Bitcoin & Ethereum Advance 11%, But Extreme Volatility Is Ahead

The world’s top two digital assets have recovered from deep losses, although extreme volatility is still ahead, as the crypto winter isn’t over.

Diagonal chain made of zeros and ones. Cryptocurrency and mining.

Image source: Getty Images

The world’s top two digital assets advance more than 11% heading into the weekend. Although Bitcoin (CRYPTO:BTC) climbed above $40,000 and Ethereum (CRYPTO:ETH) rose to nearly US$3,000, don’t expect smooth sailing ahead. The rally might not sustain if the crypto winter isn’t over.

Thus far, in 2022, BTC is down 10.4%, while ETH investors are losing by 19% year to date. Both are still off by around 38% from their November 8, 2021, peak of US$67,566.83 and US$4,812.09, respectively. The threat to the crypto community is more government intervention like a potential crypto tax bill by the U.S. Internal Revenue Service (IRS).

Portfolio staple?  

Betterment’s Dan Egan acknowledges the volatile nature of BTC but he said the top cryptocurrency is turning into a portfolio staple. He thinks the crypto is past the “sudden-path-to-riches” image and is acting more like a digital gold asset. Egan added, “It’s definitely maturing into more of an alternative like gold or precious metals.”

Egan further said, “You should have a little slice of it in your portfolio just for diversification’s sake.” However, Bitcoin and cryptos in general are without a central authority. The price tumbled following the China’s ban on crypto mining and trading. Middle Eastern countries have likewise declared cryptocurrencies illegal within their borders.

In the U.S., news reports say President Joe Biden might issue an executive order requiring agencies to start assessing cryptocurrency risks to national security. Some market observers think the administration’s plan would provide much-needed clarity, especially with how regulatory agencies view cryptocurrencies. Also, it could bring about a workable regulatory framework.

The latest news from Russia is that the government would impose taxes on cryptocurrency profits like those from securities. According to a report by Finmaker, lawmaker Vladimir Gutenev said that if the Russian Federation treats cryptos as securities, there should be income tax when mined coins are cashed out.

While digital currency extraction is not yet regulated in Russia, authorities recognize them as economic activity. However, should there be a personal income tax levy or burden for individual crypto miners withdrawing profits, it would not be less than 15%.

More volatile than Bitcoin

Ethereum followers predict the popular altcoin’s value could rise by much as 400% in 2022. Their basis is ETH’s utility as a software network. They say developers can build and power new tools, and apps plus non-fungible tokens (NFTs).

Furthermore, the uses and applications of the blockchain-based software network in the tech world is countless. It can be for entertainment, gaming, music, and decentralized finance (DeFi), among others.

Some crypto experts think Ethereum could be more volatile in the months ahead because it’s transitioning to a less energy intensive version. Ethereum 2.0, with more upgrades, should be more appealing and sustainable for widespread use. However, it’s still wait and see for investors and companies.  

High-risk assets

Bitcoin, the world’s most valuable cryptocurrency, faces intense scrutiny by governments and central banks this year. Ethereum has first-mover advantage, although new blockchains (Solana and Cardano) with similar functionality are threats. For now, ETH dominates 90% of the NTF market. BTC and ETH are like growth stocks, except they are extremely volatile. The pro tip is to invest money you can afford to lose.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bitcoin and Ethereum.

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