What happened
Many cryptocurrencies and crypto-related stocks posted sharp price gains on Tuesday. Bitcoin ( BTC 3.96% ) and Ethereum ( ETH 3.96% ) saw 24-hour gains of 3.9% and 3.2%, respectively, at 2 p.m. ET today. Leading cryptocurrency trading service Coinbase Global ( COIN 5.24% ) held a 7.2% price increase at the same point in time, while the crypto-focused bank Silvergate Capital ( SI 8.02% ) was up 5.6%.
It’s no surprise to see the biggest names in cryptocurrency jumping today, because they were fueled by a handful of bullish news items.
Image source: Getty Image.
So what
First and foremost, cryptocurrencies took another meaningful step toward the mainstream economy. A leading government official asked the country of Malaysia to elevate cryptocurrencies into a form of legal tender.
Zahidi Zainul Abidin, Malaysia’s deputy minister of communications and multimedia, addressed the country’s parliament on Monday, asking legislators to accept Bitcoin and other digital coins in addition to the Malaysian ringgit. The government started kicking the tires of a state-backed cryptocurrency in January, but Abidin’s request could broaden that review into raising the legal status of many existing cryptocurrencies.
Malaysia could become the second nation to take this step, following El Salvador’s policy of accepting Bitcoin payments in addition to the U.S. dollar. Malaysia has a larger population and economy than El Salvador. Hence, whatever happens in Malaysia is more likely to move the needle for Bitcoin and other crypto names in the long term. That being said, Malaysia’s cryptocurrency review is still in its early stages, while El Salvador already took the Bitcoin leap.
Furthermore, Malaysia is working with the governments of Australia, Singapore, and South Africa to set up an international payment system involving digital assets issued by each country’s central bank. The panel considering this idea issued a report on Tuesday morning, saying that a prototype platform for border-crossing digital payments is “technically viable.” Similar reviews are also taking place in important markets such as Switzerland and Hong Kong.
Ethereum rode along on Bitcoin’s gains to some degree. At the same time, the smart-contract platform continued to burn tokens as it moves closer to a long-awaited technical upgrade. The next-generation Ethereum system will be faster and leaner, moving from the power-hungry proof-of-work architecture to the environmentally friendly proof-of-stake alternative, and the inflationary creation of new Ether tokens will drop by 90%. Several popular media outlets picked up on Ethereum’s progress on Monday afternoon, throwing fuel on the digital currency’s fires.
When Bitcoin and Ethereum are up, Silvergate and Coinbase are sure to follow. That’s not always the correct market reaction, since both companies are more interested in cryptocurrencies seeing high trading volumes than high coin prices, but that’s life on Wall Street. The reasons behind each price move might not always make sense in the short run, though the market tends to be a very fair system of value assessments in the long run.
Now what
Tuesday’s respectable price surge will not completely make up for the crypto market’s weakness in recent months — not by a long shot. Every security and digital coin mentioned above is still down by 27% or more since the slide began in mid-November. By comparison, the S&P 500 market index has lost only 3% of its value over the same period:
SI data by YCharts.
In other words, prices are still low, and long-term cryptocurrency bulls should see a solid buying opportunity in this long-lived market dip. You won’t even remember the single-digit gains you missed on Tuesday in the context of much greater gains in the long run.
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.
