The price of Bitcoin fell below the US$50,000 mark on April 25, 2021. The broader cryptocurrency market lost considerable momentum in the latter half of April. Many retail investors may have seen substantial losses due to the decline, as many investors flocked to cryptocurrencies after a strong run throughout 2020 and until now in 2021.
Bitcoin is back up to the US$54,000 mark at writing. However, it is quite volatile. I will discuss the reason for its decline and whether it might be worth buying on the dip.
The regulatory crackdown is on its way
There was a lot of talk in March about the possibility of a regulatory crackdown for Bitcoin and the broader cryptocurrency market. The market has proven itself in the mainstream, but its positive momentum might not overcome regulatory challenges.
The Canada Revenue Agency (CRA) won a court battle to gain access to substantial high-value customer data held by Coinsquare, a cryptocurrency exchange. The court ordered Coinsquare to disclose information on an estimated 10% of its 400,000 customers to the CRA.
There is a similar situation brewing in the U.S., as Uncle Sam looks to double its capital gains for people earning over $1 million. The announcement from Joe Biden’s administration resulted in a sharp decline for Bitcoin and all its peers.
The new regulations could spell bad news
Taxes are not the only concern for the cryptocurrency space. Regulatory crackdowns effectively halted Bitcoin’s bull run in 2017 and 2018. International regulatory bodies took notice of this. Some nations sought to target cryptocurrencies, because they facilitate criminal activity. Illicit activity is indeed being facilitated by crypto transactions, but it accounts for only a tiny percentage.
Many officials are referring to Bitcoin as an alternative investment instead of a competing currency. A big crackdown is speculative, but it could devastate Bitcoin’s growth if it happens.
Bitcoin has enjoyed a prolific bull run in the first half of the year. However, it has never let go of the infamous volatility associated with it. Investors who bought the cryptocurrency on previous dips have seen massive returns.
Canada launched the first-ever Bitcoin-centric exchange-traded fund (ETF) on the TSX called Purpose Bitcoin ETF (TSX:BTCC.B). The ETF aims to track the performance of Bitcoin. If you feel concerned about buying the cryptocurrency directly, buying shares of this ETF could provide you with a relatively safer exposure to Bitcoin.
The ETF’s management is responsible for handling the security of its Bitcoin holdings. It is practically the closest you can get to buying the cryptocurrency itself while retaining the liquidity of any securities trading on the TSX. Purpose Bitcoin holds almost 19,000 BTC, bringing its assets under management to over $1.23 billion.
Bitcoin’s performance has been largely outstanding over the last year. However, the broader market has also performed well. Bitcoin might seem like an exciting prospect, but I feel that it has always been too volatile to pin the hopes of a secure financial future on when there are so many other equity securities that offer explosive growth.