Analyzing this week’s BTC price frenzy; A (micro) crypto taxation update
Today’s episode will cover events happening the week ending September 4th, 2020. This week…Bitcoin saw a beautiful rise and an awful fall, and the IRS wants a piece of your microtask crypto income. More @ Talk.Bitcoin.Tax Full Show Notes: (00:27) If you are a Bitcoin trader or investor, you probably don’t need us to remind you that Bitcoin has had quite a rough week. Technically, the later half of the week, including today. According to CoinMarketCap, Bitcoin rallied earlier in the week, reaching over $12,000 on September 1st – we also saw Bitcoin briefly bounce past $12,000 a few times in August, and it certainly seemed to indicate that the moon was in sight. However, Thursday and Friday brought some dreadful dips in the price of Bitcoin – dropping under $10,000 on Friday, but currently holding steady around $10,400. On today’s episode, we’re going to do something a little bit different. We’ll be assessing a number of different explanations as to why Bitcoin is experiencing these intense fluctuations – of course, volatility and cryptocurrency trading are no strangers, but what exactly is at play this week according to the experts? First, let’s start with a broad prediction from the September 2020 edition of Bloomberg’s Crypto Outlook newsletter that was released on Wednesday, likely bit prior to the big dip of the week occurring: “Bitcoin appears as a resting bull market on the back of gold, in our view. Limited supply vs. increasing demand is the bottom-line for Bitcoin, with macroeconomic underpinnings that support its march toward the market cap of gold, at a price of $500,000 by some estimates. Or it could fail. Declining volatility – notably vs. equities and gold — indicate Bitcoin is gaining an upper hand.” Quite an all or nothing mentality, highly skewed in favor of Bitcoin’s success, from one of the leading names in traditional finance. Addressing the beginning of the Bitcoin price drop midweek, Bloomberg released an article stating that “A strong dollar tends to dent appetite for the cryptocurrency and there are signs its popularity is fading among retail investors”, but went on to say that “long-time advocates point to increasing demand from institutional investors” and “…if the greenback softens over 5% it could be the catalyst to help Bitcoin breach that threshold again, if its fundamentals improve.” On Thursday, the crypto news outlet Cointelegraph lumped the BTC drop in with the price drop of the S&P 500 index, as well as gold. For reference, the price of gold fell over 1% on Thursday, and the S&P 500 fell 1.9% on Friday. Echoing this theory of correlation, the In Bitcoin We Trust newsletter states “Over short periods, correlations can indeed be found with the S&P 500. Over the long term, it is much less obvious. We can also say that these two markets fell sharply at the same time yesterday, because they responded to common causes, without implying a strong correlation.” The newsletter also echoes the aforementioned, and commonly held belief that the strength of the US dollar is correlated with the price of Bitcoin – the US Dollar Index (or DXY) has “been in freefall for several months, falling from 102,755 on March 19 to an annual low of 92,144 on August 31, 2020. This represents a drop of -10%.” The idea is that this drop has assisted in rallying the price of Bitcoin – but now, “The DXY has rebounded from its annual low… [and the] slight increase suggests to some that the U.S. dollar may strengthen in the coming weeks. This renewed strength may have played a role in the sharp drop.”. The Cointelegraph article also points to the fact that “miners sold off unusually large amounts of BTC in a short period” as one of the other primary reasons that the price of BTC has dropped. So, overall, the experts seem to be saying that the price of BTC and the strength of the US Dollar are correlated, and that BTC is also correlated to traditional markets like the S&P 500 and the pri