WSJ: “Bitcoin Selloff Undermines Case for Cryptocurrencies”

After losing one-third of its value in a single week, and nearly half its value over the course of five weeks, the digital currency Bitcoin appeared to be a financial emperor with no clothes.

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Having attracted the interest of investors around the globe, garnered widespread media attention, and even claims that it could replaced gold as a store of value, Bitcoin was revealed as a fragile and volatile speculative play during the week ended Friday, May 21 when it traded as low as $33,600, down from an April high of $63,333.

The cryptocurrency plunged after Chinese media reported Chinese financial institutions and payment companies would be barred from accepting digital currencies as a means of payment or settling debts.

“Bitcoin Selloff Undermines Case for Cryptocurrencies,” screamed a headline in The Wall Street Journal. The article argued, “The fact that a government intervention like this can send values plunging undermines a key plank of the case for cryptocurrencies generally and Bitcoin specifically: that they are hedges against the capricious actions of sovereign entities.”

Adding further damage, the U.S. Treasury declared digital currencies pose a tax evasion risk, leading to a new requirement that transfers worth at least $10,000 be reported to the Internal Revenue Service.

“Bitcoin’s Claim of Rivaling Gold as Portfolio Hedge Loses Luster,” declared a Bloomberg News headline. Analyst Edward Moya of Oanda Corp. told Bloomberg the cryptocurrency’s collapse was a ”wake-up call” that Bitcoin is, “a leveraged risk-on trade and not a proper inflation hedge.”

“Bitcoin’s Claim of Rivaling Gold as Portfolio Hedge Loses Luster,” declared a Bloomberg News headline. Analyst Edward Moya of Oanda Corp. told Bloomberg the cryptocurrency’s collapse was a ”wake-up call” that Bitcoin is, “a leveraged risk-on trade and not a proper inflation hedge.

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