The price of Bitcoin recently went through the roof this year. The cryptocurrency hit the $20,000-mark for the first time on Dec 16, 2020 and touched $60,000 on Mar 14. The asset also hit an all-time high of nearly $65,000 in April on the Coinbase IPO success. However, the winning cryptocurrency then started losing its appeal.
Bitcoin slumped below the $50,000 level for the first since Mar 8 on U.S. President Joe Biden’s plan to hike capital gain tax. Bitcoin (BTC) dominance also fell that time below the 50% mark for the first time since 2018. This metric BTC measures the ratio of the largest cryptocurrency's value to the overall market capitalization of digital assets. At the current level, bitcoin is hovering around $33,000-level.
Overall, bitcoin gained at par with the SPDR S&P 500 ETF SPY (up 14.1%) this year. Against this backdrop, below we highlight a few concerns that may check the bitcoin rally in the second half.
Capital Gain Tax Hike Is a Great Negative
President Biden is expected to raise the long-term capital gains tax for the wealthiest Americans to 39.6% from the current rate of 20%, for those earning $1 million or more. This on top of an existing surtax on investment income, will lead federal capital gain tax rates for wealthy investors to as high as 43.4%. With bitcoin gaining about 258% past year, there could be rush to book profits amid the likely investment gain tax hike (read: What Holds for ETFs If Biden Hikes Capital Gain Tax?).
Overvaluation Concerns Look Large: Volatility a Key Concern
Guggenheim Partners’ Scott Minerd, a long-term bitcoin bull, also said recently that the world’s largest cryptocurrency bitcoin is too overvalued, as quoted on CNBC. He sees Bitcoin is “very frothy” and a “major correction” in the near term.
Regulatory Concerns Still Exist
Despite such humongous success noted lately, regulatory concerns are not going away for bitcoin. There have been repeated attempts in the past by ETF issuers to bring an exchange-traded-product on the cryptocurrency. But none received SEC’s nod. The SEC is seemingly looking for more proof of safety in this trade.
Environmental Concerns
Per a CNBC article, questions regarding bitcoin’s impact on the environment could be another issue for the cryptocurrency. “Bitcoin mining equipment requires lots of electricity to run, and bitcoin’s energy consumption has risen considerably over the years in tandem with its price. While bitcoin’s critics have long warned of its huge carbon footprint, Tesla (NASDAQ:TSLA) CEO Elon Musk brought the issue back to the fore this year,” the article noted.
ETFs in Focus
Since we don’t have any pureplay bitcoin ETFs now, stocks that are related to bitcoin mining or trading play an indirect role in betting on this crypto asset.Coinbase Global Inc. COIN known is a U.S. company that operates a cryptocurrency exchange platform without an official physical headquarter.
Coinbase is up 60% this year. Coinbase has exposure to funds like VanEck Vectors Digital Transformation ETF DAPP, Simplify Volt Fintech Disruption ETF VFIN and Renaissance IPO ETF IPO. Blockchain ETFs like Amplify Transformational Data Sharing ETF BLOK should also be watched by the investors who are interested in the bitcoin investing.
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SPDR S&P 500 ETF (SPY): ETF Research Reports
Renaissance IPO ETF (IPO): ETF Research Reports
Amplify Transformational Data Sharing ETF (BLOK): ETF Research Reports
Simplify Volt Fintech Disruption ETF (VFIN): ETF Research Reports
Coinbase Global, Inc. (COIN): Free Stock Analysis Report
VanEck Vectors Digital Transformation ETF (DAPP): ETF Research Reports
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