In Wall Street Warriors, students write about important aspects of the finance field as well as news in the stock market. This week, sophomores Bennett Szafranski and Spencer Lehmann discuss the recent Cryptocurrency crash and how it has affected the market.
In previous articles, we discussed the cryptocurrency bubble. Last week almost every Cryptocurrency dropped vast amounts, wiping out almost $1 trillion in market value, proving the bubble theory semi-correct. It all started when Elon Musk stated that Tesla would stop accepting Bitcoin as a form of payment, due to its negative environmental impact. How can Cryptocurrencies impact the environment? To create more of a Cryptocurrency you need to “mine” it. This means involves high-powered computers that solve complex computational math problems. These computers require a massive amount of electricity which is produced by burning coal, and burning coal is bad for the environment. Moreover, China also said they would start taking severe measures on monitoring crypto mining. It is believed that China is home to the largest number of crypto miners, making their pollution problem even worse than it already is. The monitoring would stop Chinese banks from accepting Cryptocurrency as a form of payment or offering any services that deal with them. These two factors, mainly China and partially Elon Musk, caused the entire sector to take a massive hit last Wednesday.
This hit triggered a massive panic and several digital currencies such as Bitcoin, Ethereum, Dogecoin, and Binance all dropped nearly thirty percent each. Even though Bitcoin started making its way back to its previous price the next day, it fell right back down on Friday. This would cause someone who bought one bitcoin in the middle of April to be down nearly thirty thousand dollars right now. Crypto investors lost around 830 billion dollars during last week’s crash. Ethereum was priced at close to $4,000, and it fell back to $2,000 last week.
Although the crash was very bad, it created a loophole in taxes for recent investors. If you lost money because of the crash and sold for a loss, you can use that loss to reduce or eliminate capital gains on winning investments. You can then rebuy if you think it will rebound. However, the IRS has a roadblock in order to have some risk of losing, you can not sell then buy back within the minute. The IRS might nullify the tax loophole because it is not considered a security, but a property. Waiting at least a day could help your case and most likely the IRS will not be able to negate it. For people that still believe that digital currency is the future, due to the massive discount these currencies are at right now, it might be the time to buy.
By: Bennett Szafranski and Spencer Lehmann (10th)