Why Bitcoin, Dogecoin, and Ethereum Investors Are Panicking Today - Motley Fool

What happened

Cryptocurrencies are under attack again Friday -- both inside the United States and without.

In twin reports out this morning, we learned the International Monetary Fund is not a fan of cryptocurrency -- and that the United States Congress is getting serious about taxing people's profits from investments in cryptocurrencies.

As of 9:45 a.m. EDT, the prices of several of the biggest names in cryptocurrency are tumbling:

Image source: Getty Images.

So what

On the IMF front, this multinational financial organization argues in a blog post this week that cryptocurrency is not suitable for use as a "national currency" (a step El Salvador took last month) because "in most cases risks and costs outweigh potential benefits."

Calling cryptocurrencies such as Bitcoin "extremely volatile," not good for people who need to "store value," and "unrelated to the real economy," IMF argues that crypto will not prove popular in "countries with stable inflation and exchange rates, and credible institutions." Moreover, in less secure countries, cryptocurrency as a national currency has the potential to turn "domestic prices ... highly unstable."

And of course, IMF also points out that cryptocurrency is often used to "launder ill-gotten money, fund terrorism, and evade taxes."    

And Congress seems to have taken the hint. As CoinDesk reported last night, the new bipartisan infrastructure bill that just passed a preliminary Senate vote yesterday "proposes to raise $28 billion from crypto investors" -- siphoning off cryptocurrency profits to build bridges and highways in the U.S. As CoinDesk summarizes, "any broker that transfers any digital assets would need to file a return" reporting the transaction to the IRS so that the transferor's profits can be taxed.  

Now what

Now what does all of this mean for cryptocurrency investors? I actually see both bad news and good in these reports. On the one hand, yes, the clear trend for crypto going forward appears to be for governments, and international organizations working with governments, to try to layer new reporting requirements, taxes, and other regulations on cryptocurrencies, which could diminish their attractiveness to investors and users alike.

On the other hand, I also suspect that Congress may get its hand caught in the cookie jar on this one. Once Washington becomes convinced that it can profit from taxing other people's cryptocurrency profits, it may become addicted to the new revenue stream, and afraid to see it cut off. Legislators may therefore become more inclined to regulate than ban cryptocurrencies outright.

Call it wishful thinking, or call it a silver lining -- either way, I suspect the net outcome of these regulatory efforts may be to secure a future for cryptocurrency after all.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. 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.

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