After reaching highs of nearly US$20,000, the price of Bitcoin has fallen hard. In early February, the price closed at under US$7,000; however, since then it has found some momentum. On Friday, the cryptocurrency was up to over US$10,000 as it resumed its ascent.
Growing regulation relating to Bitcoin has gotten investors worried that the liquidity of the cryptocurrency will be limited, which would impact its overall value. After all, the more difficult it is to trade Bitcoin, the harder it will be for its value to get bought up.
Companies have tried to move away from cryptocurrencies
Bitcoin has links and associations to crime and the underworld, and many companies aren’t comfortable with those connotations, which has resulted in many turning away from the cryptocurrency. This too will create concerns about the long-term viability of Bitcoin and jeopardize its ability to grow in the future.
Earlier this year, Facebook Inc. (NASDAQ:FB) announced that it would ban ads on its social media site relating to cryptocurrencies. On Friday, Toronto-Dominion Bank (TSX:TD)(NYSE:TD) announced that it would no longer allow its credit cards to be used to purchase cryptocurrencies — something that some U.S. banks have already restricted as well.
In a statement, the bank said that “we regularly evaluate our policies and security measures in order to serve and protect our customers, as well as the bank.” The danger for consumers is significant: with the wild swings we saw with Bitcoin last year, a customer could have a difficult time repaying credit card debt if the cryptocurrency had a big decline in price. Consumers would be left with the original bill, despite having much less in value.
It’s not just companies that are weary of cryptocurrencies, as investors have looked to sell off their positions as well.
Speculative buys have seen big sell-offs in the past few weeks
The sell-offs in the market recently saw speculative investments like Bitcoin and cannabis stocks get hit the hardest, with the latter seeing values drop by as much as 30% and the former seeing its price get cut in half.
Canopy Growth Corp. (TSX:WEED) had a big year on the TSX last year, but so far this year the stock is down more than 6%. Aphria Inc. (TSX:APH) has seen an even bigger fall with its share price dropping as much as 26% within just the first two months of the year.
Markets remain soft
While the TSX has been making a recovery lately, it still has a long way to go to get back to over $16,000. Investors have been apprehensive lately, and we haven’t seen the same level of enthusiasm and euphoria for speculative buys that we have in the past. Pot stocks have started to hit a ceiling, and although Bitcoin has managed to stage a little bit of a rally, it too is still far from previous highs.
Takeaway for investors
Bitcoin and other cryptocurrencies remain risky, and investors would be wise to wait out the current uncertainty in the markets. We’ve seen some big swings in the market lately, and there’s no guarantee that the worst is over.
