you submit your 2021 tax returns next spring.

This tax season, the taxman asks a "yes or no" question on the front page of the 2020 federal income tax return: "At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?"

"If you're particularly active using bitcoin, not only is every transaction potentially income or a deduction, but when you use it to pay for goods, you could have reportable gain on that bitcoin," said E. Martin Davidoff, partner-in-charge in the national tax controversy practice of Prager Metis.

Buying and selling cryptocurrency aren't the only actions that create a reporting obligation.

You'd also have to check the "yes" box on your tax return if you happened to pocket any crypto for free or if you received your holdings in exchange for goods or services.

Swapping your bitcoin for other property is also a reportable transaction.

That's where things can get messy, since users may be using multiple exchanges or platforms for their crypto trading activity.

Some exchanges will only provide you with a Form 1099-K for tax time. It contains the details of your activity if you've had gross payments exceeding $20,000 or you've made more than 200 transactions.

That means the onus for accurate recordkeeping, reporting and tax payment is really on the investor.

"You have to keep track of every transaction you did, every sale," Davidoff said.

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In general, the IRS regards virtual currency as property. That means if you sell your holding, you've either racked up a capital gain or a loss.

Meanwhile, wages that are paid to you in cryptocurrency will be reported to you on a Form W-2, which your employer must send you by the end of this month. Federal income tax and FICA taxes would apply to the payment as they do for wages paid in dollars.

Cryptocurrency that you mine must also be included in your taxable income. In this case, you would include the fair market value as of the day you received it.

Failure to report the income can lead to penalties and interest and in the most extreme cases, prison and fines up to $250,000.

Indeed, back in 2019, the IRS sent letters to thousands of taxpayers with virtual currency transactions, notifying them to pay back taxes and submit amended returns.

Aside from tracking your transactions, tax professionals recommend keeping detailed records of your basis or your original investment in the asset.

How long you've held the asset before you transact with it also matters.

If the holding period exceeds one year, you're subject to favorable long-term capital gains treatment when you sell your virtual currency. In that case, the tax on appreciation can be 0%, 15% or 20%.

However, if you sell your virtual currency less than a year after acquiring it, ordinary income tax rates kick in. Those rates can be as high as 37%.

You do have to track your basis even if you use your bitcoin to buy things at a merchant, so be mindful of how you transact.

"If you're having to choose between using your U.S. currency versus crypto, at least with cash you don't have to track the basis," Davidoff said. "It's a huge headache."

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Cryptocurrency's value plummets. Here's what it means for your taxes - CNBC

The U.K. Treasury has released a consultation paper to gather feedback from stakeholders concerning the governments regulatory approach to cryptocurrencies and stablecoins.

The consultation solicits opinions on how the U.K. can make sure its regulatory framework is equipped to harness the benefits of new technologies, supporting innovation and competition, while mitigating risks to consumers and stability, and incorporates advice from the Cryptoassets Task Force.

With a large proportion of crypto assets falling outside regulatory oversight, the Treasury says they may pose a risk to consumers and lack financial safeguards.

The U.K. is planning a a staged and proportionate approach to new crypto asset developments, taking a focus in the paper on stablecoins cryptocurrencies that generally aim to have a stable value by being backed by assets such as the U.S. dollar.

[T]he landscape is changing rapidly. So-called stablecoins could pave the way for faster, cheaper payments, making it easier for people to pay for things or store their money. There is also increasing evidence that [distributed ledger technology] could have significant benefits for capital markets, potentially fundamentally changing the way they operate, said John Glen, M.P., the Treasurys economic secretary, said in the papers introduction.

However, he said, such developments could pose a range of risks to consumers and, depending on their uptake, to the stability of the financial system.

The consultation focuses particularly on developing a sound regulatory environment for stablecoins, which the U.K. government considers have most urgent risks and opportunities.

Since the announcement of the Facebook-backed libra project (now rebranded as diem), regulators and governments worldwide have raised concerns over the potential effects of so-called global stablecoins on financial stability and even monetary sovereignty.

The U.K.s Financial Conduct Authority has already issued guidance on crypto assets including exchange tokens like bitcoin, ether and XRP setting out which do and dont fall under its jurisdiction in July 2019.

This new consultation will focus on the roles of crypto assets and stablecoins in payments and investment, as well as the use of blockchain or distributed ledger technology in financial markets. It will also look at additional regulatory actions that might be required in the space.

The paper marks the second Treasury-led crypto consultation. The first, announced last summer and concluded in October, set out plans to increase oversight into cryptocurrency promotions in order to protect investors. The results will be published in due course, the Treasury said in the new paper.

The FCA recently banned the sale of derivatives and exchange-traded notes, saying it considers the products to be ill-suited for retail consumers due to the potential harm they pose.

