The cryptocurrency market continued its volatility this week, but for the time being it has been working for investors. The value of many cryptocurrencies jumped double-digits this week as investors bought riskier assets across the market.
Bitcoin (BTC -0.37%) made a big move this week, climbing 9.7%, and is up 2.7% over the last 24 hours. Ethereum (ETH -1.13%) was up as much as 3.7% in the last 24 hours as of 3:00 p.m. ET and is up 16.4% over the past week. Polkadot (DOT -1.90%) made an even bigger move, jumping as much as 10.6% in the last day and currently trading 5.9% higher than yesterday, while Solana (SOL -3.05%) rose as much as 7.2% in the last 24 hours and is currently up 2.6%.
The rise in growth stocks and the market overall has certainly helped cryptocurrency values this week, but there's something more meaningful happening in Washington D.C.
A bipartisan group of representatives introduced the Virtual Currency Tax Fairness Act in Congress, which would exempt cryptocurrency transactions under $200 from taxes. This would simplify the tax code for small transactions, which are a growing part of the cryptocurrency ecosystem.
Ethereum, Polkadot, and Solana are particularly interested in the tax code for cryptocurrency transactions because they're where most of the market's non-fungible tokens (NFTs), decentralized finance, and payment innovations are taking place. If buying coffee with cryptocurrencies, like Solana, were a taxable event it could be a burden on everyone in the U.S.
Interestingly enough, a filing this week showed that Senator Ted Cruz even bought Bitcoin recently. Members of Congress are increasingly getting bullish on cryptocurrencies as usage grows and that could help push positive policy forward.
We also got relatively strong jobs data this week, which likely means people will have more money to put into cryptocurrencies. Growing utility in the crypto ecosystem and an increasing number of users should push valuations higher long-term.
The battle over tax and regulatory policy has been ongoing for years but given the multi-trillion-dollar valuation of the cryptocurrency market lawmakers are taking more attention. What they'll have to balance is putting reasonable rules in place without ending some of the innovation that's taking place in the cryptocurrency market. Blockchains like Solana could upend the payments market with fast, low-cost transactions, which is the kind of innovation lawmakers will want to happen in the U.S.
Long-term, I'm bullish on the value cryptocurrencies will add to the market but there's a lot to shake out in the meantime. And the policy battle is just beginning. I think that means we will see more volatility and it's unclear whether that means values are going up and down short-term. This is an exciting market to watch but a risky one to invest in, no doubt.