Warning: Bitcoin May Be in for a Rough Finish in 2019

The sharp retreat in the spot price of Bitcoin has sent stocks like HIVE Blockchain Technologies Inc. (TSXV:HIVE) into a tailspin.

Ambrose O'Callaghan

Ambrose O'Callaghan graduated with a BA in Political Science from McMaster University. After that, he jumped into the banking world. He worked from the front line to an investment associate role. After that, he found a way to marry his experience and knowledge in the world of banking and finance to his love and passion for writing. Ambrose is a passionate believer in Warren Buffett's value investing model.

Published July 26, 2019 8:10 am EDT

Bitcoin surged to 52-week highs in early July and appeared on track to reigniting the red-hot pace it has set in 2019 so far. Instead, the price of Bitcoin suffered a sharp reversal after biting comments from top United States politicians. The first requires no introduction — President Donald Trump.

On July 11, Trump tweeted that he was “not a fan” of Bitcoin and other digital currencies. More troubling were the comments from U.S. Treasury Secretary Steven Mnuchin. The former Goldman Sachs chief information officer railed against Bitcoin in an interview with CNBC on July 24. “I can assure you that I will personally not be loaded up on Bitcoin in 10 years,” he said on CNBC’s Squawk Box. He predicted that in “five to six years,” Bitcoin would not be relevant enough to command the attention of the Treasury Secretary.

Bitcoin dropped further after Mnuchin’s comments. There is anxiety among crypto investors that his prediction could be a self-fulfilling prophecy. Mnuchin has promised “a unified approach” when it comes to crafting regulations in the young crypto market. He continued: “. . . my guess is that there are going to be more regulations that come out of all these agencies.” The “agencies” in question likely refer to the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission.

Some crypto bulls are dismissing the bluster from the Trump administration, but this is a risky game. The previous year demonstrated how damaging regulations are to the Bitcoin and cryptocurrency market. India’s central bank announced a ban on the sale or purchase of cryptocurrency for any and all entities regulated by the Reserve Bank of India. In the same year, China announced that its State Administration of Foreign Exchange would crack down on Bitcoin mining, which had proliferated on a huge scale within the country.

Earlier this month, I’d discussed whether millennial investors should bet on Bitcoin or cannabis in the second half of 2019. I went with cannabis, and a big part of my reasoning was fear of constant regulatory crackdowns. Bitcoin and crypto-connected equities are also at risk in this environment.

HIVE Blockchain Technologies (TSXV:HIVE) is a blockchain infrastructure company that has seen its volumes surge in the first half of 2019. This should come as no surprise, as Bitcoin and other crypto miners have been kept busy over the course of this bull run. Shares of HIVE have climbed 24% in 2019 as of close on July 25. However, the stock has plunged 30% over the past month.

Stocks like HIVE Blockchain act in part like gold miners, as the share prices are influenced by volatile spot prices. Investors in HIVE Blockchain are learning that the hard way this summer. Expect more regulatory murmurs in the second half of 2019. Bitcoin has thrived in the face of loosening monetary policy and rising trade tensions, but the threat of a crackdown will likely dim its reputation.