Why Did Bitcoin Drop and Is There Fraud Involved?

The White House has proposed raising capital gains taxes to 39.6% for the $1 million plus bracket. This is up from the present 20%. This is on top of the extra toll that this tax bracket  pays to finance the Affordable Care Act. Biden’s arrangements had for some time been public information; however, fear grasped the market this week.

On Friday April 23,President Joe Biden’s proposal to significantly increase capital-gains taxes shook the markets, and crypto investors saw bitcoin dip under $50,000, which is a psychological price point and constituting a 12% loss in one day, per Coindesk. More than a 20% drop speaks of a downward Fibonacci candlestick trend and potentially a great opportunity for first time investors, or not? Ether was down 13% at $2,120. Dogecoin was down 15.1%. Bloomberg opined that “no one thinks these blue-chip stocks are all that comparable to Dogecoin, a fringe asset with no real purpose beyond being a joke on social media. But the similarity of their market values underscores the boom in cryptocurrencies.”

Fawad Razaqzada, market expert at ThinkMarkets, said “regulatory concerns, fears over valuation and bullish exuberance at overbought levels all added to the selling pressure.”

Jeffrey Halley, senior market expert at Oanda said “It is clear that Bitcoin is more sensitive to capital gains tax threats than most ‘asset’ classes. The threat of regulation, either directly in developed markets or indirectly via the taxman, has always been crypto’s Achilles’s heel, in my opinion.” Crypto financial backers dread that higher capital expenses and might make investors sour on cryptos like bitcoin.

In fact bitcoin has been depicted as “digital gold.” Or as Bill Miller stated “It’s easily transportable and can be sent anywhere in the world if you have a smartphone so it’s a much better version, as a store of value, than gold.” Other experts take a darker view of bitcoin and cryptocurrencies in general.

The author Nassim Nicholas Taleb called bitcoin a “gimmick” in “Black Swan.” He further opined that “basically, there’s no connection between inflation and bitcoin. None. I mean, you can have hyperinflation and bitcoin going to zero. There’s no link between them.”  He went on to say that “it’s a beautifully set up cryptographic system. It’s well made but there’s absolutely no reason it should be linked to anything economic.” Taleb stated that “Something that moves 5% a day, 20% in a month — up or down — cannot be a currency. It’s something else.” He admitted to liking bitcoin initially. As he said, “I bought into it … not willing to have capital appreciation, so much as wanting to have an alternative to the fiat currency issued by central banks: A currency without a government.”  He later admitted to being  “fooled by it initially.” However, since then he said bitcoin has attributes of what he calls an all out Ponzi scheme. Taleb said. “I realized it was not a currency without a government. It was just pure speculation. It’s just like a game … I mean, you can create another game and call it a currency.” He went on to say that “bitcoin could go to $1 million” and “these gimmicks, you have bitcoin today. You may have another one tomorrow. They come and go, and there’s no systematic link between them and the claims they make.”

On the note of fraud and cryptocurrencies, Turkey swept in on a group associated with a digital currency exchange that is being blamed for defrauding many. In addition to detaining over 60 individuals, Turkish authorities issued warrants for 16 additional individuals connected to the Thodex cryptographic money trade.  Istanbul’s main examiner’s office declared it was investigating Thodex following objections from unhappy investors. The purported scheme allegedly involves cryptocurrency valued at $2 billion.

Thodex proprietor Faruk Fatih Ozer denied the charges in an explanation on Twitter and said the organization was being slandered.

A week ago, Turkey’s national bank declared that it was prohibiting the utilization of digital forms of money for the purchase of goods, contending risks associated with cryptocurrencies were “unavoidable”.

In South Korea, the reports of cryptocurrency fraud have surged a whopping 41%. In one case, Korean investors were told “if you buy cryptocurrency sold by a Chinese parent group, you can make enormous profits.” It turned out to be a fraudulent claim.

The bottom line is that cryptocurrencies have shown themselves to be rather volatile asset class, attractive to fraudsters, and open to wild price swings. As shown today, economic policies can have significant influences on the price of cryptocurrencies. As large economies like the U.S., China, Japan and the E.U. formulate concrete legislation having to do with cryptocurrencies, the true value of such assets might be far from where they are today. This creates opportunities for fraudsters to take advantage of unsuspecting investors. In such environments, the novice investor should tread cautiously.

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