Dogecoin (CRYPTO:DOGE) and Ripple‘s (CRYPTO:XRP) XRP token have each dipped double digits this week, according to data from S&P Global Market Intelligence. The sell-offs might have been at least partly driven by concerns that the Securities and Exchange Commission will move to put tighter restrictions on crypto trading platforms.
Meanwhile, the shares of crypto mining specialist Bit Digital (NASDAQ:BTBT) are down roughly 1.3% at noon today due to a recent decline in the price of Bitcoin. It’s not unusual for other coins and miners to follow the movements of larger coins in the market. Bitcoin is down roughly 4.1% this week, while Ethereum is down 3.7%.
Speaking during a virtual conference on consumer fraud on Aug. 25, assistant regional SEC director Peter Diskin issued a series of warnings about fraud in the crypto space. He stated that cryptocurrency scams are currently the “flavor of the year” among financial fraudsters and that the nature of digital assets makes it difficult to recoup losses.
Diskin is hardly alone in his concerns. As noted in an article published the same day in The Washington Post, the Minneapolis Federal Reserve president stated earlier this month that “Cryptocurrency is 95% fraud, hype, noise and confusion.”
Thailand’s SEC also announced new regulations for cryptocurrency trading platforms this week, issuing a series of guidelines that included prohibiting crypto custodian platforms from lending out users’ digital assets at interest. After recent rallies, it’s not surprising that some cryptocurrency tokens and mining specialists are seeing some volatility in line with evolving regulatory concerns.
Despite plenty of volatility, 2021 has generally been a very strong year for the cryptocurrency market. What comes next is less clear. There seems to be a good chance that regulators in the U.S. and other countries will move to introduce stricter standards on cryptocurrency trading, and it’s possible that this could result in a significant sell-offs for crypto. In addition to disrupting the cryptocurrency market, new regulations could also spur major pullbacks for mining companies including Bit Digital.
On the other hand, there’s still a ton of excitement surrounding cryptocurrency, and it’s difficult to map out the substance and impacts of hypothetical regulatory moves. Investors should proceed with the understanding that cryptocurrencies and crypto mining stocks are high-risk, high-reward plays, and new regulatory developments could play a significant role in shaping performance.
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.