Bitcoin (CCC:BTC-USD) had a nice comeback on May 20th when the US Treasury Department poured cold water on its daily dynamics.
The Treasury Department announced that it is about to crack down on the cryptocurrency markets. Included in the raid, the Treasury Department will now need them all Transfer of USD 10,000 or more in cryptocurrencies to be reported to the Internal Revenue Service.
“Cryptocurrency already poses a significant identification problem as it makes illegal activities by and large, including tax evasion, easier,” the Treasury Department said in a press release.
If you were surprised by this announcement, you don’t have a company that owns Bitcoin or any other cryptocurrency.
I say bring the bitcoin regulation with you. Here’s why I feel this way.
Forget that bitcoin is digital gold
If someone were to force Warren Buffett to choose between buying Bitcoin or gold, I’m 100% sure that the 90-year-old would choose the latter, despite everything detest the precious metal.
“What motivates most gold buyers is their belief that the ranks of the fearful will grow. Over the past decade, this belief has proven correct. Furthermore, the rising price alone has generated additional buying excitement and attracted buyers who view the rise as confirmation of an investment thesis. When “Bandwagon” investors join a party, they create their own truth – for a while“Said Buffett about gold in Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) Annual Report 2011.
Unfortunately for Bitcoin investors the idea that the cryptocurrency is really “digital” gold is nonsense. Institutional investors Those who have accumulated in Bitcoin to protect themselves from the consequences of inflation are now stacking themselves back in gold, the world’s oldest hedge against inflation.
However, before you consider dumping your bitcoin, keep in mind that the latest bitcoin price correction is rather unusual. Coindesk published an article on the subject in April.
According to Damanick Dantes, Bitcoin’s 15% decline this week was “on par with previous drawdowns that took about five to ten days to recover”. He quotes Stacking Fund with the words, “Drawdowns happen all the time, and crypto markets are no different from traditional markets.”
Experts generally view significant corrections as a sign of a healthy bull market. When Bitcoin or other assets are directly appreciating in value, that is a red flag for something wrong in the economy.
I wouldn’t see this latest correction as anything other than investors putting capital in other assets.
Why not regulation?
It seems insane that someone who has invested a shipload in Bitcoin will be jerked out of their position because the finance department is trying to regulate cryptocurrencies.
They would either be incredibly naive or not too smart to believe that the U.S. government would never regulate cryptocurrencies. If I’m fine, Uncle Sam wants a piece of it all you deserve around the world. You can run, but you can’t hide.
Obtaining regulatory oversight of Bitcoin while maintaining its decentralized control structure seems to be an ideal meeting of the spirits. And during Not everyone is convinced the bitcoin is decentralized, as long as the world’s major economies have regulations to protect citizens from cryptocurrency fraud, I don’t understand why Bitcoin cannot be a store of value like gold.
Morning star recently discussed the Regulation of cryptocurrencies as it related to the financial advisory community. I wrote for a trade magazine that focused on consultants. The registered investment advisor’s greatest concern is to manage his clients’ assets with the greatest care. It is their fiduciary duty.
With the Treasury Department and related federal agencies like the Securities and Exchange Commission setting the regulatory bases before cryptocurrencies are actually deployed, stakeholders like investors, financial advisors, and corporations can duck their ducks in a row for the big boost.
It’s not too different from US regulators, who were pushing electrification of transportation years before the problem. As the Boy Scouts say, “Be prepared.”
The bottom line
For me, decentralization is less about keeping the government away from my business and more about providing an efficient way to do business with others.
If cryptocurrency regulations are put in place to protect Americans, I see it as positive for Bitcoin in the sense that it provides the structure required to become a legitimate digital currency, or digital gold.
So, I say bring up the cryptocurrency regulations. Only the scammers need to worry.
At time of publication, Will Ashworth had positions (neither directly nor indirectly) in the securities referred to in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publishing guidelines.
Will Ashworth has been a full-time investing writer since 2008. His publications include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger and several others in the US and Canada. He is particularly fond of creating model portfolios that will stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing, Will Ashworth did not hold a position in any of the above securities.