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Bitcoin bulls were cheerful this Tuesday as a top analyst’s call to purchase gold amidst the Coronavirus-induced market turmoil created similar opportunities for the cryptocurrency.
Jeffrey Currie, a commodity researcher at Goldman Sachs, said in a note that the yellow metal has reached an “inflection point” after the Federal Reserve announced that it would buy an infinite amount of mortgage-backed securities and Treasury bonds to keep lending costs lower.
The US central bank’s decision would increase liquidity which, in turn, would discourage investors from dumping their gold positions for cash, Mr. Currie noted. He also added that a growing deficit in the emerging economies, as well as financial instability in the European countries, would lead investors to seek safety in gold, a traditional haven asset. Excerpts:
“We believe this will likely lead to debasement concerns similar to the post-GFC period. Accordingly, we are likely at an inflection point where ‘fear’-driven purchases will begin to dominate liquidity-driven selling pressure, as it did in November 2008.”
Bitcoin Eyes Price Boom
The gold-only prediction allowed crypto investors to carve out a similar scenario for their markets. Most notably, billionaire hedge fund manager Mike Novogratz predicted that bitcoin could follow gold with a notable price breakout mainly because both the assets are scarce by nature.
The parallel upside prediction came as both gold and bitcoin prices surged in sync after the Fed’s announcement on Monday. While the yellow metal topped near $1,627.70, its lookalike cryptocurrency surged to $6,886.10 around the same time. According to a pseudonym market analyst, LightCrypto, both the assets showed a positive correlation.
The assets’ near-term bias was similar even during their downtrend. Both fell in sync over the last two weeks as investors liquidated their positions to cover their margin calls. Their profitable standings in 2020 also posed as opportunities for traders to dump them at local highs for cash, mainly because they entertained the idea of staying home during the Coronavirus crisis.
So far in 2020, nevertheless, bitcoin was down by 5.87 percent but gold was up by 5.42 percent.
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Dubravko Lakos-Bujas, the chief U.S. equity strategist at JPMorgan, believes that markets can recapture and even surpass all-time highs by next year. The necessary component for this massive reversal is all predicated on the containment of the coronavirus.
The prediction came in a note to clients from Lakos-Bujas, even as stocks collapsed further on Friday. The Dow Jones Industrial Average (Dow) had its worst week since October of 2008, closing 40% down from all-time highs.
Markets Coming Back for Vengeance
Lakos-Bujas argues that the current climate in stocks is massively oversold, leaving the potential for a significant upside. The far-reaching fear in the marketplace has soured investors to the potential for gains in the current environment.
However, if the U.S. government is able to pass a significant stimulus package, these losses could quickly be offset. This is, of course, contingent on the government being able to ‘flatten the curve’ of the outbreak to lessen the impact on the health care system. Lakos-Bujas said:
“Acknowledging that equity markets globally are now down 30-50% from their recent highs…we see an asymmetrical return profile for equities with upside significantly higher than downside over the next year.”
Would Bitcoin Follow?
The argument regarding equities markets could also apply to Bitcoin. The overall financial climate that gave rise to $10,000 prices has changed drastically.
However, the market may well have oversold. The fear in the market and the overall problems with unemployment and global economic shutdown have led to the current declines. Nevertheless, Bitcoin investors who bought the drop below $4,000 were rewarded with a significant price increase above $6,000.
Lakos-Bujas suggests that with the substantial economic stimulus from the U.S. government, along with containment of the coronavirus, markets will rebound. Should these measures go into effect, the overall response from investors would likely be a strong buy, leading to increased prices in these markets.
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Cryptocurrency investors in the United States who scored wins in 2019 can delay filing and payment on their taxes for 90 days. The announcement came from the Trump administration, allowing taxpayers to delay payments up to $1 million individually.
The coronavirus, which has caused mass closures, has resulted in many delays. Huge numbers of layoffs have already begun, and many who had taxable income last year may go without this year.
The US Delays Tax Filings
While penalties and interest will be waived during the 90-day grace period, the initial order from the IRS had kept the filing date set at April 15. According to Kevin Brady, part of the House Ways and Means Committee, “Taxpayers should file by April 15 as normal and the deferral will be applied automatically.”
Democrats lauded the delay in payment charges, but requested a longer filing term, citing hardships from the COVID-19 outbreak. Treasury Secretary Stephen Mnuchin capitulated Saturday, pushing the filing deadline to July 15.
Defining Cryptocurrency Tax Rules
The delay in payments will likely help those who owe, and particularly those who made returns on cryptocurrencies. The current climate for Bitcoin has been icy, and returns made during the past year have been largely wiped out.
Additionally, the confusion remains regarding how to file for cryptocurrency returns, as the IRS has yet to provide complete clarification on how cryptocurrencies are defined for tax purposes.
Much of the debate centers on whether cryptocurrencies like Bitcoin should be classified as ‘cash’ or ‘investments.’ While the debate continues, taxpayers will not face fines for delaying payments on returns.
Market Woes Continue
The Bitcoin market enjoyed a brief rally at the end of last week but gave up some of its gains over the weekend. Prices have since stabilized at the $6,000 level, but have remained stagnant as fears have gripped investors.
Stocks also faced difficulties, closing the worst week since October 2008 during the last financial crisis. The potential for a genuine recession continues to grow, and fear remains deeply embedded in the national psyche. Delays in tax payments could offset some of the growing costs of the shutdown.
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Cryptocurrencies Are Safe in Russia?
Cryptocurrencies have faced a confusing and difficult legal situation in Russia for some time now. Last month, BeInCrypto reported that some cryptocurrency-linked bank accounts could be frozen in the country. Cryptocurrency payments have also come under fire for undermining the Russian ruble.
The Russian Central Bank has repeatedly come out in support of a ban and remains resolutely against Bitcoin. However, it seems like enforcing such a dictate would prove to be impossible – and the Russian government outright admitted this recently.
As BeInCrypto’s Russian branch recently reported, director of the Bank of Russia’s legal department, Alexei Guznov, said that a ban is simply impossible. However, he did say that cryptocurrencies are being actively used for money laundering and illegal activities.
He also stressed that cryptocurrencies are “not money.” However, the spending of Bitcoin cannot be stopped and he said that “we are unlikely to be able to limit this.”
Russians Love Cryptocurrencies
It’s no denying that cryptocurrencies remain extremely popular in Russia. However, the opposition from the government is strange given how entangled they themselves are in the cryptocurrency world.
Last year, it was revealed by a major Bitcoin mining farm was owned by an aide of President Putin. The Russian state has also been looking at creating financial centers on the border between Russia and China, specifically for cryptocurrency trading.
So, it seems that the Russian state is more than willing to exploit cryptocurrencies for its own ends but wants to prevent its people from doing so. The good news is now they have admitted they cannot ban cryptocurrencies in the country – but this tacit admission still puts the industry in serious risk there. Still, it is good news for those who feared Bitcoin might be banned. Those fears can now be put to rest.
