Wednesday started out positive for the crypto industry as Bitcoin (BTC -2.31%) and Ethereum (ETH -3.65%) both moved sharply higher today. At 12:05 p.m. EDT, the cryptocurrencies are up 3.7% and 7.8%, respectively, over the last 24 hours.
Bit Digital (BTBT -4.43%) was one of the industry's biggest movers, rising 34.9% this morning. Shares are up 22.3% as I'm writing after a huge run higher for the stock last week. Coinbase Global (COIN -4.40%) was up as much as 3.1% and is currently 2.3% higher for the day.
A lot of the discussion this week has centered around what Congress and the Securities and Exchange Commission will do with cryptocurrencies and how that affects crypto stocks. SEC Chairman Gary Gensler said on Tuesday that he thinks cryptocurrencies are securities and should be taxed and regulated as such. That could require action by Congress to define the rules for the industry.
The first step toward regulation could come in the infrastructure bill that's making its way through Congress now. A draft released over the weekend would require "brokers" to report information about crypto transactions, which would ultimately make its way to the IRS. Recent reporting has also indicated that Congress is trying to write the rules in a narrow enough way to not capture everyone from developers to miners in the broker requirements. That could help a company like Bit Digital.
While news about regulating cryptocurrencies may seem like bad news on the surface, it's likely good news for the industry overall. Regulations give crypto a sense of legitimacy and set rules for businesses to follow. That should be good for building stable businesses long term.
Despite the wild week for cryptocurrencies and crypto stocks, I don't see any of this news as a reason to change your investment thesis. Crypto trading is likely going to be taxed, just like any securities trading, which is ultimately good because it makes the product more mainstream. And becoming mainstream is ultimately the goal of cryptocurrency.
It'll likely be a few weeks before we learn the full extent of rules that Congress is looking at, and they may not even be included in the infrastructure bill. But there does seem to be momentum in building a regulatory framework for cryptocurrencies, which is likely to help some of the biggest stocks establish their moat.
One thing to watch will be what happens to the small cryptocurrencies that may not have a critical mass of holders or be worth the regulatory burden for brokers. They may fall be the wayside, which would actually improve the legitimacy of Bitcoin and Ethereum. That could be one reason these two giant cryptocurrencies are up big today.