Bitcoin Continues Recovery from Last Week’s Losses

Ibeth Rivero

BitcoinBitcoin rose by 1.74% against the US dollar yesterday, closing the session at the 55,044.0 level and gaining ground for the second consecutive day, after advancing by 10.15% in the previous session.

Previously, Bitcoin had been facing a five-day losing streak, mostly fueled by the fact that the US government is considering raising long-term capital gains taxes to 43.4%. While Biden's decision will not directly affect 75% of stock owners, the potential trickle-down effect had financial markets frowning upon the proposal.

Since the beginning of the year, Bitcoin has advanced 80% against the US dollar. However, so far this month, it has suffered a setback, losing 7.18% and falling by 16.35% just last week.

Bitcoin has become more popular since several important players in the markets have either announced their intention to facilitate Bitcoin investment to their customers or have established an optimistic stance regarding the future of Bitcoin. The fact that Coinbase became the first cryptocurrency platform to go public on Wall Street also boosted enthusiasm for crypto alternatives to fiat currencies.

Some even consider that crypto alternatives will be able to compete with well-established fiat currencies as a store of value and medium of exchange. Cryptocurrency enthusiasts always highlight the supposed advantages of crypto alternatives over the traditional fiat currencies, their limited supply chief among them, which makes them an effective hedge against inflation.

Inflation is another concern among cryptocurrency enthusiasts. It is believed that ultra-loose monetary policy stances, together with massive stimulus plans, could spark hyperinflation in Western countries and affect the credibility of traditional fiat alternatives as a store of value. A similar argument is often brought by gold and other precious metals enthusiasts, who imply that cryptocurrencies are equivalent to those metals.

However, not everyone is optimistic regarding the future of cryptocurrencies. Being so volatile, it is still not clear whether they will ever manage to become a solid alternative to fiat currencies, especially taking into account that they currently fail as a reliable store of value and as a medium of exchange.

Adding to this, some governments are considering restricting and even outlawing cryptocurrencies in favor of issuing their own alternatives. India and China are two examples of this: while the former is looking to outlaw the distribution, holding and production of cryptocurrencies, the latter has been restricting mining in an attempt to reduce energy consumption and achieve carbon neutrality. Some consider the environmental concerns definitely overstated, claiming that about 76% of Bitcoin miners use renewable energy.

There are also concerns regarding the role of cryptocurrencies in money laundering. Recently, the idea that the US Department of the Treasury could accuse financial institutions of money laundering using cryptocurrencies spread across the markets, sparking fears. However, so far, the Treasury Department has not confirmed any of the rumors.

Cryptocurrencies remain a risky investment due to their volatility, especially for retail investors, so sudden losses should not be discarded as impossible. Despite occasional losses, it is highly likely that the bulls will continue dominating the markets in the long run.

By 9:24 GMT, Bitcoin fell by 0.72% against the US dollar to the 54,151.0 level.

Ibeth Rivero

Ibeth contributes daily market commentary in both English and Spanish (both of which she speaks fluently) and she also manages the DailyForex mobile app to ensure that traders around the world are getting important market updates in real time.

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