Responses to the consultation paper are being accepted until March 21.

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UK Treasury Calls for Feedback on Approach to Cryptocurrency and Stablecoin Regulation - CoinDesk - CoinDesk

An illustration of bitcoin on Euro banknotes.

Nicolas Economou | NurPhoto via Getty Images

The extreme movements up and down are relatively common for bitcoin and are expected to continue.

"The only thing I can expect for sure is volatility," said David Yermack, a professor of finance at New York University Stern School of Business. "From day one, this has been a risky investment for people."

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Bitcoin has seen both astronomical growth over the last decade and major selloffs at various points in between. Although many bulls point to its past performance as a sign that the cryptocurrency will continue to surge in the future, that might not happen, according to Yermack.

"It's a purely speculative asset," he said, adding that while bitcoin has grown in popularity, it's still not considered a mainstream investment, meaning that many have little information about the asset.

"You should never invest in anything that you don't understand," said Yermack.

Financial experts generally advise that people looking to invest in bitcoin allocate a small amount of their portfolio that they'd be okay with losing entirely to the asset. The U.K.'s Financial Conduct Authority just issued a similar warning.

"People should only invest really what they're willing to lose," said Daniel Polotsky, CEO of CoinFlip, one of the largest bitcoin ATM companies in the U.S.

He added that people near retirement, those who will need the money they're investing near term or people who are looking to trade frequently to make a profit may want to reconsider bitcoin as an asset for those goals.

"Maybe there are more opportunities to make money because it's so volatile, but it can get very addicting very quickly to start trading back and forth," he said. "And, most of the people that do that lose money."

People should only invest really what they're willing to lose

Daniel Polotsky

CEO, CoinFlip

If you are going to assign part of your portfolio to a speculative asset like bitcoin, take a disciplined approach and impose rules for buying and selling, said David Sacco, an economics professor at the University of New Haven.

"You can get experience and not blow yourself up in the process," he said.

There are also potential ways to invest in the idea of cryptocurrency without putting money directly into an asset as volatile as bitcoin, according to Yermack. That could mean investing in large technology companies utilizing Blockchain such as IBM or media companies with their own digital currencies, such as Facebook.

In addition, Coinbase, the largest U.S. cryptocurrency exchange, recently filed for an initial public offering, meaning it could be available to retail traders in the future.

To be sure, there are many bulls who see bitcoin exploding in value in the future as adoption continues and more large institutional investors buy into cryptocurrency.

To those determined to hold bitcoin for the long run, the most recent selloff after hitting a record high is not a huge concern.

"This is definitely to be expected," said Polotsky, adding that he expects bitcoin to continue to climb in the future and sees the recent dip as a potential buying opportunity for those that expect to hold the asset long-term.

"I think today we saw some profit taking investors liquidating, but if you're a bitcoin bull and you have a long-time preference, you know that corrections are normal," said Harry Alford, co-founder of Humble Ventures, on "Squawk on the Street" Monday.

He's not fazed by the recent selloff, he added, and believes that cryptocurrency can lead to financial freedom for Black Americans or other groups. "We're going to see a lot of skepticism turn into curiosity," he said.

Those who want to invest in bitcoin should assess where they stand with other personal finance and investing goals to determine if they have some extra money to put into a risky asset.

If you do, then it's fine to put some money in bitcoin, and to buy on a day when it's down, said Anjali Jariwala, a certified financial planner and CPA and founder of Fit Advisors in Torrance, California.

"Throw some money into it and kind of let it stay in there and season for a while," she said. "Just so you're not making decisions every time there's a fluctuation in price, which at this point happens every few days."

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Bitcoin's roller-coaster ride shows why people should be cautious before investing in cryptocurrency - CNBC

And that has meant cryptocurrency startups too have caught investors attention. CoinSwitch Kuber, a cryptocurrency investment platform, is the latest startup to raise $15 million from Ribbit Capital and San-Francisco based crypto-focused investment firm Paradigm.

This marks Ribbit Capitals first investment in a cryptocurrency firm in India.

While the crypto landscape in India remains nascent, it has been an exciting past 12 months and over time we believe India could be one of the largest global crypto markets. Ashish and the CoinSwitch team have shown tremendous resilience and strong execution in a challenging market, giving us confidence in their potential to build a market leader in the years to come, said Matt Huang, Co-founder and Managing Partner at Paradigm and Arjun Balaji, Investment Partner at Paradigm in a statement.

The Series A funding round also saw participation from Sequoia Capital India and CRED founder Kunal Shah.

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Amid all the Bitcoin hype, another Indian cryptocurrency startup CoinSwitch Kuber gets $15 million in funding - Business Insider India