Today, the big question many investors are asking is: Why is crypto down today?
It’s a reasonable question. After all, cryptocurrencies have done nothing but go up in recent years. (Well, there have been a few catastrophic crashes along the way, but the general trend line is impressive).
Now, these digital currencies are highly volatile assets to hold. Most investors are aware of this. But given the fact that cryptocurrencies have had very few down days, any sort of decline is kind of surprising at this point.
As it turns out, there are quite a few reasons why crypto has underperformed in recent days. Today, certain headwinds are getting priced in to a greater degree. Let’s dive into what these headwinds are and what investors need to know.
Why Is Crypto Down Today?
One of the biggest fears of crypto investors is that their decentralized assets could become regulated. Indeed, China has recently announced its intention to do just that.
- China recently banned financial institutions from providing crypto-related services. As InvestorPlace Assistant News Writer Brenden Rearick explained, this ban only applies to financial institutions. Individuals can still invest in crypto, but trading these digital currencies may be a little more tricky following this legislation.
- Given the breaking news element of this evolving story, I expect we’ll see more details arise in the coming days. However, as we’ve seen in previous situations, when the ability to trade specific assets is limited, investors have a tendency to want to get out of whatever trade they’re in. And given the size and importance of China on the global cryptocurrency system, this move has been amplified.
- Yesterday’s incredible see-sawing of crypto prices reflects just how volatile these assets can be in such an environment.
- With China recently backing its initial decision, it appears investors are pricing in more selling pressure right now.
- Additionally, the U.S. Treasury Department announced a proposal yesterday that has been unfavorable to crypto investors. This proposal requires business-related crypto transactions over $10,000 to be reported to the IRS. The U.S. Treasury has been clamping down on cryptocurrencies of late. This is yet another move crypto investors view as a regulatory burden.
- Investors should also note that Hong Kong shared its intention to prohibit retail investors from engaging in crypto trading.
- Accordingly, the 7% downside move in Bitcoin (CCC:BTC-USD) may not be that unsurprising to investors.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.