How Long Will the Crypto Massacre Last?

Bitcoin’s plunge last week spared no prisoners. Cryptominers like Hut 8 Mining and Marathon Digital are at lows not seen in months. Bit Digital (BTBT), a small-cap, is especially at risk. Bigger firms (by market capitalization) are not immune to selling but have a better chance of recovering. They have easier access to capital if needed. Last week, the SEC said that it objected to Microstrategy’s (MSTR) accounting adjustment for its bitcoin holdings. Microstrategy cannot show what income would have been like if it did not need to report an impairment on bitcoin holdings.

The SEC’s treatment of bitcoin for corporations somewhat contradicts that of State governments. For example, Ohio once accepted Bitcoin for all tax payments but suspended it in 2019. Colorado floated the idea of allowing residents to pay taxes with cryptocurrency. For now, the SEC ruling will draw a line between Bitcoin holdings and company accounting. Fortunately for investors, companies like Microstrategy cannot benefit from reporting asset depreciation when crypto loses value, then ignore the asset when it appreciates.

Your Takeaway

Bitcoin volatility is on the rise, thanks to the stock market. The massacre in crypto pricing may continue a while longer. Markets may still have plenty of liquidity to trade in the volatility of stocks and crypto.