What led to the massive drop of $8k in Bitcoin Price -Money Bites 26 Feb

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What led to the massive $8k drop in Bitcoin prices?

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Bitcoin, the largest cryptocurrency in the world had a massive single-day drop of $8k in its prices from its all-time high of close to $58k.

What’s behind the run-up of prices?

Bitcoins and other cryptocurrencies are talk of the town these days, either due to the run-up in prices, the crash from there, or the possibility of cryptocurrencies getting banned in India.

For the uninitiated, cryptocurrencies are digital or virtual currencies based on open-source software and are not controlled by any single person, company, or govt. Bitcoins can be used for payments at major companies like Wikipedia, KFC Canada, Microsoft, Burger King, etc. It is estimated that 36% of the SMEs in the US accept Bitcoins. Other popular cryptocurrencies are Dogecoin, Ethereum, Polka Dot, etc.

What happened during 2020 needs no talking. As the economies around the world plunged and doled out stimulus, the adoption of Bitcoin as a hedge against potential currency debasement (lowering the intrinsic value) grew. The value of Bitcoin touched $28k at the end of 2020 from $9.6k at the start.

In 2021, Bitcoin found support from the likes of PayPal & Tesla. While PayPal allowed the trading of Bitcoins on its platform, Tesla made an SEC filing for purchase of $1.5 billion worth of Bitcoins and said that Tesla would accept payment in Bitcoins for Tesla products. This sent Bitcoin prices through the roof touching an all-time high of close to $58k.

What led to the massive drop in prices then?

Barely two weeks after making the announcement, Elon Musk tweeted that the prices of Bitcoin and its rival Ether are rather high which led to an $8k drop in a day and wiped out $15 billion of Elon Musk’s net worth.

How does it affect you and me?

Booming crypto prices have spiked interest among Indians and retail investors are spending millions on trading cryptocurrency. Needless to say, you should be cautious about all kinds of trading. Also, there is a growing chorus among policymakers including our own RBI on developing a digital currency that will facilitate payments much like what a Bitcoin does. There is also the potential of cryptocurrency getting banned in India.

You Ask – We Answer

Can investment in all kinds of mutual funds help me in saving taxes? – Satyajit Pujari

No, investment in all kinds of mutual funds is not eligible for tax savings.

There is a special category of mutual funds called Equity Linked Savings schemes (ELSS) that invests a majority of their funds in equities and equity-related. These funds could invest across market capitalisations (large, mid-cap & small-cap), themes and sectors.

Only investment in ELSS funds can help you get Income Tax deduction under Section 80C of the Income Tax Act up to Rs 1.5 lakhs. So, effectively you can save up to Rs 46,800 (in the highest tax bracket) in taxes.

Investments in ELSS funds can be done either under SIP or a lump sum mode. However, you should also know that investments in ELSS are locked-in for three years, which means that you cannot redeem the funds before that period. You can always continue to hold your investments for a longer period beyond the mandatory period if required.

? Do you have questions on personal finance & investing? Go ahead and ask away, in the comments below. Get featured in our upcoming issues.

Fact Bite

Did you know if you were to buy 1 Bitcoin, it would cost you Rs 34.5 lakh(as of 26 Feb)

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Akshatha & Team Fisdom